KANSAS CITY, MISSOURI, US — The 2025 Russian winter grain harvest is forecast to be the worst in 23 years. Unfavorable weather conditions are partly to blame, but more signs point toward the onset of a systemic crisis in the grain industry. 

The share of winter crops in poor conditions is estimated to be close to 38%, ProZerno, a Moscow, Russia-based think tank, reported, citing data from the Hydrometeorological Center. Only 31% of crops are in good condition, against 74% a year ago.  

“It has never been this bad before,” ProZerno analysts claimed. 

Russian officials attribute the grain industry’s current predicament to severe weather abnormalities, particularly the summer-autumn drought. In some Russian regions, there was no rain from April to October, a situation that has not occurred in recent memory. The drought was preceded by May frosts, which affected roughly one-third of Russian agricultural land and cost the country around 10% of the summer harvest.  However, the challenges go beyond just weather. 

The Russian Grain Union (RGU) believes that the unfavorable weather takes attention away from the real problem, which is a sharp technological decline in the Russian grain industry. 

“Every time there is turmoil on the market, everyone cites bad weather,” said Arkady Zlochevsky, president of the RGU.

Several factors are expected to hurt Russian grain production next year, virtually all of which are man-made. One factor is that Russian farmers suffer from a lack of high-quality seeds on the market. 

The Russian Grain Union (RGU) believes that the unfavorable weather takes attention away from the real problem, which is a sharp technological decline in the Russian grain industry. 

In January 2024, the Russian government imposed an import quota on seeds from countries deemed unfriendly. Although Western seeds are still available in the country, the move dealt a heavy blow to the Russian grain industry. 

“I went to different farms, looking at the fields sown with (seeds of) foreign genetics and our domestic seeds,” Zlochevsky said. “It is clear to the naked eye that domestic ones are losing in terms of yield and productivity.” 

Moreover, the import quotas fell in the hands of only companies that have never been engaged in seed imports to the country, Zlochevsky admitted. 

Such a situation brings risks of price manipulation. As a result, grain seed prices soared in Russia across the board in 2024. For example, rapeseed prices jumped by 32% during the past 12 months to 36,900 rubles ($370) per tonne in July 2024. 

In recent years, the level of the Russian grain industry’s technology has gradually worsened, a dangerous trend that has a cumulative effect. 

According to the RGU, the technological level started deteriorating in 2021 when the Russian government introduced an export duty on grain. However, relatively good weather conditions in 2022 and 2023 lessened the impact of this problem. 

In 2024, nothing dramatic happened with the weather, Zlochevsky pointed out.  

“Return frosts are nothing new and occur in May at least once every five years,” he said. “Regional droughts are also far from uncommon, but the impact of these events was much stronger this time because farmers began to spare money on technologies.” 

Russian farmers are refraining from investing in new equipment and machines, citing uncertain economic conditions and high borrowing costs. 

During the first 10 months of 2024, sales of agricultural machinery in Russia dropped by 16.5% to 167.5 billion rubles ($1.6 billion), the Russian Association of Agricultural Equipment Manufacturers Rosspetsmash reported. Exports also declined by 10% to 14.1 billion rubles ($140 million). 

Rosspetsmash complained that dealers’ warehouses are filled with both imported and locally manufactured equipment. The Russian Central Bank’s decision to jack up the key interest rate to 21% during the recent board meeting in October 2024 made commercial loans virtually unaffordable for Russian farmers. 

Consequently, Russian production of grain harvesters dropped by 18% and tractors by nearly a quarter in 2024, Rosspetsmash calculated. 

Even before the current crisis, the technology level of the Russian grain industry was relatively low, said Anatoly Nesmiyan, a Russian publicist. The number of tractors in the country per hectare of agricultural land was twice as low compared with Belarus and far below the level of developed countries. The issue is expected to get more pressing over time. 

“The poor mechanization level aside from the immediate impact on production also hurts soil quality, which starts degrading fast,” Nesmiyan said. 

In addition, the Russian grain industry sustained a sharp drop in business profitability. 

The Russian Agricultural Ministry estimated the average profitability in the grain industry is at a relatively comfortable 17%, but grain farmers believe this figure has nothing to do with reality, as they have experienced a significant drop in profitability in recent years. 

According to the RGU, the average business profitability in the sector plunged to 4.9% in 2024 from 27.8% in 2020. Wheat production, which generated a record profitability of 32.5% in 2020, appeared to be loss-making this year. 

The Russian Agricultural Ministry estimated the average profitability in the grain industry is at a relatively comfortable 17%, but grain farmers believe this figure has nothing to do with reality, as they have experienced a significant drop in profitability in recent years. 

Weak business profitability is the key factor driving the industry’s declining performance. 

“In an effort to reduce costs, farmers resorted to simplifying technologies,” said Alexander Korbut, an independent Russian grain industry analyst. 

In addition to relying on older machinery, farmers cut the use of fertilizers and plant protection agents and switched to cheaper, lower-quality seeds. 

“Plants grown using simplified technologies were less resistant to extreme weather conditions,” Korbut said, explaining the gloomy forecast for the 2025 winter harvest. 

The Russian grain industry has entered a vicious circle, where low profitability drives a drop in investments and effectiveness, which puts additional pressure on profitability, analysts said. 

“The profitability in the grain sector is not suitable, and there are no prospects for its increase in the near future,” said Alexander Nezhenets, a spokesperson for the Russian grain company Progress. 

With dark clouds forming above the Russian grain industry, it’s difficult to see a silver lining. The Russian Central Bank signaled its intention to push the key interest rate even higher during a board meeting at the end of December, to at least 23%. Beginning in 2025, Russian grain firms will be subject to 25% corporate tax, compared to 20% in the previous years, as the Russian government struggles to help the strained federal budget.   Production costs are expected to rise across the board. 

In a bid to mitigate losses, Russian farmers are switching to alternative crops. In 2024, wheat planted area declined by 1.2 million hectares, while the popularity of chickpeas and lentils — unusual options for Russian grain farmers — jumped by 68%. 

However, Korbut said this solution could work only to a certain extent, meaning that Russian farmers could not massively switch to alternative crops due to a lack of demand. 

Still, falling effectiveness and dwindling profitability are not the only key factors wreaking havoc on the Russian grain industry. When asked about the most pressing issue, over half of Russian businesses pointed to a shortage of workers. 

In a bid to mitigate losses, Russian farmers are switching to alternative crops. In 2024, wheat planted area declined by 1.2 million hectares, while the popularity of chickpeas and lentils — unusual options for Russian grain farmers — jumped by 68%. 

The Russian grain industry has been among the economic segments wrestling with a persistent labor shortage for the last three years. 

“It is impossible to hire people to work in the field,” commented a farmer from the Voronezh region in Central Russia who wished to stay anonymous. “Filling all vacancies has become nearly impossible these days.”

The farmer, who also owns a livestock farm, said he is considering selling all assets after spending nearly 25 years as a producer, as running an agricultural business becomes increasingly difficult while the achieved revenue level no longer justifies the efforts. 

During the last year, he raised wages to over 100,000 rubles ($1,000), a figure that used to be unimaginable for the Russian countryside only a few years back. However, some of his workers opted to move to the region’s capital, where they could earn 120,000 rubles ($1,200) as couriers. 

Heavy recruitment by the armed forces and defense industries also has drawn workers away from civilian enterprises, as has emigration, pushing unemployment in Russia to a record low of 2.3%, according to official government information. 

Some farms in Russia said they have only 70% of the required staff. Recent calculations by local recruitment agencies show a historic peak in job vacancies, with one applicant on average per five vacancies in the labor market. 

The labor shortage is projected to get worse. Each year, the Russian population in the 20-65 age group shrinks by about 1 million.