September in Russia: what’s to be done with 75 million tons of wheat?5 min read
Last year, Covid-related shortages of everything from hand sanitizer to canned tomatoes reminded the world that, for all their depth and sophistication, supply chains are fragile things. As economic uncertainty lingers and global food prices continue to rise, Russia may be on the cusp of restoring its 19th-century legacy as the world’s breadbasket, particularly for the commodity-strapped developing world. But how much is all that wheat actually worth in this day and age? And can an agricultural boom really reshape the Russian economy?
With corruption, capital flight, and years of Western sanctions all taking their toll, Vladimir Putin’s presidency hasn’t consistently delivered for the Russian economy. But while Putin has failed to make Russia rich, he has achieved national self-sufficiency across a variety of industries. With the fall of the USSR, Russian food output collapsed and the country began to rely on imports from abroad. After years of sinking into dependency on foreign food imports, particularly from the United States, Russia reversed this trend to become a net wheat exporter by 2001 and a net exporter of agricultural goods in general by 2017. In the same year, Russia surpassed Canada and the US to become the world’s top wheat exporter, a position it has held since then. This year’s wheat harvest is expected to top 75 million tons.
Many large developing countries from Egypt to Bangladesh now rely on Russia for large shares of their wheat imports. Worryingly for them, but perhaps good for Russia, many of these countries may face a kind of a food security ‘scissor effect’: unpredictable supplies as climate change disrupts domestic harvests, and rising demand due to growing populations and increased urbanization. This pattern of increased demand coupled with reduced supply is likely to lead to markedly higher prices for staple goods. Having favorable access to a large, growing wheat market like Russia’s might be worth a lot for the leaders, and the citizens, of such countries by giving them an important sense of (food) security in an uncertain world. According to the Financial Times, some analysts are already predicting a new era of Russian “wheat diplomacy” across Africa, the Middle East, and South Asia. Pundits are quick to recall 19th-century Russia’s role as the world’s primary wheat exporter, an era when it fed the rapidly industrializing cities of Western and Central Europe.
Yet today, for all this enthusiasm, agricultural goods only make up around 10% of Russia’s total exports, and wheat only about 1.5% of that total. In effect, everything instead revolves around oil and gas, with these two commodities consistently making up 40-50% of Russia’s exports. Wheat exports may be on the rise, but with oil prices also rising and the Nord Stream II pipeline set to come online in the near future, they won’t displace oil or gas in importance any time soon.
Even if wheat is only a small part of its overall export mix, Russia seems to have perceived the potential power in dominating the market for a staple commodity that billions of people around the world simply cannot do without. The government has set an ambitious target of doubling production of durum by 2025, a variety of wheat used in pasta. And with food prices consistently on the rise in recent years, wheat and other agricultural commodities could perhaps become key exports and help Russia to diversify away from its over-reliance on energy. This is a nice idea: the image of Russia as a vast, bountiful agricultural champion is certainly more appealing than that of a country continuing to rely on polluting, climate-warming gas and oil, declining heavy industry, or ethically problematic exports of weapons and other military hardware.
If only it were all so simple. But when we look at the world’s wealthiest nations, we find that few of them can properly be called agricultural specialists. We instead see things like oil, electronics or automobiles at the hearts of most of the rich, export-oriented economies (e.g. Japan, Germany, United Arab Emirates), and high levels of economic diversification across all of the most successful large economies. And where we do find farmers raking in the big bucks, it’s mostly in specialized, high-end goods – think wine and cheese from France or Italy, rather than bulk commodities like wheat or rice. It’s no coincidence that when Russia was Europe’s 19th-century grain powerhouse, it was also among its very poorest countries. Can Russia really make wheat exports part of the foundation of a competitive, 21st-century economy? The answer is, very likely not.
The typical developmental path shared by countries around the world has been characterized by successive waves, beginning with low-income, agriculturally-oriented societies, moving to medium-income, industrial systems, then finally to high-income, service-based, diversified modern economies. There is simply no precedent for an industrialized country like Russia successfully reverting to an agricultural model while maintaining a favorable income level. Ukraine, too, has recently been enthusiastic about increased agriculturalization and rising food exports to the EU. But in both cases, the reliance on exports of basic goods like wheat and sunflower oil mostly speaks to the lack of clear alternatives and decay of their Soviet-era industrial heritage than it does to the real possibility of a bright new agrarian future. Both countries also face severe demographic problems and will struggle to come up with all the fit, young, low-wage workers that running an agricultural economy demands.
So it isn’t a bad thing that Russia has ended up with all this wheat. Its surpluses have coincided with years of poor harvests and rising demand across the developing world. Russians can take pride in the fact that much of their produce ends up going to those who need it most. But, for now, the idea of Russia rebuilding itself into a food power is not a viable strategy, unless Russians are eager to return to the underdevelopment and grueling rural conditions of their pre-industrial history. It’s important to see the government’s grandiose agricultural ambitions for what they are – mostly a distraction from the fact that it ultimately has no plan for how to get the economy growing again.