Russia needs to develop flour production capacity and increase its consumption of higher-quality wheat to sustain the nation's bumper crops, a senior official said Tuesday, warning that Russia's expansion into the wheat markets would continue. In one of the first public signs of an admission from Russian state bodies that exporting low cost grain may not be the best way to proceed, Anatoly Kutsenko, a director at the ministry of agriculture, told industry figures the country was mulling downstream investment into flour mills. In addition, regionally-led plans to boost the consumption of higher-quality 12.5% protein wheat in the domestic market should be made, he said. Russia's higher grade product has typically found its way onto the international market as lower-quality grades have been used at home. But Kutsenko warned there would be no reprieve in Russian expansion into the wheat markets. “Farmers should not be afraid of a record harvest. The fear of a big crop must be overcome,” Kutsenko told the audience, suggesting Russia’s recent record-breaking wheat harvests are seen favourably in Moscow and are likely to become the new normal. Incentives start to work The meeting comes at the same time as a state-led grain export incentive scheme helped to bring 295,000 mt to market, according to a ministry of agriculture update Wednesday. According to the ministry, allocations for Omsk and Novosibirsk have already been exhausted in the first month of the scheme, with “at least 100,000 mt” extra expected to be added to their quota. Russia has provided a grain transport subsidy to state rail monopoly Russian Railways since late 2017, compensating it for losses incurred as it moves grain in remote parts of the country at a preferential tariff. The scheme has allowed farmers to export their produce, selling surplus grain at a time when officials have been keen to wind in other forms of state-led buying. Officials have been wary providing subsidies directly to the agricultural sector, with the potential backlash from the international market already palpable as Russia eats into the share of other major grain exporters this year. An overt subsidy to grain producers would fly in the face of Russia’s World Trade Organisation obligations, potentially leaving it open to legal ramifications or penalties. Total 2017/18 wheat sales have now topped 23.3 million mt, up 35% from the same stage last year, while sales from the EU, Ukraine, and the US have all shrunk over the same period.
Russia is considering investment in new flour mills to help make use of the country's increased wheat production. Exports have increased by 35% whilst those from other wheat producers in the EU and US have fallen. The Russian government has also been keen on increasing its own production as it seeks to diversify away from imports - a move that could see Moscow become more dependent on domestic sources for food. As well as potential investment in mills, regional authorities are being asked to help boost domestic consumption of higher-quality wheat.