According to the latest USDA report, for the first time in history, wheat production in Russia will exceed that of the United States for crop year 2009-2010: 61 700 million tons compared to 60 314 for the Americans. Crossing this threshold, which used to be an aspect of rivalry between the USSR and the United States during the Cold War, is not as anecdotal as it seems.
At the end of the Cold War, the former USSR completely abandoned its productive agriculture, to such a point that in 1998, after two bad harvests, it was forced to call for emergency food aid from the European Union amounting to 400 million euros. Incredible for a country that possesses more than 180 million hectares of agricultural land or 9% of the world’s farmland.
But recent years have seen a complete turnaround in Moscow’s political leaders, who, (re)gaining conscience of the strategic importance of agriculture, have decided to make it a political priority and make to Russia an important agricultural power capable of influencing markets.
In 2005, President Putin made agriculture one of the country’s pillars for development, notably releasing more than 13 billion euros to develop a credit system for farmers. But it is his successor, President Medvedev, who decided to make it a strategic asset in its own right. In his last speech, he stressed his desire to make Russia a great agricultural power, with two objectives: to become internally self-sufficient and to influence export markets externally.
Even if Russia still has a long way to go to reforming its cattle, decimated during the Soviet era (it produces only 5% of milk and 2% of meat in the world), the gamble on cereals is about to be won. From 45 million tons produced in the 1990s to more than 100 million in 2009, Russia is indeed not far from the ranks of leading world producers, and is already the fourth largest producer of wheat
1. One thing is certain in any event: with more than 60 000 million tons of wheat produced, Russia has already become a major player on international wheat markets; to the point of winning the Egyptian market, a major importer of wheat and a traditional preserve for Europeans and Americans.
In the short term, the Russian government believes they can produce 112 to 115 million tons of wheat per year just by improving cultivation techniques for wheat and by raising the yield to 24 quintals per hectare.
But what will happen when Russia develops its infrastructure (currently very deficient), in which the government has invested between 50 and 100 million dollars? What will happen when Russia reintroduces the 20 million hectares of chernozem, the black very oily and very fertile earth to production? What will happen if the countries of the Former USSR around the Black Sea (especially Ukraine and Kazakhstan), which possess the most fertile land in the world, decided to rebuild a post-Soviet wheat cartel? What will happen if global warming frees-up more land for agricultural production, notably in Siberia (a scenario considered very seriously in Moscow)?
One thing is certain: a major, competitive and massive agricultural power is emerging and the target set by the Kremlin in terms of export could not be clearer: 20% of world market in the next 10-15 years. According to some experts, in the event of a cereal pool being created in the Black Sea region, the market share of such a trade coalition could reach 30-35% of the world market...
So what can be done? With 1 billion people hungry worldwide and population growth leading to a world population of 9 billion by 2050, one can only welcome this new agricultural potential. Nevertheless, the emergence of an agricultural power of such magnitude will be a major challenge for producers worldwide, notably Europe. Because Russia will win critical market share, and will be able to direct international agricultural markets.
Food is not a game, wrote recently the chief momagri economist Bertrand Munier in a recent article on hedge funds
2 ; this is why, without wishing to undermine market laws, but on the contrary to ensure market equilibrium, it is now more than ever necessary to establish a Global Governance of Food and Agriculture.
The regulatory tools developed by momagri support this objective: define a global framework for production and trade to regulate agriculture and food worldwide.
1 Currently, the EU is the world's largest producer of wheat, with 138 million tons, followed by China (114 million) and India (80 million).
2 See momagri, "Hedge Funds: food is not a game," May 10, 2010