Humanity may again face the threat of biblical famine, which is caused not only by the temporary disruption of global agricultural production chains due to the coronavirus pandemic, but also by more systemic changes in the global economy. Population growth to nearly 8 billion people, rising consumption and climate change have made an increasing number of countries dependent on food imports. Russia, due to its natural and climatic conditions, as well as its geographical position, has a unique potential for entering the world food market.
Clutches of global oligopolies
The session was moderated by Alexey Ivanov, Director of the HSE-Skolkovo Institute for Law and Development. In his opening remarks, Alexey noted that the world’s population has doubled over the past decades, and the volume of food trade has grown in six times. It means that many countries are becoming less self-sufficient in terms of grain provision, and countries of MENA regions — Middle East and North Africa are especially dependent on imports. And in this situation, it is important to understand what place Russia can take as a player in the global food market.
Now agricultural producers are vised between oligopoly of producers (means of production) on the one hand and large trading houses on the other hand. Traders are becoming trendsetters in terms of pricing and other terms of trade, and «skimming the cream off» by getting most of the added value. Russia should think in terms of creating added value and look for new niches in global food markets, primarily in the Middle East, where food security directly affects political stability and public security.
Mikhail Orlov, head of the Agrofinmost project at the HSE-Skolkovo Institute for Law and Development, noted that there is a tendency towards an increase in food imports all over the world. Today, the Russian agricultural sector operates only at 60% of its potential, and in order to ensure its functioning at full capacity, it is necessary to invest in the development of transport infrastructure — the construction of ports and elevators, the launch of new river transport, etc. Then Russia will be able to increase production to more than 200 million tons of grain, whereas 80 million tons will provide domestic consumption, and 120 million tons will be exported, what will position our country as a more significant player in the global market.
«Grain is a very underestimated tool of geopolitical influence today, unlike oil, and it is a powerful tool, and work here must be carried out systematically and in coordination with partners around the world. Russia, like the main importers of our grain, does not have any leverage over the pricing situation — everything is in the hands of global traders and their oligopolistic structure. They are those who determine the rules of the game — not us. Despite the fact that the demand for cereals is growing rapidly, farmers are becoming poorer and poorer, and news from different countries about the epidemic of suicides among owners of small private farms in the countryside only confirm that. The price of grain rises — the trader earns, the price of grain falls — all the losses fall on the shoulders of the farmers. We should work on a new architecture where farmers become direct partners with grain importing countries. And our reliable allies in building such a new chain are Egypt, Saudi Arabia and Turkey, as well as the countries of the MENA region in general — the Middle East and North Africa», — said Mr. Orlov.
Technologies and territories
Kirill Levin, First Deputy Chairman of the Board of Rosselkhozbank, noted that innovations and technological modernization of infrastructure underlie the development of the grain sector today. In this context investors are interested in investing in projects in the field of processing, transshipment and storage of wheat. The volume of investments in the 20 largest grain projects in Russia until 2030 will exceed 300 billion rubles. Among the priority technologies, Mr. Levin named «methods of „accelerated“ selection of grain crops, technologies of „precision“ and „smart“ agriculture, the use of information monitoring systems for grain storage and the production of products of deep processing of grain». At the same time, Russia is in the TOP-5 grain exporters with its main export commodity — wheat. According to the speaker, the «Russian grain meridian» includes countries from the regions of the Middle East, China, South Asia, Turkey and Iran.
Laurent Gentzbittel, Head of the Digital Agricultural Laboratory of the Skolkovo Institute of Science and Technology (Skoltech), professor at the National Polytechnic Institute of Toulouse, presented the view of the scientist — plant-breeder to the problems associated with the development of Russian grain export. Due to climate change, yields are now declining in many climatic zones, and it opens up new opportunities for Russia. In 2019, Russia exported € 21.9 billion worth of agricultural products, while the European Union countries received € 187 billion in revenue from food sales. In terms of wheat trade volumes, Russia now ranks first, but the efficiency is low — how profitable will it be to sell grain in the medium term and will the volumes be increasing? The state, according to the professor, should create an environment that encourages research cooperation and the transfer of knowledge. Nowadays one directs an average of 14% of revenues in crop, although such large companies like Bayer or Syngenta are investing even more. The professor noted the need to improve the education and training system in the field of crop science and selection, systematic work should be carried out to modernize state policy in this direction.
Eduard Zernin, Chairman of the Board of the Union of Grain Exporters, said that «crop production is exactly the area where size matters», and in this context Russia has a unique advantage as a country with a territory covering 4 climatic zones. Other states are forced to actively introduce genetic engineering, here we can mention Argentina, which has already become the first country in the world to approve the cultivation of genetically modified wheat. This year, Russian farmers got a bumper grain crop, although the harvest is not yet complete. But in our country, there are still tens of millions of hectares of undeveloped territories, and it can be expected that the role of Siberia, Volga regions and the regions of the Far East will increase. According to Mr. Zernin, the development of logistics in the eastern direction is very important, because the Trans-Siberian Railway will not cope with the growth of supplies, it is already loaded with other goods. There is a lot of talk today about direct export to China, but at this stage, China has not yet become a full-fledged trading partner of our country in the export of grain, unlike the countries of the Middle East and Africa, which are traditional and reliable importers. A drop in crop yields in the European Union and Ukraine has temporarily displaced them from the map of top exporters, so now it is the time for Russia to fix the advantages. «The initiative of the Agrofinmost project seems to me logical and correct, it is the direction which needs to be developed further», — noted Eduard Zernin.
New strategic food alliances: Russian and Middle East
The session was attended by Dr. Khaled Hanafy, Secretary General of the Union of Arab Chambers, and Dr. Sara Elgazzar, Dean of the College of International Transport and Logistics of the Arab Academy of Science, Technology and Maritime Transport.
Dr. Sara Elgazzar summarized that COVID-19 had significantly changed global food chains. Egypt will have to find new partners and decide how we will build relations with them. The country ranks among the largest food importers, especially for some agricultural products. At the same time, there is no secret that due to ineffective management, about 30% of the costs along the entire chain turn out to be unjustified and wasted. «We need to find new models that make the food chain more efficient. We see the solution in establishing ties between our countries with partners around the world in the format of strategic alliances. In such alliances, we will not be just a food importer. Thanks to our geographic location, we could become a kind of „hub“, a food distribution center in the region», — she said.
Andrey Bezrukov, President of the Technological Sovereignty Export Association; Associate Professor of the Department of Applied Analysis of International Problems of MGIMO University noted that in the next 15-20 years the world will expect epochal shifts in all areas, and first of all in the geopolitical area. «One cannot maintain stability in a hungry country», and the food is the basis of national security that will ensure stability inside the country. «We should think not on the basis of the thesis «let’s make more money», but on the basis of the value message «let’s survive together». The new logistics infrastructure for supply will lead to the building of new food alliances, and here the leader will be whoever controls the platform solutions and information flows — the main part of logistics.
Answering the question of moderator «Is Egypt ready to pass the winter with Russia and to build inclusive platforms together?» Dr. Khaled Hanafy said: «Russia is an excellent candidate to be a partner in building „food hubs“ in our region, for example in Egypt, in one of the African countries and perhaps even in Latin America with the involvement of local actors. We see great prospects in building an integrated supply chain by networking between Russian suppliers — in particular, small, scattered across the country agricultural producers, who all together accumulate a significant share of agricultural production — and end consumers in Egypt and other Arab countries. This chain will include all key links — technology, finance, logistics, transport, storage. Its work will be supported by a network of partners around the world».