November 5, 2012

Russia and China are about to agree on terms regarding the lifting of China's ban on grain deliveries from Russia, which has been in place since 1997.

This is according to Russian trade representative in China Sergei Tsyplakov.

A bilateral agreement could be signed by the end of 2012, which would pave the way for the resumption of grain exports in 2013. The Chinese ban resulted from the discovery that Russia and a number of other countries were supplying infected grain that was unfit for consumption.

According to Tsyplakov, "the grain we are ready to supply today is sound; infected stuff is not to be exported." China's grain requirements are a result of shifts in the national diet. The Chinese are consuming more meat, which is leading to a decrease in the amount of arable land. Chinese experts claim that the trend for increased grain purchases is a long-term one. China currently buys about two million tonnes of grain per year from Canada and the US, and this figure is rising.

"China has a stake in diversifying its supply sources, while Russia, in turn, is willing to come to the Chinese market. The main thing for now is to break the ice and launch deliveries," said Tsyplakov. However, Dmitry Rylko from the Institute for Agricultural Market Studies is sceptical saying, "It would be realistic to reach an export level of several hundred tonnes of wheat within the next few years. What prevents us from trading with China is not so much a lack of agreements as the huge transport costs and the generally low level of Chinese wheat imports."

Finam analyst Maxim Klyagin agrees with Rylko that the main constraining factor is the capacity of Russian railways. At most, Russia can hope to export about 25 million tonnes per year in the mid-term, which is between 5-10% of total exports. But generally there are prospects for growth in the Eastern segment, which might benefit regions in the North-western and Urals Federal Districts.