Agriculture: Post-Soviet Area’s Lone Bright Spot?

For most of the last hundred years, Russia was chronically unable to provide its citizens with sufficiently high quality or quantity of foodstuff. All the “heroic efforts” of the Soviet people culmi­nated in the fact that during 1980–1985, the Union of Soviet Socialist Republics (USSR) was forced to import more than 30 mil­lion metric tons of grain annually, with a peak of 35.5 million tons in 1984–1985 (Cia.gov, September 1984). The economic crisis of the 1990s, however, had a mixed effect on Russian agriculture: On the one hand, it provoked a deep dip in volumes (grain producti­on fell from 106.6 million tons in 1985 to a mere 47.8 million tons in 1998, and the number of bovine cattle dropped from 59.6 million animals to just 28.5 million du­­ring the same period (National Economy of the USSR in 1985: A Sta­tistical Yearbook, Moscow: 1986, pp. 209, 237; Gks.ru, accessed November 13, 2017). But on the other hand, prices for agricultural goods inc­reased, allowing the sector to develop under new market conditions.

In the early 2000s, after the devastating devaluation of 1998–1999 (with the dollar rising from 6.4 to 30.7 to the ruble), imported foodstuffs were largely driven out of the domestic market. At the same time, Russian producers drastically decreased their production costs, allowing their exports to rise to a remarkable 7.1 million tons of all types of grain in 2001/2002, for the first time in more than 70 years (RIA Novosti, August 5, 2010). It bears pointing out that a similar trend was recorded throughout the post-Soviet space, although it has been limited almost exclusively to plant farming and not so much to animal bre­eding (except for the poultry industry).

In recent months, Russia has emerged as the world’s largest exporter of grain (the prospective figures for 2017/2018 are currently estimated at 35 million–37 million tons (Vedomosti, June 29, 2017). Ukrainian exports are not far behind, at 34 million–35 million tons (Elevatorist.com, April 20). Kazakhstan occupies seventh place worldwide, with 9 milli­on tons (EurAsia Daily, October 13). Moreover, Ukraine has become the world leader in both the production of sunflower seeds and in the ex­port of sunflower oil; it holds third place globally in the ex­port of barley, and fourth in corn exports (Businessviews.com.ua, October 17, 2016). These are, indeed, notable achie­ve­ments, and they have even raised international concerns about Russia’s newfound ability to dominate the global market (Reuters, November 3). And yet, one should not overestimate Russia’s agricultural revival.

Three main points bear pointing out. First, even though crop production has risen steadily from 67.0 million tons in 2003 (Newsruss.ru, accessed November 13) to 135.8 million tons in 2017 (Fontanka.ru, November 7), the Russian (and Ukrainian) wheat is of much lower quality than the crop grown in the United States or the European Union. In part, this is due to climate factors, but also because of the ext­remely low use of fertilizers and a lack of modern production techniques on Russian farms. Therefore, the vast majority of Russia’s annual harvest goes to peripheral markets, such as Egypt, Turkey, Iran or Indonesia—and the same goes for the Ukrainian crop (Grainboard.ru, December 29, 2016). Thus, while Russian exports may compete with the highly subsidized US and EU grain on the global scale, they cannot be considered equal adversaries in developed markets.

Second, Russia has failed to properly develop its animal breeding industry; there­fore, enduring export expansion in this sector is unlikely to materialize. In 2016, animal products accounted for 11.2 percent of Russia’s agricultural exports (excluding fish and seafood) (Newsruss.ru, accessed November 13), and 13.4 percent of Ukraine’s (Biz.liga.net, April 27). Meanwhile, the figure for Fra­nce exceeded 40 percent (Nationsencyclopedia.com, accessed November 13). Indeed, both in Russia and Ukraine, grain exports are on the rise in part due to the fact that additio­nally produced crops are not absorbed by the domestic cattle and poultry breeding indust­ries (the number of cattle has declined in Russia every year since the early 2000s, presently reaching historic lows of 18.7 million animals) (Gks.ru, accessed November 13). Each of the post-Soviet republics remains a net importer of beef, milk, cheese and high-margin processed foods of every possible kind—and this will not likely change anytime soon.

Third, the meteoric rise of the Russian agriculture and food-processing sectors started after the government introduced its “counter sanctions” against the West, banning imports of agricultural products from the EU, US, Canada, Aust­ralia, New Zealand and Japan (Kremlin.ru, August 6, 2014). But this policy ca­me with a serious cost: a tremendous decline in the quality of many products due to the sudden lack of competition. By the end of 2015, even official experts found that 78.3 percent of cheese (Interfax, October 1, 2015) and around 25 percent of other dairy products available in Russia appeared to be, in one way or another, falsified (Newsru.com, February 29, 2016). Facing de­creasing consumer demand, domestic producers have opted for any available cost-saving substitutes for traditional ingredients: Russian imports of cheap palm oil, often now added to diary products and confectionary, skyrocketed by 2.1 times from 2012 to 2016 (Rossiyskaya Gazeta, March 21, 2017). This has made the Russian Federation the world’s largest importer of palm oil since March 2015 (Vesti, June 18, 2015). Therefore, Russia is unlikely to emerge as a high-quality foodstuff exporter any time soon.

Without a doubt, Russia and other post-Soviet states have experienced a dramatic U-turn in their agricultural sectors. For the first time in a century, these countries are actually self-sufficient in certain types of food. Agriculture now accou­n­ts for 6.5 percent of GDP and 6.0 percent of exports in the Russian Federation (Gks.ru, accessed November 13; Customs.ru, February 9). Even more impressively, the farming sector makes up 12.1 percent of GDP and 37.9 percent of exports in Ukraine (Ukrstat.gov.ua, accessed November 13). As such, agriculture is and will remain a solid engine for growth in Russia and across the post-Soviet space. But in former Soviet countries, this sector nevertheless continues to lack the complexity and global competitiveness that distinguishes agricultural enterprise in the West.