November 3, 2004

 

 

Bunge to Buy Terminal to Exploit Flourishing Grain Growth in Russia
 

Major international food company Bunge, attracted by Russia's thriving grain output which has risen by 9 million tons in the last year alone, has set up a new grain export terminal in the country. This move comes despite industry fears over long-term harvest quality.

 

US-based global agribusiness and food company Bunge will buy the terminal in a bid to take advantage of Russia's grain exports, which are expected to almost double to 15.5 million tons in the next 10 years, according to United States Department of Agriculture figures.

 

The centre will be used as a giant gateway that will serve markets around the Black Sea and Mediterranean as well as in the Middle East. Bunge plans to spend €7.8 million (RUR 287.6 million) to extend the terminal and increase capacity.

 

"Russia and the neighbouring CIS countries possess tremendous long-term agricultural growth potential," said Jean-Louis Gourbin, president and chief executive officer of Bunge Europe. "As the first international company to own a dedicated export terminal in Rostov, Bunge will be better able to capture a share of this growth, improve its logistics efficiency and serve customers around the Black and Mediterranean seas, and in the Middle East."

 

Rostov is situated near the mouth of the Don river with easy access to the Black Sea, next door to the three major grain growing areas around Stavropol, Krasnodar and Rostov itself. This means Bunge's terminal is located at the heart of Russia's main grain outlet.

 

The company is also interested in bringing grain from nearby Kazakhstan, a country which has just increased its grain harvest to 13.6 million tons, through the terminal.

 

Bunge's strategy appears sound, as even the Russian government recognises the potential of the country's grain exports, reportedly planning to invest RUR33 billion (€900.2 million) in the industry from 2005.

 

But there is a lot of work left to be done in order to bring Russian grain, and especially wheat, up to the quality standards of major importing nations, according to Yuri Karpov, president of market research firm Ecotrans. "Only after the quality of Russian wheat has improved will the country be able to expand wheat exports to other nations," he said.

 

Karpov's statement was backed up by an estimate from Russia's State Bread Inspectorate that stated 72 per cent of this year's Russian wheat yield was considered good enough for milling, down from 80 per cent last year.

 

In the circumstances, Bunge's regional distribution strategy at Rostov may be sensible as its target markets of the Middle East and southern Europe are already the main importers of Russian wheat, thereby allowing the group to exploit existing markets.

 

The company only entered the Russian grain market in 2004 by opening a series of offices in key production areas such as Moscow and Rostov. Bunge is active elsewhere in Eastern Europe as well, currently building another grain terminal in Liepaja, Latvia and a grain-crushing plant in Ilyichevsk, Ukraine in an attempt to set up an efficient logistics network for imports and exports across the region.