Actual: Food Production 2019. Export Markets Forecast
31 March 2020

In 2019, the development of global production and trade of agricultural raw materials and products of its processing was affected by new bioclimatic and politico-economic trends. On the supply side, the former includes, first of all, adverse climate change and depletion of natural resources for agriculture in a number of major exporting countries, aggravated by epizootics (including the globalized ASF), which reduced the world pig population by 25%, and local outbreaks of other especially dangerous diseases of farm animals and poultry.

In 2019, the development of global production and trade of agricultural raw materials and products of its processing was affected by new bioclimatic and politico-economic trends. On the supply side, the former includes, first of all, adverse climate change and depletion of natural resources for agriculture in a number of major exporting countries, aggravated by epizootics (including the globalized ASF), which reduced the world pig population by 25%, and local outbreaks of other especially dangerous diseases of farm animals and poultry.

The latter includes recessionary phenomena in the global economy, uncertainty in global trade due to increased US protectionism (primarily in relation to China and, in part, Canada and the EU), the weakening role of international regulators (primarily the WTO), reduction and obsolescence of the current chains of added value in the agro-industrial complex, and the continuing volatility of world prices and exchange rates.

On the demand side, the former includes an increase in the global population with a lag in domestic food production, and the latter includes a continuing change in the structure of food demand volumes, including under the influence of preferences of new generations of consumers who are oriented towards ensuring “healthy nutrition” while reducing the negative impact of the agricultural sector on the environment and climate . The world food problem worsened: by the beginning of 2019, the number of hungry people increased to almost 822 million people (about 11% of the world population), returning to the level of 2010, and in general about 2 billion people did not get good nutrition (more than 26% of the world population).

The combination of these factors in 2019-2020 lead to low and insufficiently steady growth in global production and trade in agri-food products. So, due to a decrease in production and/or carryover stocks in 2019, the total export of wheat from Australia and Argentina decreased by 1 million tons, corn from the USA - by 1.5 million tons and Mexico - by 0.7 million tons, rice from India and Thailand - by 1.3 million tons. True, this decrease can be blocked by the growth in the export of wheat from Russia, the EU, Ukraine, corn - from Brazil, the Russian Federation, Vietnam, rice (partially) – from Vietnam. Sugar exports are relatively declining, primarily due to reduced production in India and Thailand. Due to the good harvest of oilseeds, the export of sunflower and rapeseed oil is increasing. At the same time, palm oil exports are relatively decreasing (in anticipation of reduced production in the main producing countries).

The export supply of poultry meat is noticeably growing, insignificantly of beef and mutton, and pork is declining (due to losses from ASF). In Russia, amid growing grain production by 6–9%, oilseeds - by 20%, sugar beets - by 25%, meat - by 2.5%, a significant increase in exports is expected. At the same time, for basic goods, the uncertainty in the ratio of supply and demand growth unevenly affects the dynamics of world agri-food prices.

In 2019, compared with 2018, the FAO integrated food price index may increase by 1.5 percentage points, sugar by 2 percentage points, dairy products and meat by 5-6 percentage points, almost no grain will change, while vegetable oil will decrease by 10 percentage points. In general, the indices of these prices in 2019 will be higher than the average for the previous 4 years in terms of general level, grain, meat, dairy products, and lower in vegetable oil and sugar. In 2020, due to the effect of global warming and epizootics, one can expect a further reduction in the export of corn, rice, sugar, and pork by a number of countries.

This may change the dynamics of world agri-food prices while maintaining their marked volatility. In 2018, agricultural exports accounted for less than 9.5% of the value of world exports of goods, amounting to about $ 1.8 trillion. In 2019, it may increase by 1.1-1.2%. The share of the Russian Federation in it may come close to 1.5%, but for a number of product groups (primarily grain and vegetable oil) it will be significantly higher (especially in kind). Despite a slight increase in Russian agri-food imports, the extent of its export coverage is steadily growing and will exceed 80% in 2019.

Table 1. Global and Russian Production and Export of Grain (in millions of tonnes, by agricultural year – from July 1 to June 30 of the following year)

Tabl.1_Prognoz-konyunktury.jpg

Source: calculated based on Rosstat data, Ministry of Agriculture of the Russian Federation, FAO UN

As can be seen from table 1, Russia will remain the largest exporter of wheat in the 2019/20 agricultural year. It will also be one of the key players in the global barley and corn markets. These trends are likely to continue in the medium term. According to the Ministry of Agriculture of the Russian Federation, in 2021 and 2024, Russian grain production may increase, respectively, to 131 and 141 million tons, and exports - up to 50.9 and 59.5 million tons. Trends in the increasing role of the Russian Federation are observed in other world market crop products and products of their processing. In 2019, a record oilseed crop was obtained - 22.1 million tons, including 15 million tons of sunflower and 4.8 million tons of soybeans.

By 2024, these figures may increase to 29.3 million tons, 16.5 million tons and 7.3 million tons, respectively. Russia has already entered the TOP-5 world exporters of sunflower seeds and vegetable oils. In 2019, the Russian export of sunflower seeds and sunflower oil may amount to almost 0.5 million tons and 3 million tons, respectively, about 20% of world exports. Record sugar beet harvest in 2019 will make it possible to produce over 7 million tons of sugar, which will almost double the domestic demand and create export resources of 0.8-1.1 million tons of sugar (approximately 1.4-1.9% of projected world exports).

Russian supplies are already significantly affecting their immediate regional markets, primarily the EAEU, as well as the Middle East and North Africa, and have partially nudged the EU and the USA out of there. Relatively low export prices allowed Russian suppliers to begin expansion even in the United States’ "home" markets in South America and SEA. There are good prospects for the supply of Russian products of plant origin to the capacious Chinese market, primarily oilseeds, wheat, corn, barley and their processed products.

Positive shifts were also observed in the Russian export of livestock products, primarily meat. Among the leading exporters in the global meat markets, Russia is already in 7th or 8th place. However, its supplies are growing faster than the global average, and the share of the Russian Federation in world meat exports doubled in 2016-2019, primarily due to the export of pork and poultry meat. Lamb export is also growing rapidly. In 5-7 years, the Russian Federation may become one of the five leading exporters of pork and poultry meat subject to active expansion into promising markets (primarily China and Southeast Asian countries), as well as ensuring veterinary safety (including obtaining the status of a country free of ASF and cow rabies).

Russian export of dairy products is also gradually growing, including to the EAEU and China. China is becoming a key importer of agri-food products from the Russian Federation, including through online trading. In 2019, the online food store from Russia opened on the Tmall Food & Fresh platform, the food segment of one of the largest Chinese b2c-platforms Tmall.com, part of the Alibaba Group.

The intensification of the international positioning of the Russian agricultural sector will largely depend on the long-term dynamics of global demand for agricultural products. Meanwhile, the joint FAO and OECD forecast for agricultural development in 2018-2027 comes from weakening demand growth. The main driver of increasing demand for most agricultural products is the population, whose growth rate is decreasing with an almost constant level of per capita consumption of a number of products. This applies to basic types of food, including cereals and root and tubers, whose consumption in many countries is close to saturation. The growth in demand for meat products is slowing down due to regional differences in preferences and restrictions on disposable income, while demand for a number of dairy products is dynamizing.

According to this forecast, by 2027, world agricultural and fish production will grow by about 20% with a noticeable inter-regional differentiation. Strong growth is expected in sub-Saharan Africa, Southeast Asia, the Middle East and North Africa. In contrast, production growth in developed countries is expected to be significantly lower, especially in Western Europe. The slowdown in growth in demand and production will lead to a decrease in the growth rate of global agri-food trade. Moreover, exports of almost all agricultural products will continue to be concentrated in stable groups of key supplier countries, including Russia and Ukraine, on world grain markets. A high concentration of export markets can increase the susceptibility of world markets to supply shocks due to natural and political factors. This will require Russia to have more active state support for the technological- industrial and social-spatial agribusiness, as well as pro-export policies in this area in order to achieve the practical doubling (up to $ 45 billion) of the value of agricultural food exports by 2024.

Table 2. Global and Russian Production and Export of Meat* (in millions of tonnes)

Tabl.2_Prognoz-konyunktury.jpg

*beef, pork, and poultry

Source: calculated based on Rosstat data, US Ministry of Agriculture, Ministry of Agriculture of the Russian Federation, industry organizations of producers


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