New Oil for The New Patrushev: The newly appointed deputy prime minister will undertake the consolidation of the agro-industrial complex into ‘safe hands’ and the transformation of grain into a ‘silent weapon’

New oil

In 2023, Russian export revenues declined by 28.3%, from $592.5 billion to $425.1 billion, due to falling prices or reduced volumes. The only product category to show growth, albeit modest, was agricultural products. The volume of agricultural exports increased from $41.6 billion to $43.5 billion (+4.3%), mainly due to a significant increase in grain sales revenue (+21.6%). As a result, the share of grain in the total volume of agricultural exports rose to 37%, according to calculations by the ‘Agroexport’ centre at the Ministry of Agriculture. Thus, grain exports brought in about $16 billion. Thanks to extremely favourable weather conditions, Russia managed to significantly increase its production during the two years of the war. The 2022 harvest was the most generous in history (153 million tonnes), while the 2023 harvest was the second largest in terms of volume (147 million tonnes). For comparison, 121.4 million tonnes were harvested in 2021, and 133.5 million tonnes in 2020.

Agricultural exports have been actively growing since the mid-2010s. From 2012 to 2016, they amounted to about $16.5 billion per year, or less than 4% of total export revenues. In 2018-2019, this figure exceeded $25 billion. In 2020-2021, exports increased by 20% per year. Although growth slowed somewhat, in 2023, agricultural exports exceeded 10% of the country's total export revenues.

For the past ten years, the authorities have been stating that agricultural products (primarily grain) should become Russia's ‘new oil’. At the end of 2022, the government approved a strategy for the development of the agricultural sector up to 2030. Its target scenario suggests that by the end of the decade, revenues from agricultural exports will increase by more than 50% compared to the 2020 level (in comparable prices): from $30.5 billion to $47.1 billion. However, this level is likely to be reached sooner. The government estimates that a minimum investment of 900 billion rubles per year is needed to achieve the programme's goals.

Russia mainly exports wheat. Based on data from the US Department of Agriculture (USDA), the Center for Strategic and International Studies (CSIS) has estimated that Russia will ship 48 million tonnes abroad in the 2022-2023 fiscal year (starting 1 July), 15 million tonnes more than in the previous year. The CSIS forecast for the 2023-2024 fiscal year is 51 million tonnes. USDA estimates Russia's share of the global market at 24%, while the EU, which ranks second after Russia, accounts for 11%. The US and Australia follow with 10% each. Before the war, Russia's share was more modest: 15% in 2020 and just under 20% in 2021. Such a significant expansion of supplies by the largest exporter has been a factor in the collapse of world prices. Prices rose in the months following Russia’s full-scale invasion of Ukraine, reaching a peak of $450 per 1 tonne. However, starting in May 2022, prices went down and a year later stabilised at $250, which is slightly below the pre-war level. Prices only started rising again in recent weeks due to fears that extremely cold weather in May could reduce Russia's production volume in 2024.

Grain geopolitics

Taking advantage of the reduction in supplies from Ukraine (which has reduced production by about a quarter due to the war), Russia is increasing exports to low-income countries in Africa and Asia, thereby increasing its influence there, CSIS experts warn. Following Dmitry Medvedev, they call food Russia's ‘silent weapon’. In early 2022, Medvedev proposed only supplying agricultural products to Moscow's ‘friends’. Experts interviewed by Bloomberg doubt that Russia will start using the ‘grain weapon’ in the same way it tried to use its ‘gas weapon’. Russia mainly sells grain to countries it considers ‘friendly’. The Agroexport centre estimates that their share in Russian exports in 2023 was 87% (the largest buyer was China with a share of 17.5%).

The strengthening of Russia's position in the global grain market has caused concern in the USA, where the Russian doctrine of ‘new oil’ was taken quite seriously. Russia's increased role in the global food market is alarming for the United States. At the beginning of the year, the lower house of Congress passed the No Russian Agriculture Act, aimed at countering this trend. In particular, it requires the US authorities to ‘as far as possible,’ support investments in projects that could help third countries reduce their dependence on Russian agricultural exports, primarily grain and fertilisers. 

Although it is much more difficult to turn grain into a ‘weapon’ than gas and oil, strengthening Russia's position in the global market will give it certain leverage. There are already early examples of this. Last autumn, Egypt (which accounts for 5.8% of Russian exports) refused part of the already agreed supplies from Russia because, according to Bloomberg, Russian authorities attempted to set an unofficial minimum price of $270 per tonne for the country. And, this spring, ships carrying wheat, which was to be supplied to Egypt by the company TD ‘RIF’ (recently renamed ‘Rodnye Polya’), were not allowed out of Russian ports — Rosselkhoznadzor found ‘quarantine weeds, including blue stubble, creeping wheatgrass and common ergot’ on board. Bloomberg reviewed a letter that TD ‘RIF’ sent to the buyer, which says that the ships were blocked because the company refused to raise the price to the level ‘recommended’ by the Ministry of Agriculture.

Using food exports as a ‘silent weapon’ requires state control over shipments, and the Russian authorities have been actively pursuing this since the war began, Bloomberg notes. 

Last year, global traders Cargill, Viterra (formerly Glencore Agriculture), and Louis Dreyfus stopped exporting Russian grain. The official reasons for their departure were vaguely formulated. For instance, Viterra's statement mentioned that ‘operating in Russia no longer aligns with the company's long-term direction’. Bloomberg sources, however, claim that besides the difficulties arising from sanctions, another reason for the cessation of operations by Western traders was pressure from Russian authorities to make room for their Russian competitors. These companies began to face difficulties with documentation.

A few months before Cargill, Viterra and Louis Dreyfus announced their withdrawal from the market (they did so almost simultaneously), VTB CEO Andrei Kostin suggested to Vladimir Putin that the work of foreign traders — agents of the ‘global grain order’ - be restricted (the bank at that time owned one of the largest Russian traders — Demetra Agroholding). Shortly thereafter, the Rossiya 1 TV channel broadcast the film ‘Grain’, in which the heads of several regions accused foreigners of ‘shadow’ exports of grain from the country.

Patriotic monopolisation: ‘Zernoprom’

‘The withdrawal of foreigners from the industry began back in 2014. For example, the American company Bunge started to wind down its trading business even then,’ Andrei Sizov Jr, director of the SovEcon analytical centre, explained to The Bell. ‘Additionally, there was constant pressure on companies as the idea of a special path for Russia, that Russian grain should be traded by Russian companies, gained popularity.’ Indeed, Kostin suggested to Putin in 2019 that a ‘national leader should be created that would consolidate assets related to the export and storage of grain, taking on the functions of the leading trader of Russian wheat. This same idea of the need to create a new ‘Gazprom’ in the agro-industry was also conveyed in the film Grain.

The Western companies that left were among the largest exporters of Russian grain. According to the Russian Grain Union, Viterra ranked fourth on their list, Cargill sixth and Louis Dreyfus 11th. ‘If their place is taken by state-owned companies, our competitiveness at the level of sales by farmers may suffer’, warned Dmitry Rylko, general director of the Institute for Agrarian Market Conjuncture (ICAR). However, even after their departure, the consolidation of the Russian market is likely to continue. After Rosselkhoznadzor blocked ships carrying wheat that TD ‘RIF’ intended to deliver to Egypt, the company's beneficiary, Petr Khodykin, stated that this was a way to ‘force him to sell assets at a negligible price, which would not even cover current debts.’ According to him, this is being done ‘on orders from Moscow’.

TD RIF was the largest exporter for ten years. In 2023-2024, it was surpassed by Grain Gates, a company created in 2022 and headed by a former top manager of Demetra. An investigation by Novaya Gazeta Europe suggests that in reality, Demetra continues to operate under this name, and ‘the same VTB managers are still in charge’. The state bank needed to carry out this ‘special operation’ to remove its agricultural asset from under sanctions.

Currently, according to ICAR data cited by Bloomberg, Grain Gates and TD RIF already control more than half of all Russian exports from the Black Sea terminals. Their shares are roughly equal. The third largest exporter is Aston, which, like TD RIF, has recently started having difficulties with the organisation of deliveries, according to Vedemosti. The fourth place is occupied by the state-controlled United Grain Company. Collectively, these four companies account for 75% of the exports. Thus, if Petr Khodykin's fears are realised, the state will become the largest grain exporter.

The promotion of the Minister of Agriculture and son of Putin's associate Dmitry Patrushev to the status of Deputy Prime Minister should be viewed in this context. Grain is being elevated to the level of high politics and is immediately acquiring all the attributes of a‘Chekist’ quasi-market worldview, meaning it is simultaneously seen as a crucial source of export revenue and as a tool of foreign influence. Increasing itsrequires monopolisation of the sector. Exactly such a strategic vision has led to the disaster of Russian gas exports, which Putin and his associates previously regarded as one of the key elements of their ‘Russia Corporation’.