Home >Event&News >Major international grain merchants speed up their withdrawal
Major international grain merchants speed up their withdrawal

Major international grain merchants speed up their withdrawal from Russia, and the risk of global food supply rises

Large international grain traders, Cargill and Viterra, said last week that they would stop exporting grain to Russia. Archer Daniels Midland (ADM) is also considering exiting its main business in Russia, and Louis Dreyfus is considering reducing its Russian presence, according to people familiar with the matter.

As the world's largest wheat exporter, Russia's grains are critical to global crop trade and supply. The withdrawal of major grain traders means increased risks to global food supplies. On the other hand, it also means that Russia will have more control over its food supply. For Russia, "if the authorities want to control exports, it will be easier than before because it is easier to deal with domestic companies," said Andrey Sizov, managing director of industry consultancy Sovecon.

Why do Cargill, Vitra and other international grain traders leave Russia?

Cargill said last week it would stop exporting grain purchased from Russia starting in July. Vitra also announced that the company will stop transporting grain from Russia from July this year and may sell assets in Russia.

For grain traders, the outbreak of conflict between Russia and Ukraine has boosted the price of grains such as wheat, helping them make huge profits, but it has also raised thorny questions about whether to continue to operate in Russia. While Russian grain is not subject to sanctions, trade could be complicated by restrictions on Russian banks and state-owned companies.

International grain traders also face competition from Russian companies, where local traders are already grabbing a larger market share. In recent years, the state-backed VTB Bank has taken some market share from Cargill and Vitra. OZK Trading, a unit of Russian state-owned UGC, also ranks among the top five exporters of Russian wheat. In addition, there have been voices in Russia calling for restrictions on the influence of foreign companies in the Russian grain market.

Russia to lead global grain trade in 2022-23

Eduard Zernin, the Federation of Russian Grain Exporters, said: "The grain industry has become overly politicized and the risks are high." Andrey Sizov said international grain traders are likely to make decisions before the new wheat export season, Sales of the new crop begin in May. Meanwhile, Russia has been making it harder for foreign grain traders to obtain documentation needed for grain exports, according to people familiar with the matter.

Why is this important to the global food supply?

During the 20 to 30 years that international grain merchants such as Cargill and Vitra have been doing business in Russia, Russia has also become a major grain exporter in the world. During this period, Russia's wheat exports increased five-fold, and the country's wheat price became the benchmark for the global wheat trade.

With foreign grain merchants withdrawing from the Russian market, Russia's grain supply will be largely in the hands of domestic companies, meaning Russia can more easily use grain exports as a tool of geopolitical influence. Matt Ammermann, commodity risk manager at consultancy StoneX, said: "If the Russian government gets more involved, that creates more risk from a market perspective."

What does this mean for food prices and trade flows?

The Russian Ministry of Agriculture stated that the withdrawal of Cargill and Vitra will not affect the level of Russia's grain exports, and the transportation capacity will continue as normal. Still, traders are watching for any signs that Russia might try to influence prices or trading terms, and more government-to-government deals could happen. OZK Trading has already signed several wheat contracts with Turkish partners and said last year it wanted to "get rid of the involvement of international grain traders entirely and work directly with grain importing countries".

How will Russia's grain be exported?

Cargill and Vitra accounted for about 14% of Russia's total grain exports in the last quarter, so the exit of these two grain merchants will not have a big impact, and most exports will continue as usual. In addition, Vitra's local team in Russia has organized itself and plans to set up its own export company, according to the Russian Federation of Grain Exporters. Cargill will stop purchasing grain in Russia for export from July, but will continue to buy grain from other companies, and its shipping division will continue to ship Russian grain for export.

Still, many insurers and shipping lines may be more wary of working with Russian companies because of the risks associated with the sanctions. Russian state-owned agricultural leasing company Rosagroleasing plans to build more than 60 large bulk carriers for grain exports, but this will take years.

What's next?

The withdrawal of international grain traders could mean losses for Russian farmers. Fewer players in the market means less competition for the grain, said Dan Basse, founder of Chicago-based consulting firm AgResource. It is unclear whether Russian wheat export prices will continue to serve as a benchmark for global wheat trade. Dan Basse believes that if the price of Russian grain exports is more controlled by the government, foreign buyers will have less confidence and transparency in making quotations for these grains. In this case, the biggest victim will be the global food industry.

learn more
Have Questions about Feed Additives?
Our professional sales team are waiting for your consultation.

Add: Block 14, No.100, Luyun Road,Changsha 410205,China.

Mobile: +86 18874001228

Email: info@arshinefeed.com

WhatsApp: weiyuyan91

Sign up to receive our weekly newslertter
Copyright © Arshine Feed Additives Co., Ltd. All Rights Reserved