Russia is increasing its attempts to tighten control of its vital grains industry, which could give it greater power in the field of exports, at a time when concerns are growing about global supply, according to Bloomberg, in a report on Sunday.
Last year, major Western players, including Cargill and Viterra, withdrew from Russia after government pressure to make way for local companies.
Now, even the country’s largest grain player is finding it difficult to operate amid a dispute with the state, putting the market in the hands of fewer companies, some of which have or had ties to the Kremlin.
Greater influence
The consolidation process began after the outbreak of the Russia-Ukraine war, leaving only 4 companies responsible for 3-quarters of grain exports from Russian Black Sea terminals.
According to Bloomberg, this gives Russia more influence over wheat supplies, which were key to taming inflation in global food prices, and it also makes it difficult for foreign traders to know grain flows there, at a time when bad weather is harming the country’s wheat crop and raising market concerns.
The economic agency quoted – from the head of the consulting company Aggressors, based in Chicago, the United States – that Russia has real desires to control basic commodities, and its influence on grains is increasing.
Russia’s natural gas industry has always been under government control, while the state and Putin’s closest allies have been able to control a large portion of oil production since he came to power, and the country now rules over grain.
Cargill, Viterra and Louis-Dreyfus, companies that were previously among the top 10 exporters, stopped sourcing grains from Russia for export last year.
But the dispute with TD Rev highlights the extent to which private Russian exporters are under pressure from the government. The company, which recently changed its name to Rodney Polya, has helped Moscow establish itself as an agricultural powerhouse, but now faces a threat to its business.
Longtime owner Peter Khodykin told Lenta.ru in March that the company’s shipments had been unfairly blocked by the agricultural regulator for not meeting safety requirements, and that he had been pressured to sell the company.
Many of the people who used to buy from the company’s export partners said they had not been active in the market since March, and the company’s export loads in April fell by nearly 40% from the previous year, according to shipping data from Logistic OS. It takes from two weeks to a few months after an agreement is signed to load the grain onto ships.
Government objectives
Since the outbreak of the Ukrainian war, Moscow has increasingly targeted assets owned by local business tycoons and some foreign corporate units, from a pasta producer to the Russian subsidiary of French yoghurt maker Danone, either for nationalization or possible sale to a company favored by the Kremlin. It also took control of the assets of an agricultural holding company because it targets “unfriendly” countries, according to the official Russian expression.
Bloomberg quoted Andrei Kolesnikov, a senior fellow at the Carnegie Endowment for International Peace in Moscow, saying, “The trend toward more stringent policies and conservative ideology is inevitably accompanied by enhanced state intervention in the economy… and the state has become politically untouchable and the main player in the economy.”
While Western traders still buy goods from Russian ports, obtaining information about things like crop sizes and conditions, inventories and exports is more difficult since they have restricted business there.
This may become a bigger concern as harvest setbacks leave Russia with less wheat to export.
Problems ranging from drought to frost have prompted analysts to significantly cut Russian production estimates, helping wheat futures reach their highest levels since July 2023 and stoking concerns about rising food prices. The International Grains Council expects Russia’s wheat production to decline by about 6% this year.
Assessing things like the impact of frost is one of the challenges facing the USDA, which issues global crop forecasts and no longer has staff on the ground in Russia, meaning it relies more on satellite images that may not capture the damage.
Uncertainty
Not having people there “adds a bit of uncertainty,” said Mark Jekanowski, head of the USDA’s World Agricultural Outlook Council.
The Russian government occasionally publishes harvest forecasts, while independent local consultants conduct crop tours and regularly publish production estimates, which the market closely monitors.
While record wheat prices have risen over the past two months, they are still about 50% below the record level set in 2022 when the war disrupted flows through the Black Sea.
In addition, better prospects for US crops could limit supply concerns.
The main question – according to Bloomberg – is how Russia’s tightening control over grains will affect the global market, as it is already trying to implement an unofficial minimum price for its crops, and stronger control over the grain sector will make it easier for the government to influence supplies.
According to the agency, there is no evidence that Russia is significantly disrupting its supplies, and a large portion of its grain exports go to countries with which it has good political relations.
The four largest Russian traders now control 75% of exports from Black Sea terminals, up from 45% six years ago, according to Dmitry Rylko, director of the Moscow-based Ikar consulting company.
