Grain Becoming Russia’s Tacit Weapon in Confrontation With the West

Publication: Eurasia Daily Monitor Volume: 21 Issue: 78

(Source: US State Department)

Executive Summary:

  • Moscow is pushing for BRICS to collaborate more actively in the grain trade to undermine the West’s ability to influence critical decisions, such as suppliers of grain.
  • The strategy continues to target Ukraine, one of the world’s leading 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 issues these countries face, including famine in Africa.

Since February 2022, Russia’s grain industry has struggled to meet its returns on investment and has faced problems selling supplies abroad. Increasing the role of BRICS (a loose political-economic grouping originally consisting 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 creating a BRICS grain exchange (Interfax.ru, March 5). This came as a response to the formal request of Eduard Zernin, chair of the Russian Union of Grain Exporters, at 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 compelled to act as price takers, while Western companies and trading platforms make all the 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 prevent 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 (the United States) in charge of international operations. Today, they argue that these realities seem outdated and warrant drastic changes, as the BRICS countries represent up to 40 percent of the worldwide grain trade (M24.ru, April 11). Some Russian analysts openly state that the US and Western rules of the international grain trade only benefit the so-called “golden billion”—a conspiracy theory that argues the top billion people in the world are hoarding the Earth’s resources while the rest of the globe is left to suffer. These commentators argue that the current grain order should be dismantled by the collective efforts of non-Western countries (RIA Novosti, April 11).

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

Simultaneously, Russia is actively using disinformation to exploit intra-EU tensions to bar Ukrainian grain from entering the EU market. Russian propagandists openly call to deepen the rift between the Hungarian, Polish, and Slovak agricultural industries, on one side, and Ukraine, on the other (see EDM, June 19, September 27, 2023; RG.ru, April 17). In effect, despite various sanctions, restrictions, and disruptions in trade, the amount of Russian grain sold to the European Union in 2023 increased ten times, reaching 180,000 tons and making Russia the fourth-largest grain exporter to the 27-member bloc. Its exports, however, are still incomparable to Ukraine’s, which is the lead exporter of grain to the European Union, at 1.2 million tons (RBC, December 2, 2023)

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

Russia is also funneling more of its grain primarily to the countries in the Global South. After Moscow’s full-scale invasion of Ukraine and the ensuing sanctions, Russian grain exports to Algeria grew six-fold. Exports to Saudi Arabia grew by 3.2 times. A significant share of grain exports went to Egypt (22.5 percent of overall sales) and Türkiye (19.3 percent). Notably, adverse climate conditions and bad harvests pushed some countries, including Brazil and Mexico, to increase their imports of Russian grain (Finmarket.ru, July 5, 2023; Interfax, September 5, 2023).

Food exports (and fertilizers) are one of Russia’s best advantages in dealing with the economically unstable countries of the Global South, especially in Sub-Saharan Africa. After February 2022, both African experts and international organizations, such as the United Nations, were terrified that Russian and Ukrainian foodstuffs and fertilizers would not reach the African continent in a timely manner (African Development and Bank Group, May 20, 2022). Russia is constantly exploiting the issue of potential famine in Africa as a means to apply pressure on the European Union, hinting that a possible famine could lead to a migration crisis and widespread destabilization in Europe.

Russia’s intentions to increase its role in the global grain trade has led Moscow to expedite the process of increasing the role of BRICS in global operations. Two major factors are driving this approach. First, while Russia’s grain exports are reportedly increasing, it is unclear whether revenues are growing proportionally. Russian sources have claimed that the average return on equity for grain production has been progressively diminishing over time. For instance, in 2021, returns stood at 63.4 percent, but, by 2023, they had sunk to 28.1 percent. This slump was caused by a range of factors, including sanctions (which have increased the costs of foreign-produced machinery and spare parts) and growing 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 (while the market price was $245). Reportedly, this resulted in the fallout of an Egypt-Russian deal for the sale of 480,000 tons of grain when Cairo refused to buy overpriced Russian grain and opted instead for French grain (RBC, September 21, 2023). In effect, negative comments about the growing problems Russia’s agricultural industry faces have become commonplace. Alexander Yaroshenko, head of the agricultural holding “Ural-Don”, among others, has said that if this situation continues for the next four years, Russia should forget about remaining a top global grain exporter (Zerno.ru, October 3, 2023). Overall, Moscow is trying to speed up grain cooperation among the BRICS countries to sustain mounting 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 fertilizer, which play to Russia’s comparative advantage, Moscow seeks to realign the global financial system and international trade. Russian experts claim that 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 Novosti, April 11).