Global food supply risks rise as key traders leave Russia Ship’s crew

By Aine Quinn and Megan Durisin (Bloomberg) —

Russia’s grip on the world’s food supply is intensifying after two of the world’s biggest traders said they would stop buying grain for export from the country.

The exit of Cargill Inc. and Viterra means Russia, the world’s largest wheat exporter, has more control over its food supplies and more revenue. of Russia dominance in the global grain market has been exposed by the war in Ukraine, with prices soaring over the past year due to supply disruptions.

Archer-Daniels-Midland Co. is also considering options to end its main Russian operations, according to people familiar with the matter. Louis Dreyfus is considering reducing his presence in the country, the Kommersant newspaper reported.

For Russia, “we can assume that it will be easier to control export flows if the authorities want it because it’s easier to deal with local actors,” said Andrey Sizov, managing director of research firm SovEcon.

1. Why are companies like Cargill and Viterra leaving Russia?

Cargill and Viterra have been under pressure to divest their assets in Russia since at least December, when a number of influential figures – including governors of the country’s main grain-growing regions – urged Moscow to limit foreign influence in Russia’s food market.

Government-funded traders had already grabbed a bigger chunk of the market by the time President Vladimir Putin made food sovereignty a political priority and grain exports a symbol of geopolitical power. State-backed bank VTB devoured Market share in recent years by Viterra and Cargill. State-backed OZK, also known as United Grain Co., is also among the top five shippers.

It’s likely that the multinationals have been encouraged to make a decision ahead of the new wheat export season, Sizov said, as exporters will start selling the new crop in May. In the meantime, Russia has done it more and more difficult for foreign traders to obtain the paperwork needed to export their grain, according to people familiar with the matter.

International trading companies have benefited from Russia becoming a major global grain exporter in the two to three decades that they have been operating there. During this period, Russia’s wheat exports boomed fivefold, making the country’s wheat the global reference price for commerce.

2. Why is it important for the global food supply?

The departure of Cargill and Viterra leaves Russia’s grain stocks largely in the hands of domestic and state-funded companies, meaning Russia will control more of the much-needed revenue as the war eats away at its budget.

This means that it might be easier for Russia to use food exports as a tool for geopolitical influence. Major buyers of Russian grain include countries in the Middle East and Africa, which have avoided harsh criticism of the invasion of Ukraine.

“If the Russian government gets more involved, that poses a higher risk from a market perspective,” said Matt Ammermann, commodity risk manager at StoneX. “Until Russia proves itself, it is a questionable supplier, although everything will go on as usual.”

3. What does this mean for grain prices and trade flows?

Russia’s Agriculture Ministry says the changes will have no impact on the country’s export levels, but traders are on the lookout for signs that Russia may be trying to influence prices or trade conditions. It is likely that further agreements between governments will take place.

State-backed company OZK has already signed several wheat deals with Turkish partners and last year said it wanted to “completely eliminate involvement of international traders and work directly with importing countries”.

The redesign of the Russian grain market is also making it more difficult to trace the origin of the grain occupied Ukraine mixed with Russian grain and shipped to world markets.

4. How is Russia’s Grain Exported Now?

Viterra and Cargill shipped about 14% of Russia’s grain volumes last season, so much of the exports continue as before. Viterra’s local team has set up a new company and will continue its work, according to the Russian Grain Union. Cargill said it will stop exporting grain sourced by the company in Russia starting in July, but will continue to buy shipments from other firms.

Still, many insurers and shipping companies might be more cautious about working with Russian firms due to sanctions-related risks. Groceries are not sanctioned, but some state banks involved in the grain business are. Russian state-owned company Rosagroleasing wants to build more than 60 of the world’s largest grain export bulk carriers, but that will take years.

5. What’s next?

Russian farmers are likely to be the biggest losers if international traders pull out. Fewer players reduce competition for their crops, said Dan Basse, founder of consulting firm AgResource.

It is unclear whether the country’s export prices will continue to serve as a global benchmark for wheat trade.

“If it’s more government controlled, we have less trust in these offerings and less transparency,” Basse said. “The world grain industry is kind of a loser here.”

–With the support of Agnieszka de Sousa and Joe Deaux.

© 2023 Bloomberg LP

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