Grains become Russia’s tacit weapon against the West

Executive Summary:

  • Moscow is pushing for the BRICS to collaborate more actively on grain trade to undermine the West’s ability to influence critical decisions, such as those of grain suppliers.
  • The strategy continues to target Ukraine, one of the world’s top grain exporters, and seeks to strengthen economic ties between Russia and non-Western countries.
  • Russia is targeting China and developing countries in the Global South to expand its grain trade and exploit the problems these countries face, including famine in Africa.

Since February 2022, Russia’s grain industry has struggled to achieve a return on its investment and faced problems selling supplies abroad. Increase the role of the BRICS (a flexible political-economic grouping originally composed of Brazil, Russia, India, China and South Africa) in the grain trade, however, could help ease Moscow’s frustrations. In early March, Russian President Vladimir Putin enthusiastically supported the creation of a BRICS grain exchange (Interfax.ru, March 5th). This came in response to the formal request of Eduard Zernin, president of the Russian Union of Grain Exporters, by the end of 2023. That union accounts for almost 80 percent of Russian grain exports. In his formal letter, Zernin complained that BRICS countries are forced to act as price takers, while Western companies and trading platforms make all critical decisions (Kommersant.ru, December 29, 2023). Moscow’s use of grain as a tacit weapon is an aim to place itself in a dominant position on the global stage to avoid further degradation of its economy due to its war in Ukraine.

Russian experts increasingly complain that the global grain trade established after World War II (when the United States was the leader in agricultural trade) put the Chicago Mercantile Exchange in charge of operations. international. Today, they argue that these realities seem outdated and justify drastic changes, as the BRICS countries account for up to 40 percent of global grain trade (M24.ru, April 11). Some Russian analysts openly claim that American and Western rules on international grain trade only benefit the so-called “golden billion,” a conspiracy theory that the world’s top billion people are hoarding resources. of the Earth, while the rest of the world is left to suffer. These commentators argue that the current grain order should be dismantled through the collective efforts of non-Western countries (RIA NovostiApril 11).

Sanctions and restrictions resulting from Russia’s war against Ukraine have forced the Kremlin to look for ways to sustain war spending and bolster domestic grain producers. Moscow is employing several tactical approaches with food, particularly grains, to increase geopolitical pressure. For example, Russia seeks to undermine Ukraine’s role as a key global supplier of grains and related commodities (see EDM, July 24, September 7th, 2023). The Kremlin has two main strategies to curb kyiv’s exports: occupy Ukraine and spread disinformation. The occupied regions of Ukraine represent some of the most fertile lands in the country. Russian forces and puppet regimes are terrorizing the local population and obstructing their ability to harvest grain. If Russia manages to hold onto these territories, it could take control of up to 30 percent of the world’s grain flow (erythrocytes January 21st).

At the same time, Russia is actively using disinformation to exploit tensions within the EU and prevent Ukrainian grain from entering the EU market. Russian propagandists openly call for deepening the gap between the Hungarian, Polish and Slovak agricultural industries, on the one hand, and Ukraine, on the other (see EDM, 19th of June, September 27th2023; RG.ru, April 17th). Indeed, despite various sanctions, restrictions and interruptions in trade, the amount of Russian grain sold to the European Union in 2023 increased tenfold, reaching 180,000 tons and making Russia the fourth largest grain exporter to the bloc. of 27 members. However, its exports remain incomparable with those of Ukraine, which is the main grain exporter to the European Union, with 1.2 million tonnes (erythrocytesDecember 2, 2023)

Moscow sees grain as a key element in strengthening its partnership with Beijing. In the first quarter of 2024, Russia emerged as one of China’s top grain suppliers, earning record revenues of $125 million, a 1.7-fold increase from the previous year (Alta.ru, April 23rd). Chinese demand for food imports is high and a steady, uninterrupted supply of Russian agricultural products remains crucial. Grain trade is beginning to be a fundamental pillar of the Sino-Russian partnership and is one of the few products in which China does not have an advantage over Russia..

Russia is also channeling more of its grain primarily to countries in the Global South. After Moscow’s full-scale invasion of Ukraine and the resulting sanctions, Russian grain exports to Algeria increased six-fold. Exports to Saudi Arabia grew 3.2 times. A significant portion of cereal exports went to Egypt (22.5 percent of total sales) and Türkiye (19.3 percent). In particular, adverse weather conditions and poor harvests pushed some countries, including Brazil and Mexico, to increase their imports of Russian grains (finmarket.ru, July 5, 2023; InterfaceSeptember 5, 2023).

Food (and fertilizer) exports are one of Russia’s best assets in dealing with economically unstable countries in the Global South, especially in sub-Saharan Africa. After February 2022, both African experts and international organizations such as the United Nations feared that Russian and Ukrainian food and fertilizer would not reach the African continent in time (African Development Group and World Bank, May 20, 2022). Russia constantly exploits the issue of possible famine in Africa as a means of putting pressure on the European Union, suggesting that a possible famine could lead to a migration crisis and widespread destabilization in Europe.

Russia’s intentions to increase its role in global grain trade have led Moscow to accelerate the process of increasing the BRICS’ role in global operations. Two main factors are driving this approach. First, while Russia’s grain exports are reported to be increasing, it is unclear whether income is growing proportionately. Russian sources have stated that the average return on capital from grain production has been progressively declining over time. For example, in 2021, returns were 63.4 percent, but, by 2023, they had sunk to 28.1 percent. This drop was caused by a variety of factors, including sanctions (which have increased the costs of foreign-produced machinery and parts) and rising wages and salaries in Russia’s agricultural industry (Morvesti.ru, October 12, 2023).

Second, Russia continues to face problems selling and transporting its grain abroad. To maximize profits, in September 2023, the Russian Ministry of Agriculture “recommended” that Russia not sell its grain for less than $270 per ton (when the market price was $245). This reportedly resulted in the fallout from a deal between Egypt and Russia for the sale of 480,000 tons of grain when Cairo refused to buy overpriced Russian grain and opted instead for French grain (erythrocytes, September 21, 2023). In fact, negative comments about the growing problems facing the Russian agricultural industry have become common. Alexander Yaroshenko, director of the agricultural holding “Ural-Don”, among others, stated that if this situation continues for the next four years, Russia should forget about remaining one of the world’s leading grain exporters (Zerno.ru, October 3, 2023). Overall, Moscow is trying to accelerate grain cooperation among the BRICS countries to sustain rising war expenses, prop up domestic grain producers and remain a dominant player in the international market.

The Kremlin’s obsessive desire to change the so-called “rules-based order” has found a new dimension. Using grain and fertilizers, which favor Russia’s comparative advantage, Moscow seeks to realign the global financial system and international trade. Russian experts say the first step in this direction will be to empower the BRICS countries and compromise the West’s ability to make critical decisions, including about suppliers, in the global grain trade. (RIA NovostiApril 11).