Grain over barriers – Newspaper Kommersant No. 64 (7509) dated 04/13/2023

The Eurasian Development Bank has prepared two scenarios for the agricultural sector of the EAEU countries: target and inertial. The first is linked to the harmonization of the union’s internal market and the removal of obstacles hindering the development of trade. Under this scenario, food exports from the EAEU in value terms will almost double by 2035. With an inertial path that does not involve actively solving existing problems, the indicators of the agro-industrial complex will also improve, but not so significantly. For Russia, the target scenario, which means greater freedom of movement of agricultural products in the union, can be considered uncontested because of its problems with the sale of grain and the risks of chronic overstocking of the domestic market.

Export difficulties hindering the expansion of the grain trade on the scale required by a record 2022 harvest (157.7 million tons) have led Russia to look for new opportunities for its supplies. This, in particular, is connected with the new, tougher conditions put forward by the Russian Federation in the framework of the grain deal with Ukraine, Turkey and the UN (see Kommersant of March 14). This is evidenced by the development of a grain trading scheme, which actually repeats the “gas ultimatum” put forward by Russia to its partners last year regarding payments for gas supplies (see Kommersant on March 20).

Another option for solving export problems, which can protect participants in transactions with Russian products from secondary sanctions, is trade through the EAEU, which assumes the role of an intermediary in interaction with third countries (for more details, see Kommersant on March 6). A study published on Thursday by the Eurasian Development Bank (EDB) refers to precisely this part of the agro-industrial potential of the EAEU.

The paper proposes two scenarios for the development of the common market of the countries of the Eurasian Union: target and inertial. With the target by 2035, gross output in the sector will increase by $112 billion, and exports by $34 billion (up to $74 billion). The implementation of this scenario is constrained by a number of factors. Among the most serious are transport and logistics restrictions, due to which the EAEU countries lose about 40% of their own agricultural products. A possible solution to the problems associated with the underdevelopment of logistics and storage systems, experts call the creation of the Eurasian commodity distribution network, which will reduce delivery times, as well as ensure the safety of products and the efficiency of payment services.

Some of the difficulties are directly related to barriers and restrictions within the Eurasian region: these are problems in the areas of technical regulation, transport policy and public procurement. In addition, the EDB notes the strengthening of internal competition between EAEU producers (in particular, in the grain markets) and believes that countries with a capacious national market (such as Russia and Kazakhstan) could pursue a relatively soft import regulation policy, as well as to more actively develop the agricultural sectors, which are associated with the greatest prospects for exports to states outside the union.

Under the inertial scenario from the EDB, gross agricultural output by 2035 may increase by $55 billion, and exports by $24 billion (up to $64 billion). That is, growth in these indicators will be lower than in the target scenario, but it will still take place, even if the region develops at the same pace and in the same directions as now. However, taking into account the fact that for Russia such a development of events actually means further overstocking of the domestic market (the harvest for the next agricultural year is now also estimated at an “excessive” 124.3 million tons, and exports at 51 million tons insufficient to unload the market), and for the EAEU as a whole, it will lead to an increase in the price imbalance, the target scenario and the harmonization of the common market associated with it look like virtually no alternative options for the desired development of events.

Christina Borovikova