This year Russia collected a record grain harvest. A total of 132 million tons of grain were harvested this season. As the experts note, that’s going to be the best result for 100 years, and in fact, for the entire history of the country.
In recent years, there has been a real grain boom. In the past season, Russian agriculture companies managed to harvest 120 million tons of grain. Although in 2015 the harvest did not exceed more than 104 million tons. However, bumper crops have a downside.
The thing is that giant harvests require a large amount of infrastructure: grain storage facilities, machinery for sowing operations, transport and logistics support. And Russia faces some lack of such infrastructure. Especially when the harvest beats another record. According to the estimates of Russian Grain Union, in 2016 the capacity of storage facilities was about 118 million tons. This year, as already noted, the gross harvest reached 132 million tons. That is obviously beyond the capacity of storages.
In addition to the shortage of warehouse facilities, the grain losses are also significant. According to the Ministry of Agriculture, due to a shortage of machinery, companies lose about 10-15 million tons of grain annually. Also, according to experts, with the domestic consumption at around 65-70 million tons and exports near 35 million tons, the annual surplus of grain in Russia is about 10 million tons. And this year the extra amount will be around 20-25 million tons of grain. It is half of the gross Ukrainian harvest, which is 50 million tons this year.
At the same time, export of grain surpluses is not the most effective way to gain economic benefits. An attempt to sell 30 or even 40 million tons of grain to the world market will drop the prices. Indeed, huge harvests in Russia, United States, and Ukraine have already led to a price decline. For example, wheat futures continue to fluctuate around seven-year lows. According to Nasdaq on 8 of November wheat price was $4.26 per bushel, although back in 2013 prices reached $9 per bushel.
Besides, further development of GMO technologies may cause even a greater drop in market prices, as these technologies can reduce the expenses of grain production by 40%.
Obviously, in a situation of growing abundance, the efficiency of Russian grain exports is declining. That will force grain traders to dump the prices and the state to subsidize railway tariffs. This fact explains the urgent need to create biotech facilities for processing the surpluses of crops.
The Value of Grain
As world experience shows, grain is a valuable resource of chemical and biological components with high added value. Such as production of starch, glucose, syrups, sweeteners, vitamins, feed additives and biofuel. All these products are in great demand in the food, agricultural and industrial sector. And what is important, the biotech segment has tremendous potential for further growth. It is estimated that the volume of the world biotechnology market will grow up to $60bn by 2020.
Back in the 70-80s in Europe and the United States, overproduction of grain was rather typical. The chronic surplus led business to the idea that mastering technologically advanced processing of grain would be way more effective: the output volume of bioproducts can be precisely controlled and sold at a higher price. For comparison: one ton of grain can be sold for about $160, a ton of biofuel can fetch $375. The difference is obvious. That explains the desire of many countries to develop biotech nowadays.
Today, in the situation of global overstocking of agricultural products, many countries are actively developing such technologies. For example, among the leaders in the production of biodiesel such as the United States and Germany, there are developing countries like Brazil, Indonesia, and Argentina. Or, for instance, the USA and some EU countries share top market positions in the production of sweeteners along with growing China. And this sweet product is highly demanded in most countries of the world.
For Russia, the participation in the world biotechnological trend plays a strategic role. For example, domestic livestock production is critically dependent on foreign feed additives. According to UN Comtrade, in 2016 imports of amino acids used in animal feed have doubled in comparison with 2010. And in the context of ruble devaluation, the purchase of various components from abroad increases the market prices of domestic meat products. Therefore, import substitution in this segment will allow to reduce costs and stimulate consumer demand.
The importance of biotechnology implementation cannot be overestimated. Russian president Vladimir Putin, speaking in July 2017, had put biotech on a par with artificial intelligence and digital technologies. On the one hand, biotech is an effective method against price downturns and overproduction, on the other hand, such technologies can help to develop various branches of industry.