Russian wheat faces struggle to satisfy Asian market

Russia's ambition to grab a slice of Asia's wheat business will take longer than the planned two or three years amid transport hurdles and consumer reluctance to adapt to new supplies.

 

Riding on growing production and bulging stockpiles, Russia is approaching the biggest wheat importers in Asia -- a market so far ruled by Australia and the US -- and expects shipments to climb in the years ahead.

 

The move is part of Russia's strategy to develop its grain export infrastructure in order to double shipments to some 35 million to 40 million tonnes by 2015.

 

If successful, the campaign will add to pressure on Chicago wheat prices, which have wilted 30% from last year's peak.

 

Russia has already grabbed a sizeable share of sales in what are the world's biggest wheat importers, a worry for suppliers in the roughly US$5 billion a year Asian market.

 

"For Russia to have a big impact in Asia, two hurdles will need to be leaped -- logistics and quality," said Scott Briggs, an agricultural commodity strategist with ANZ in Melbourne.

 

"Most Russian exports currently go into Africa and the Middle East, where they have freight and cost of production advantages," he said.

 

It is in direct talks with millers in Japan, Indonesia and Bangladesh to sell high-quality Siberian wheat, which is similar to varieties such as US hard red winter wheat and Australian prime hard wheat.

 

Lobby group the Russian Grain Union expects grain shipments to Asia to rise to 1.5 million-2.0 million tonnes by 2012, from an estimated 500,000 tonnes in 2009.

 

The Russian government hopes to sell one million tonnes of wheat to Japan by 2011 and is in talks to supply 300,000 tonnes to Bangladesh in a government-to-government deal.

 

But its strategy to make inroads into Asia was easier to chalk out than execute, said traders and analysts.

 

A major stumbling block is the lack of infrastructure such as grain elevators, silos and ports on the country's east coast that are capable of servicing large ships.

 

In addition, Russia needs to reduce the US$60-US$90 per tonne cost of transporting Siberian wheat some 4,000-6,000 km from its growing regions to the ports on the east coast.

 

Russia plans to invest up to US$100 million over 2-3 years to refurbish ports on its east coast, as it moves to cut shipping time to Asia to just a few days from the 25 days now needed to send grains through Black Sea ports.

 

Asian importers accustomed mainly to Australian and US wheat are unlikely to switch to the Siberian grain unless they think it is substantially cheaper and are sure about the quality of the new origin, little seen in Asia.

 

"We don't know the characteristics of Siberian wheat, I think it will take time before Russian milling wheat can participate in the Japanese market," said Nobuyuki Chino, president of Tokyo-based trading company Unipac Grain.

 

Asia imports more than 20 million tonnes of wheat a year, with top regional buyers Japan, South Korea and Indonesia taking some 14 million tonnes. Smaller buyers such as Malaysia, Bangladesh, Vietnam, Thailand and the Philippines take the rest.