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Russia grain output below domestic need for years
Reuters
MOSCOW, Oct 30 - A SovEcon study has shown that Russia's domestic grain demand is likely to exceed production in the next five to seven years despite widespread belief that Russia will become a major grain exporter in the medium-to-long term.
Large-scale exports will be possible only in exceptionally good harvesting years. However, Russian grain output seems to continue to fluctuate widely from year to year with average production lagging behind steady growth in domestic demand.
The view that Russia will become a stable, large-scale grain exporter in the medium term is mainly based on the fact that Russia has about 12 percent of the world's arable land, but only about 2.5 percent of its population.
This belief has been reinforced by unusually good harvests in 2001 and 2002 and by a record level of exports in 2001/02 (7.2 million tonnes) and good export prospects in this season.
Russia's agriculture ministry officials have said Russia could be exporting 10-12 million tonnes per year by 2007, and could increase exports to 14-16 million tonnes by 2010.
Those plans are based on an optimistic assumption of a further growth in grain output and also fail to take sufficient account of the domestic demand.
Despite high grain output in 2001 and 2002, the average 1998-2002 output stood at just 68.4 million tonnes, compared with 80.3 million tonnes in 1993-1997 and 97.4 million tonnes in 1988-1992.
An ample domestic supply in 2001/02 and 2002/03 mostly reflects a sharp decline in domestic demand in the 1990s, mainly for feed grains, caused by a severe depression in the livestock sector.
Grain demand from the livestock sector bottomed out at about 30.5 million tones in 1999-2000, roughly 40 percent of the level of the early 1990s.
Officials also point to the potential for a significant extension of the area sown to grain in Russia, which declined steadily in the 1990s.
However, those possibilities are also limited - the main constraint on the expansion of grain area is the rapid shrinkage of the country's agricultural machinery inventories and the rapid ageing of the machinery that remains in service.
Between 1990 and 2000, the tractor park shrank from over 1.36 million to just under 747,000, while the number of grain harvesters fell from 407,800 to 198,700.
About 57 percent of tractors and combines in service are more than ten years old, and only six percent are less than six years old.
At the same time, yields will continue to depend to an exceptional degree on the weather.
Demand for mineral fertilisers remains at about one-quarter of the 1990-1991 levels - 20 kg per hectare compared with 80 kg at the end of the Soviet period.
Given those factors, SovEcon projects that the average grain output in the next five years is likely to be at around 75 million tonnes -- better than in 1998-2002, but still below the levels of the early to mid-1990s, with fluctuations from 65 million tonnes to 95 million tonnes.
At the same time, the post-1998 economic recovery has brought a certain progress in the livestock sector.
Poultry numbers over the last few years have been growing at about 15 percent a year, and pig inventories have been rising by about six to seven percent a year.
As a result, domestic demand for feed grain has been growing steadily at a range of four to six percent annually since 2000.
Russia's real GDP growth is expected to average four to five percent a year over the next five years, rising to around five to six percent at the end of the decade.
This could lead to a 30-percent rise in the household incomes and as a result to a three percent annual demand growth in livestock products.
Aggregate demand for feed grain is thus likely to grow by 3.5-5.0 percent a year over the next five years, to 45 million tonnes in 2007-2008 from 36.5 million tonnes expected in 2002/03 season.
Assuming no change in other components of domestic grain demand, this points to a total domestic requirement of around 83-85 million tonnes in 2007/08.
In order to maintain exports at 10-12 million tonnes a year, Russia will need to steadily produce 93-97 million tonnes per year, which we think, is highly unlikely.
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