To reach this goal, Tkachev said the government will not only need to heavily invest in transportation infrastructure and encourage farmers to use more fertilizer, but also to expand the use of agricultural lands through new areas in Siberia and the far eastern part of the country.
“Over recent decades, Russia has increased grain production by one-third — in absolute terms it is about 30 million tonnes — which could be compared with the increase in annual grain exports from Russia,” Tkachev said earlier this year at meeting on the state of affairs in Russian agriculture. “We believe that our country has the strength to do it again. Use of intensive technologies for increasing yields and productivity may also allow the country to double its returns, making this business more profitable.”
Forecasts from the Russian Agricultural Ministry made in 2015 suggest that wheat production may increase from 52.3 million tonnes in 2015 to 67.9 million tonnes in 2025. Barley production is expected to jump from 18.3 million tonnes to 21.9 million tonnes, while corn is expected to increase from 11.6 million to 19.3 million tonnes. Russia’s total grain production by 2025 is expected to increase to 112 million tonnes. This is significantly lower than Tkachev’s personal forecast of 130 million tonnes.
This forecast suggests that Russia should reach 140 million tonnes in grain production by 2030, when corn production (25.8 million tonnes) is expected to eclipse barley production (24.2 million tonnes) for the first time. Wheat production by 2030 is anticipated to be close to 80 million tonnes.
“Available grain resources on the domestic market will increase domestic demand from the current 70 million tonnes to nearly 85 million tonnes by 2025,” Tkachev said. “We expect exports to reach 40 million tonnes, while at least 15 million tonnes we will keep in our state reserve and intervention fund, so in the case of any force majeure we can easily eliminate any panic on the market and avoid sharp prices fluctuations.”
The ministry expects yields to increase over this 15-year time period. Wheat yields are expected to rise from 2.29 tonnes per hectare (t/ha) in 2015 to 2.74 t/ha by 2025 and 3.04 by 2030. Barley yield is expected to rise from 2.12 t/ha in 2015 to 2.55 in 2025 and 2.83 in 2030. Corn yields are forecast to increase from 4.52 t/ha to 5.48 in 2025 and 6.11 in 2030.
“Only increasing the yield by 3 tonnes per hectare in Russia may increase overall grain production by 15 million tonnes,” Tkachev said. “This will give the country additional income from the sale of grain in the amount of 150 billion rubles ($2 billion). While passing this grain through the livestock industry we will bring this figure to 200 billion rubles ($2.8 billion).”
Focus on fertilizers
Russian authorities believe increasing the use of mineral fertilizers is the key to increasing grain production in the coming years. Russia annually produces 18 to 20 million tonnes of fertilizers, supplying only 15%, or 3 million tonnes, to the domestic grain industry. The Agricultural Ministry has set a goal to bring this figure to 8-10 million tonnes by 2030, boosting the volume of used fertilizers per hectare from 33-34 kg to about 100 kg.
According to Russian Agricultural Ministry data, even if this goal is reached, the country will still be using less fertilizer than Europe, which uses about 250 kg/ha, Belarus with 180, or China, at 400. Use of fertilizers in different Russian regions varies considerably. In Central Russia, farmers on average use 60 kg of fertilizers per hectare, in Siberia 7, while farmers in the southern federal district use 50. Meanwhile, 10%-15% of all grain in the country is produced without any fertilizer applications.
The issue of mineral fertilizers in early 2016 has attracted the attention of Russian President Vladimir Putin, who suggested the government should consider placing an export duty on these products. According to Putin, such a measure would constrain the rise of prices on the domestic market and encourage domestic grain producers to use more fertilizers.
Shortly after this, however, Head of the Russian Ministry of Industry and Trade Denis Manturov and Deputy Head of Federal Antimonopoly Service (FAS) Andrei Tsiganov spoke against this initiative, claiming that it may hurt fertilizer manufacturers and force them to raise prices for domestic manufacturers. Tsiganov also pointed out that the use of fertilizers in Russia was already growing at a record pace.
“In the first two months of this year the use of mineral fertilizers in the country jumped by 161,000 tonnes. In January-February of 2015, it was 425,400 tonnes, while in the same period of 2016 it reached 586,400 tonnes,” he said, citing the data of the Russian State Statistical Service.
At the same time, the state still can support grain manufacturers, as they currently have a number of disputes with fertilizer producers. Sources in the government say that authorities are considering restricting the possible rise of prices at no more than 5% per month. Meanwhile, the Russian Grain Union (RGU) also complains that suppliers of complex mineral fertilizers refuse to sell these products in the inter-season period, and that the FAS should deal with this serious problem.
“Manufacturers of complex mineral fertilizers delayed delivery of these products to farmers in the inter-season period, on the expectations of rising prices for fertilizers from the beginning of the planting season,” said RGU Chief Executive Officer Arkady Zlochevskiy. “It is impossible to purchase complex fertilizers now, and we know that during inter-season prices are lowest.”
Representatives of FAS have already promised to deal with this situation. Zlochevskiy, meanwhile, also noted that prices for most complex fertilizers are rising significantly. For example, the price for ammophos rose by 24% in recent months, while the price for ammophoska rose by 14%. With the beginning of the planting season, they will grow further, and producers have complained about the presence of a cartel agreement on the market.
“Last year prices rose by 40%, and this year they have risen already by 20%. Manufacturers of fertilizers are monopolists, raising prices referring to the exchange rate of the Russian ruble. When farmers complain to the Agricultural Ministry, authorities freeze the price at the peak for a while, claiming that grain producers should be happy about that,” said Pavel Grudinin, director of the agricultural company Sovhoz.
More agricultural land
Another challenge is to expand the current area for grain production from 36.5 million hectares to 46.5 million hectares over the next decade. Russian Agricultural Ministry forecasts say that until 2025, the area for grain production may be increased by only 1 million to 1.5 million hectares, while Tkachev estimated that this figure may be increased several times.
“Another possible way of growth is the involvement into agricultural activity of vacant land. According to our estimates, there are about 10 million hectares that could potentially be involved in agricultural turnover. Russia today introduces some new land into grain production, but its paces are not enough, and with such paces finally there will be forest on these lands. However, the introduction of 1 million hectares requires an additional 5,000 tractors and combines which in turn require intensive technical re-equipment of companies,” he said.
At the same time, the implementation of this task will not be easy, since Siberia and the far eastern part of Russia are poorly developed and populated. According to official statistical data, the main agricultural areas of Central Russia have a population density of 46 people per square kilometer, while in Siberia and the far east it stands at 2 people per square kilometer. Most of them live in areas where agricultural activity already takes place, while in new areas density may just be 0.4-0.5 people per square kilometer.
“This problem could be solved with the free transfer of land in private ownership to Russian internal immigrants on the condition of their development and processing. In other words, this would be a U.S. model of the Wild West. It will attract part of the Russian population from Central Russia, as well as from the northeastern regions of Siberia. To organize and support the resettlement, it may require some special concessional lending programs,” said Andrey Makarov, spokesperson from Russian National Research University— Higher School of Economics.
“In addition, it is clear that changes are necessary in the transport infrastructure as well. Today, if we would grow a large grain harvest in the Siberian Federal District, then some sort of apocalypse would happen. This harvest would be impossible to remove from the region. As a result, prices would fall, so most producers would go bankrupt. In the far east, we have 32 seaports, but none have grain terminals,” Zlochevsky said. To reach the far eastern ports, grain produced in southern Siberia must cover a distance of at least 5,000 kilometers. Without a national program with some state subsidies and investments into infrastructure, grain production never would be launched here, he said.
