International Grain War

Ahmad El-Sayed El-Naggar: International Grain War

  • 22 June 2009

Russia emerged as a major and durable player in the international food grain market about seven years ago, following its rather marginal presence earlier when it was even reduced to the status of a food grain importer. According to recent Russian estimates, the country’s food grain exports rose to about 20 million tons in the agricultural year ending in June 2009. This figure has placed Russia in the fourth position among the largest exporters of food grains in the world—just behind the United States, the European Union and Canada. This change has given a new dimension to the erstwhile competition in the international food grain market, and Russia’s growing ambition to play a bigger role in the international food grain market has clearly developed fresh competition and rivalry between it and other major food grain exporters.

Naturally, this rivalry is being played out in the important food grain importing states, such as Arab countries. In addition, food grain exporting countries are busy formulating policies for enhancing their competitive edge by providing greater financial assistance to their farmers, by promoting factors of agricultural production, and by buying crops from their farmers at higher prices than the international market price.

The Egyptian market is one of the leading wheat importers in the world, and it has had to bear the brunt of this rivalry among wheat exporters. One such example has been the controversy surrounding Russian wheat. It was recently alleged that Russian wheat was unsuitable for human consumption as there was a supposedly high quantity of seeds and pests in the produce. This controversy became so fierce that questions were raised in Egyptian parliament in this regard. The Russian response was quick, as it rejected shipments of Egyptian agricultural exports to Russia as an apparently punitive measure and claimed that its exported wheat fully complied with the highest international specifications and standards. It also asserted that its wheat was exported to over 50 countries and that even its wheat for cattle fodder conformed to the highest international specifications. It went further by claiming that if wheat importing countries use its exported cattle fodder wheat for human consumption then it was their problem, as there was nothing wrong with Russian wheat.

There are strong doubts that importers of US wheat were behind any campaign against Russian wheat in Egypt, which is the most important wheat importer in the world. It is important to note here that Egyptian wheat imports from Russia have increased in recent years to the tune of two to three million tons. This has led to a dramatic fall in the import of US wheat from around 60% of the total Egyptian wheat import to less than 25% of it. Vince Peterson, vice president of overseas operations with the US Wheat Associates recently admitted that US wheat exports to Egypt fell this year due to fierce competition from Black Sea countries, implying Russia and the Ukraine. After US wheat exports to Egypt fell to less than 2 million tons last year, Russia took the lead over the United States in Egyptian market. It is also strange to note that at the peak of the crisis over Russian exports to Egypt, Moscow reached a long-term agreement for the export of Russian wheat to Egypt in the month of June.

Russia has tried to play a coordinating role between food grain exporters by calling for the establishment of an organization of food grain exporting countries, similar to OPEC. Again in June, it also hosted a world food grain forum in Saint Petersburg (earlier known as Leningrad). However, noticeable Russian ambition to play a bigger role in the international food grain market is troubling the United States and other major exporting countries. This makes the establishment of the proposed cartel a difficult proposition as countries with conflicting interests may refrain from becoming part of this organization. It would also be difficult to reconcile the ambitions of all players towards gaining a larger share in the international food grain market.

Russian President declared at the forum that his country was capable of becoming one of the main players in ensuring world food security. He indicated that his country intended to invest and cultivate and vast expanse of land that has been left abandoned since 1991. He also said that Russia was seeking to enlarge the geographical spread of its food grain market. The Russian President expressed his displeasure at the fact that his country only had a 5%share of the international food grain market, which does not accord with the reality that Russia possesses around 40% of unexploited cultivable land, which had a highly fertile black soil. It also possesses around 41% of the world’s reserved agricultural land that is fit for agricultural use. The Russian minister of agriculture had previously stated that his country—along with Kazakhstan and Ukraine—could increase its share in the international food grain market to 25%, which would be three times its current share. The nature of weather in Russia, Ukraine and Kazakhstan does not allow these countries to increase their corn and rice exports, therefore these ambitious states would look to expand their international food grain market by focusing on wheat, barley and cattle fodder. Thus, they would eat into the larger share of the US, European and Canadian exports in the international food grain market, especially in the wheat and barley market. Maybe it is in the interest of the global food security that this Russian trend increases, so that importing countries safeguard their needs at reasonable prices due to competition among exporters. One could also expect that Russia would not increase its bio-fuel production, as Russia will probably not use its food grains for the production of organic energy.

With increased competition in the international market, the advantages of geographical proximity have played an important part in defining international trade relations in the food grain sector. The geographical factor does not favor the United States as it is far from the main consumption centers in the Arab homeland and Asia, particularly when compared to other exporters like Russia, the European Union, Australia, Ukraine and Kazakhstan. Thus, the United States has to support its farmers a lot more to allow them to compete in those markets, even by artificial means. With increase in oil prices and a subsequent rise in transportation costs, the United States is finding it more challenging to offset competition in distant markets, and may have to raises the agricultural subsidies that would out more burden on its burgeoning budget. For this reason, the drop in oil prices since the onset of the international financial and economic crisis has encouraged the United States to enter other new markets like Algeria and Morocco that have traditionally depended on importing wheat from France and Europe in general. Import its hard wheat needs from Canada. Morocco and Algeria are currently among the top largest wheat importing countries in the world.

In addition to the clash among food grain exporting countries in importing markets, there is also rivalry between food grain exporters and importers that plan to evolve a self-sufficiency program in food grains. The major food grain exporters often resort to lowering the price of their produce to push the price of food grain production in developing countries relatively higher and less competitive than the price of food grain exporting countries. This undermines the efforts of developing countries seeking to pursue self-sufficiency programs, and their dependence on the import of food grains from the international markets continues. After a while, these food grain exporting countries start raising the price of grains until it reaches unbearable levels for the developing and food grain importing countries forcing them to reconsider developing self sufficiency programs. An international consensus needs to be developed to tackle such corrupt tactics. This can be achieved by keeping the prices of food grains that the farmer sells to the state at the highest level in the international markets, even if this means that the state would have to lose the opportunity of importing food grain from abroad at lower prices. This would promote and enhance food security levels in local production.