A new leader emerges in global wheat exporting

by Morton Sosland
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Hardly any development defines the dynamic nature of the global wheat trade more dramatically than realizing that the countries comprising the Former Soviet Union rank as the world’s leading wheat exporter in 2008-09. Even though projections early in the year had pointed to the likely F.S.U. dominance, this possibility seemed so contrary to historical experience that it was not appreciated, particularly in grain-based foods. After all, it was only a decade before that F.S.U. imports exceeded the takings of any other buyer to the point that its demand was a powerful force in wheat and flour prices. To have that position transformed to the point that this same group of nations now plays the nearly identical price-dominating role as the top exporter of wheat is to describe an unprecedented turnabout.

According to the Foreign Agricultural Service of the U.S. Department of Agriculture, the nations of the F.S.U. moved 31.8 million tonnes of wheat to foreign markets in 2008-09. That accounted for a quarter of global exports of 127 million tonnes. It was a new record in exports for the F.S.U., with the past season’s outgo up by slightly more than 50 per cent from the prior year’s 21.9 million. It is interesting that the F.S.U. record in wheat imports was 21 million tonnes in 1991-92.

While the F.S.U. capturing the No. 1 position is certainly significant, sight must not be lost of the fact that, as a result, 2008-09 is the first year in modern history that the United States does not stand as the wheat leader. America’s exports of wheat in 2008-09 were 26.5 million tonnes, down 22 per cent from the peak of the prior year and accounting for a 21 per cent share of the total. The latter share was four percentage points behind the F.S.U. In 2007-08, the United States accounted for 30 per cent of trade, which was normal.

In considering this race for wheat exporting leadership, it is important to recognize that the F.S.U. is a "former" single nation and that its present-day constituent countries strongly declare independence, especially from Russia, its largest and most assertive member. Except for the central role of Black Sea ports in moving most of these exports, the F.S.U. nations have nothing in common in export marketing. The move into the lead in 2008-09 reflected record shipments by Russia, at 16 million tonnes, and by Ukraine, 10 million. Achieving that record followed crop peaks in both countries, with the 2008 wheat harvest in Russia up 29 per cent and Ukraine’s nearly double 2007. Kazakhstan, which has been the world’s leading exporter of wheat flour for several years, is the only country in the F.S.U. to experience reduced wheat exports due to a crop shortfall.

The F.S.U. lead in global wheat exports reflected not just record production, but also large amounts of low quality grain to meet expanded global feed wheat demand. Very aggressive pricing was pursued by export merchants who allowed the large crop to drive down domestic prices. Low freight costs to nearby markets in the Middle East helped.

It is a mistake, as tempting as it may be in light of many other issues, to believe that Russia’s and the F.S.U.’s emergence as a force in wheat exporting does not have the Kremlin’s attention. With the record of 2008-09 nearing its close, Russian President Dmitry Medvedev issued a directive to create a new government-controlled OAO United Grain Company that would, within three years, account for at least half of the country’s grain exports. Put into the new company are 31 grain storage and processing facilities. In addition, Mr. Medvedev has charged the new company with expanding grain exports and building the needed domestic infrastructure. Having achieved records in the past crop year without this sort of directive, Russia and the F.S.U. now loom as a powerful presence in global exporting and also in wheat prices.

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