Last year's world top three grain exporter Russia has seen its ambitious export plans thwarted by catastrophic drought but will regain its footing in traditional markets, analysts say, even as rivals exploit its export ban. Its main spearhead in satisfying traditional markets in North Africa and the Middle East and carving out new markets in Asia will be price competitiveness.
Russia, which has not imported grain in large quantities for about a decade, is estimated by some to need grain imports of up to 5 million tonnes this year, a body blow to a nation keen on becoming a dominant exporter.
"First of all, we must restore an exportable surplus, which does not appear to be easy under current circumstances," Dmitry Rylko, director of the Institute for Agricultural Market studies analytical centre, said.
"When we restore the surplus, which will definitely take place sooner or later. We will gradually re-establish our relations with all the key buyers."
Rylko said that if Russia offered competitive prices, which it has done in previous years, the customers would come back.
Egypt, the world's biggest wheat importer, and a key purchaser of Russian grain, has been disappointed by Russia's export ban which runs from mid-August to the end of the year and is intended to conserve stocks and head off inflation.
Egypt said on August 17 it had bought 360,000 tonnes of wheat from Russia's exporting arch-enemy France, since the export ban began, and neighbouring buyers are increasingly turning to other rivals including Germany, Canada and the United States.
Jordan, for example, has bought 200,000 tonnes of German wheat this month, while Lebanon bought 50,000 tonnes of wheat from the United States and optional US, Canadian or German origin, citing disruption from the Russian export ban.
"A temporary suspension of Russian exports does not mean a complete loss of those markets," Andrei Sizov Sr., CEO of SovEcon agricultural analysts, said. "The Russian grain will be in demand on those markets as it is cheap and competitive and its quality is rather good."
International grain futures prices hit two year highs early in August, doubling from June lows as the extent of Russia's drought unfolded. Russia's worst drought in a century is estimated to have cut the country's grain crop by a quarter, a big setback after bumper harvests in 2008 and 2009.
"The bad 2010 crop will definitely pour some cold water on the ambitious grain export plans of Russian politicians," SovEcon's Sizov said.
"It is very likely that politically motivated but economically infeasible declarations on the need to create an "eastern corridor" to the markets of Japan, China and the like will be forgotten until the next abundant crop."
The abundant bumper 2008 crop of 108 million tonnes prompted Russia to announce an ambitious plan to raise production by 50 percent in the next 15 years and to double grain exports to 40-50 million tonnes.
The major driving force behind the plan was the state grain trader, United Grain Company, which aimed to become Russia's top exporter by shipping 16 million tonnes of grain by 2015 from an exportable surplus forecast to reach 40 million tonnes.
UGC and its strategic partner, the Russian grain transport company, estimated infrastructure development by 2015 would require around $3.3 billion. To build new grain terminals and to upgrade the existing ones alone, some $800 million will be needed, they estimated.
Moscow has also announced plans to increase exports to South East Asia and to win new markets such as China and Japan. Asia should become a key market for Russian grain, lobby group the Russian Grain Union has said. It had expected grain shipments to Asia to triple or quadruple to between 1.5 million and 2.0 million tonnes by 2012, from an estimated 500,000 tonnes in 2009.
Russia's market comeback, while seen probable, will be difficult to predict, however, even as rains push into some parched areas making winter wheat planting for harvesting in 2011 a little easier.
First deputy Prime Minister Viktor Zubkov has said the drought may cut the area to be sown with winter grains for the 2011 crop by one third to 12 million hectares, so farmers will have to sow an extra 6 million hectares with spring grains.
Sizov said investments in agriculture in the last two years have been declining and therefore a production level of 100 million tonnes a year, let alone the targeted 150 million tonnes, is unlikely anytime soon.
"Currently we can only say that if Russia harvests 75-80 million tonnes, this will be a big achievement," he said. Russia's total grain crop this year is officially expected to reach 60-65 million tonnes, although some see it struggling to get above 60 million this year, way down from last year's 97 million tonne crop.
Exports, if they restart next year, would be relatively low, up to 10 million tonnes. The carryover stocks will fall drastically and will not support intensive exports as in the previous two years and in July this year.
Sizov said that although Russia may put some infrastructure plans on hold it will be still developing infrastructure in the south of the country - the gateway to "large and stable markets like Egypt, Turkey, Syria."
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