Grain by grain resistance to sanctions by Russian agricultural products
The growth of grain exports from Russian ports is forecasted to continue: the country’s supplies to foreign markets totaled 45.2 million tonnes in 2022 and may reach 60 million tonnes by 2024-2025. However, the sanctions have changed this market considerably, both in terms of geography of supplies and in terms of new priorities set by the shippers.
Are you a friend of mine?
As Anton Karmazin, deputy head of Russian veterinary and phytosanitary watchdog Rosselkhoznadzor, said at the Second Russian Grain Forum, the number of countries importing Russia’s agricultural products decreased by 29 in 2022-2023 and now totals 112.
Those who have left are gradually replaced with new markets where Russia had not been present for a long time: Vietnam, Indonesia, Iraq, Oman, Jordan, Eritrea. Some countries have significantly increased the volumes of imports. For example, exports to Brazil increased 18 times to 515,000 tonnes, to Mexico – 8 times to 475,000 tonnes, to Algeria and Pakistan – 5 times to 2 million tonnes and 1.9 million tonnes, respectively.
The key direction of Russia’s exports is still the Middle East with shipments in the season of 2022-2023 having totaled 23.8 million tonnes followed by the countries of Africa (15.3 million tonnes) and Asia (12.6 million tonnes).
“The key consumers of Russian grain are still the same. These are Turkey, Egypt, the countries of North Africa and the Middle East. At the same time, it was possible to achieve a significant increase in supplies to some countries. This is a fourfold increase in supplies to Algeria (+1.5 million tonnes), a twofold increase in Bangladesh (+800 thousand tonnes) and Sudan (+700 thousand tonnes). In some cases, trade relations have developed negatively. Exports to Nigeria have decreased due to the difficulty in payments,” said Alexey Gribanov, General Director of Demetra-Holding.
Russian Railways report the surge of grain exports exceeding 85%. The company says the geography of supplies has expanded and the dynamics on the key directions has increased.
“Our traditional deliveries are to African countries, but supplies to Central Asia are also growing very well. Transportation to Azerbaijan has increased by half, to Kyrgyzstan - by 56%. Everything is actually involved today: both the approaches to the ports and our railway checkpoints. At the same time, we keep the trend - we work mainly with friendly countries which account for over 93% of the traffic,” said Aleksey Shilo, Deputy General Director of Russian Railways.
Grain flowing southwards
The Azov-Black Sea Basin accounts for virtually 90% of agricultural products shipments from ports. According to the Federal Marine and River Transport Agency (Rosmorrechflot), 41 million tonnes of grain was shipped from the ABS basin ports in 2022. Shipments from the ports of the Baltic Basin slightly exceeded 2 million tonnes, from the Caspian ports — 1.4 million tonnes, from the Far East ports — 0.4 million tonnes.
Most of the dedicated grain facilities are located in the Azov-Black Sea Basin. Throughput capacity of grain terminals exceeds 63 million tonnes (the total capacity in Russia in 2022 — 72 million tonnes).
“In the Baltic basin it is 5.4 million tonnes, in the Caspian basin — 3.2 million tonnes. Slight volumes can be handled in the Far East. I emphasize that I speak of specialized facilities while we know that universal terminals also handle grain products,” said Zakhary Djioyev, head of Rosmorrechflot.
New grain projects in the North-West region of the country, in the ports of Ust-Luga and Vysotsk, will increase the capacity by over 11 million tonnes, The terminal in Taman has a design capacity of 14 million tonnes. The capacity of the dedicated facilities will also grow in the Caspian region. Rosmorrechflot expects the latter direction to become the second busiest one, after the Azov-Black Sea Basin, in 7-8 years.
According to Alexey Gribanov, General Director of Demetra-Holding, logistics within Russia was among the problems last year. The key export facilities were overloaded due to a record-high harvest.
“In the south, the situation is extremely tense. We work not only with record volumes of grain, but also, for example, with the passenger flows. This year, the number of passenger trains on the North Caucasian Railway is higher by one third. We understand that the 125 million tonnes of carrying capacity that we ennsured two years ago on the approaches to the ports of the Azov-Black Sea Basin is not enough at all today. We have a special programme for the development of production facilities. With it we plan to reach 131 million tonnes by 2025. There is an instruction from the Government, and we are working on it actively, to ensure further expansion of the capacity to 150 million tonnes,” said Alexey Shilo, Deputy General Director of Russian Railways.
The reconstruction of the Tikhoretskaya station was completed in the end of April thus making it possible to redistribute the flows within the North Caucasian Railway. Meanwhile, the diversification of supplies remains an important area of work.
“As of today, North-South ITC is not the most popular route for grain cargo. But I want to say that the volumes are growing quite seriously here. We can deliver 19 million tonnes of cargo to the Caspian ports. (…) As for other directions, particularly to the North-West, we saw a certain decline of traffic last year. This year has reversed all the most negative expectations in this respect. The volume of traffic to the North-West ports is growing. Underway is the implementation of investment projects including those to expand the infrastructure from 145 million tonnes to 156 million tonnes,” explained Alexey Shilo.
$500 million for insurance
In 2022, companies supplying export grain faced several blocks of problems caused by sanctions. Because of this, in the first half of the year, the indicators for many sank significantly. A number of issues have been resolved, but there are still some difficulties. Alexey Gribanov, General Director of Demetra-Holding, draws attention to the lack of the necessary infrastructure in the sales markets, which, in the face of reduced fleet availability and rising freight costs, leads to additional financial costs.
“One of the solutions is to foresee investments, for example, in the maritime component, in the fleet. And in the sales market infrastructure. Why is it worth investing in the sales market infrastructure? We see that our ships wait for unloading for a very long time, and this cannot but finally affects the cost of our products,” Alexey Gribanov explained, specifying that investments in infrastructure of the countries in North Africa, Asia and the Middle East will let Russian companies to strengthen their positions in the grain market.
As for the chartering of ships, it is still slightly more expensive than before. This is due to the additional insurance premium for the entry into the area of increased risks in the Black Sea ports."
“The premium is from 1% to 1.5% a vessel’s insured value. In our practice, the cost of insurance can be up to half a million dollars for one vessel if it stays in this area for a long time. We consider it necessary to look into a mechanism for compensation of insurance costs, or to use some other insurance instruments. For example, to create a separate reinsurance company for the Russian agricultural sector,” said the General Director of Demetra-Holding.
However, the Ministry of Agriculture of the Russian Federation is skeptical about the idea of a reinsurance company, explaining that Western countries can impose sanctions against it at any time, and the problem will not be solved.
Own fleet is in priority
Russia’s Ministry of Agriculture is ready to support the exporters in creation of their own fleets. United Grain Company (UGC) has announced its plans to order about 14 grain carriers by 2030.
“In view of the current situation, we have revised our priorities. This question had never been on earlier, but today we certainly want to create our own fleet. Rosagroleasing has ordered technical documentation for the development of ships, it will take 6-7 months. After that, we will see the cost of construction and the support to be provided by the state will provide. If everything is satisfactory we want to order about 14 vessels by 2030,” Dmitry Sergeyev, General Director of UGC, said at the Russian Grain Forum.
As Rosmorrechflot head Zakhary Djioyev explained at the forum, the need for an additional fleet to transport agricultural products is estimated at about 62 units.
“We speak about large and mid-size ships. As for their number, it is almost the same: some 30 units of Panamax ships (50-60 thousand tonnes in capacity) and a similar number of Handysize and Handymax ships (30-40 thousand tonnes)," said Zakhary Djioyev.
According to him, USC and other Russian shipyards give priority to such ships in their shipbuilding programmes. Panamax ships are in the first place since thy are more technologically challenging. Production of Handysize ships is easier and most shipyards can undertake their production.
From fall to records
In the first half of 2022, the results of many exporters sank but in the second half of the year many of them achieved record high results.
“This is most clearly seen from our main asset, the Novorossiysk Grain Plant, which started to increase shipments in September 2022. What’s more, by December 2022 and by the beginning of 2023, it even showed the record high result - about 720-750 thousand tonnes per month,” said Dmitry Sergeyev, General Director of UGC.
|As for 2023, grain handling in the Azov-Black Sea Basin has doubled over the four months: from 9.3 million tonnes in 2022 to almost 21 million tonnes this year. In January-April, Russia’s grain exports via all seaports totaled 22.4 million tonnes.|
“The Baltic region also shows growth, although much more modest, about 3%. In the Caspian region, the growth is essential, almost 60%, which is an important achievement for this basin. And the Far East has grown by about 80%, but a relatively low base should be taken into account,” explained Zakhary Djioyev.
According to Rosselkhoznadzor, the key growth drivers were processed products (wheat flour, rapeseed cake, soybean meal) and niche crops (soybeans). Russian Railways says the same.
“Previously, the railways carried mostly wheat, now wheat and grain make up about 70%. The share of oilseeds begins to surge. We see a big increase in shipments of soybeans and peas to China. They are quite new groups of cargo for the railway,” said Alexey Shilo, Deputy General Director of Russian Railways.
Speaking generally about the prospects for exporting 60 million tonnes of grain by 2024-2025, this goal looks quite realistic. Russia trades mainly with the countries where population is growing continuesly, so the supply of agricultural products from outside remains in demand. With for the port facilities, including those under construction, there should not be any problems with exports. As for the fleet, the situation is more challenging. Dmitry Patrushev, Minister of Agriculture of the Russian Federation, said at the forum that Russia’s first own grain carrier would be built in late 2025, the earliest. After all, one should not forget that Russian shipyards are now loaded with other orders. Investments in infrastructure and the fleet was not paid little attention and not by all companies. And now, it’s high time that w undertake something.