Russian infrastructure a barrier to grain growth

By Jess Halliday

- Last updated on GMT

Related tags: Grain

Russia has potential to increase grain production considerably, says EBRD chief, but shortfalls in infrastructure, regulation and investment pose problems.

Russia is currently the world’s third largest wheat exporter and fifth and fifth largest grain producer. Last year it saw record harvests of 108m tonnes of grain and this year’s could be 80m to 90m tonnes.

But FAO studies have shown that some 6m hectares of land could be returned to production without causing major environmental studies, according to Thomas Mirow, president of the European Bank for Reconstruction and Development, who spoke at the World Grain Forum in St Petersburg on Saturday.

He projects that use of this land, combined with increased yields, could enable Russia to reach some 120m tons of grain. Russian agriculture minister Yelena Skrynnik said that Russia’s grain harvest could reach 135 million tons in 10 to 15 years time.

But Mirow said: “Increased production and yields are a blessing, but they can also be a burden: Russia’s market infrastructure is not yet fully prepared.”

The investment required to increase capacity of railways, seaports and grain elevators is “enormous”​ – and the financing required is hard to obtain in the current economy.

Regulatory resolve

The global grain supply crisis of 2008 “has enhanced the role of the state, and one of the lessons will be that a functioning market needs good and workable regulations,” ​Mirow said.

While Arkady Zlochevsky, head of the Russian Grain Union, requested state support for the grain sector, Russian president Dmitry Medvedev said on Saturday opinions vary as to whether this is really necessary. He did say that Russia will bring modern business models in the sector, according to the newswire RIA Novosti​.

Regulatory matters cited by Mirow as requiring resolution include land tenures with high transaction costs, which are a serious constraint for producers.

The agricultural sector needs to have access to appropriate financial instruments, which the EBRD said could be achieved through warehouse receipt systems offering collateralisation.

There is also need for better agricultural training and academic institutions to ease the shortage of skilled labour and professional management.

Public-private links

Despite noting these barriers, Mirow’s address was not geared towards gloom-mongering. “The question is what can be done to develop this opportunity into a permanent source of wealth.”

Alongside the role of the state, he emphasised the role of the vitality, creativity and productivity of private business in the economy – and in agriculture as part of that.

“We are state-owned, but act like a private investor​,” said Mirow of the EBRD, which can act as a public-private link. Last year 84 per cent of its €5.1bn investments were in the private sector. To date, the bank has invested over €1bn in over 40 projects to aid the agricultural sector in Russia alone, which between them have a total value of over €5bn.

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