Since 2014 there has been significant growth in the volume of agricultural trade between Russia and China, and in particular in the volume of Russian agricultural exports to China. One important driver of the increase has been the devaluation of the ruble.
But the increase also reflects that Russia has now gained access to the Chinese market in key product categories, with the clearing of important phytosanitary hurdles in the past five years when protocols for grain, soybeans, poultry, beef, and dairy, and other items have been signed. This certainly bodes well for the future of Russia–China agricultural trade. However, it is worth pointing out that the current increase is from a negligible baseline.
Separate from market access is a question of market competitiveness, for which according to Karlova and Serova Russia’s advantages are ‘fairly limited’. As officials in Russia’s Ministry of Agriculture acknowledge, ‘China is the country to which all export-oriented countries want to supply their products. We are no exception’. Rising living standards and changing dietary patterns in China will continue provide to Russia opportunities to increase food exports. But Russia faces competition against already-dominant exporters of soybeans, oilseeds, meat, and dairy, as well as from emerging markets with whom China has been concurrently cultivating closer agricultural trade ties in recent years. The westernisation of Chinese consumption entails greater demand for higher-value products—with a commensurate focus on quality—which are not historically Russian strengths although that situation is changing.
In addition, the Chinese economy is not only marked by significant demand. China also dominates in the global production of many agricultural commodities. Besides being the world’s largest single producer of grain, it is also one of the world’s largest exporters of fruits and vegetables, and fish and seafood. The latter it exports at twice the level of Russia, even while serving as Russia’s largest buyer. Further, for a number of sensitive commodities, including by not limited to wheat, corn, rice, sugar, and wool, China applies strict tariff-rate quotas (TRQs). In the long run, this puts an upper limit on what Russian producers can hope to export. Given these considerations, the following analysis discusses Russian prospects for increasing the presence of the Chinese market in a few important product categories. I then return to broader structure barriers to enhancing agri-food trade.
Grain: The Chinese market was closed to Russian wheat export since 1997 due to discovery of karnal and dwarf bunt pathogens. However, phytosanitary barriers were resolved in 2015 after the two sides signed a protocol for wheat, corn, rice, soybeans, and rapeseed. As of 2020, wheat exports are allowed from seven Russian regions, including Chelyabinsk, Novosibirsk, Omsk, Amur, Krasnoyarsk, Altai, and Kurgan. Current volumes of export are limited. In 2018, Chinese imports amounted to a mere 86.7 thousand tonnes. Corn imports were equally limited at 40 thousand tonnes. However, in general more and more grain categories are open for Russian exporters. In 2018, a protocol on allowing Russian exports also of buckwheat, oats and oatmeal, millet, as well as other products including semolina and rye flour to China.
China regulates grain trade through TRQs. Within quota tariffs for edible grains are set at a low 1 percent but outside the quota tariffs are a prohibitive 65 percent, and with limited licences that usually go to the major Chinese state-owned enterprises. What imports do arrive are usually of very high quality and for a niche market. There is little indication that Chinese authorities will loosen their food security principles. At the same time, basic staple commodities such as corn, rice, wheat, are also becoming less important for the Chinese diet. Thus, according to Arkady Zlochevsky, the president of the Russian Grain Union, ‘there are no particular prospects for the growth of grain sales’.
Fish and seafood: One of the areas where Russia has a strong foothold in the Chinese market is fish and seafood and these have comprised the bulk of Russian agricultural exports to China for a long time. In 2018, China accounted for 47 percent of Russia’s fish and seafood exports, with an export value of $1.2 billion USD. China serves as Russia’s main fish and seafood market, meanwhile Russia serves as China’s largest foreign source of frozen fish. Russian fish exports to China are dominated by frozen pollock, approximately half the supply, as well as crabs. However, currently these Russian exports are for the most part unprocessed and low value added.
Meat: China is one of the world’s largest meat producers as well as importers. Pork is the main source of animal protein in the Chinese diet, for which China has historically been more or less self-sufficient. But starting from 2018, the African Swine Flu (ASF) and decimation of China’s pig stocks have led it to turn more to international markets, as well as to alternative meats. China has only recently opened as a destination for Russian meat exports, but as of the first half of 2020 it has already become the main destination. At a September 2019 Russian Ministry of Agriculture meeting dedicated to the export of meat products, China was identified as one of the most promising markets, with an emphasis on poultry. Poultry indeed exports currently comprise the bulk of meat exports to China.
After being banned in 2005 due to outbreaks of avian influenza, the two countries signed a protocol for mutual trade of frozen poultry in November 2018. In February 2019, the first shipment of 54 tonnes came from the Russian company Miratorg. The company Cherkizovo, Russia’s largest poultry producer, also began exporting chicken in May 2019. By the end of 2019, Russia had exported approximately 62 thousand tonnes, worth $143.4 million USD, to China. Currently, chicken wings as well as chicken feet are primary parts being sold, in light of competition against dominant poultry exporters for parts for which Russia is not competitive. A number of requirements unique to the Chinese market, including on the processing side, however, remain to be met across the poultry industry. Despite being the second largest producer in the world, China’s poultry consumption and its imports are also expected to continue to grow.
In January 2020, Cherkizovo also began to export turkey meat to China with an initial volume of 27 tonnes. In terms of beef, China has become one of the world’s fastest growing markets: from a low starting point of 20,000 tonnes of beef imports in 2011, China imported nearly 1.7 million tonnes in 2019 and is now the world’s second largest importer behind the United States. In 2020, the companies Miratorg and Zarechnoe were provided licences to export beef to China, and a first shipment of 21.4 tonnes arrived in Shanghai in May. Chinese imports of Russian beef will certainly grow from such a small baseline. However, Russian beef production is currently not produced at a competitive price, and in scale it is unlikely to challenge Brazil, Argentina, Uruguay, and Australia for any significant share of the Chinese market.
Growth in Chinese demand for poultry and beef is partly due to a substitution effect. ASF had decimated China’s pig stocks by at least half (one-quarter of the world’s production) by the end of 2019. China’s pork imports rose that year to 2.11 million metric tonnes and were expected to peak in 2020 before domestic production can recover. Whether and how much the crisis-induced diversification towards other meat products will continue long-term remains to be seen. However, it is notable that even in 2018, analysts were predicting that China had reached ‘peak pork’, due both to a switch to alternatives in beef and poultry, but also due to government emphasis and consumer interest in reducing meat intake in general.
As of mid-2020, Russia does not export any pork to China; pork exports to China were banned in 2008 due to ASF concerns. Russia’s comparative advantages against larger exporters like the EU, Brazil, and Canada that are interested to taking advantage of the increased demand are also not obvious. Nevertheless, projections by the Chinese Ministry of Agriculture are that meat imports will continue to increase during the next decade. To the extent that Russian meat production keeps pace, the Chinese market will continue to represent an opportunity for growth.
Dairy: Since 2010, China has also been the world’s largest importer of dairy products, amounting to over one-fifth of the global market. At the end of 2018, an agreement on the import of 22 categories of Russian dairy products was also reached. Until then, ice cream was the only dairy product entering into the Chinese market. However, due to logistical factors including cold storage, high transport costs, quality control issues, as well as consumer preferences, traditional dairy products such as milk or yogurts from Russia are less competitive. However, more processed dairy products may have room for growth—though falsification and quality control here remains an issue.
Soybean and oilseeds: A category of significant attention by policymakers on both sides is soybeans, largely imported for animal feed in China. Since China abolished its import quota system for soybeans as part of its WTO accession commitments, it has become the world’s leading importer and accounts for two-thirds of the international market. Due to insufficient if not diminishing arable land, water, and other resource constraints, dependence on foreign soybeans is viewed as largely irreversible. In mid-2018, China placed an effective ban on soybean imports from one of its largest suppliers. Since then, Chinese authorities and state-owned enterprises have been explicit about the need to diversify China’s soybeans import structure, to involve more South American states, Canada, as well as the Black Sea region encompassing Russia and Ukraine, as well as Kazakhstan also. As the president of state-owned China Oil and Foodstuffs Corporation (COFCO), China’s largest grain trader and food processing company Yu Xubo stated, longer-term supply diversification of soybeans will present a ‘historic opportunity for other countries’.
Five Russian provinces were allowed to export soybeans to China in 2015, after phytosanitary approval by Chinese authorities. That year was the first in which any meaningful volumes were exported by Russia to China; by 2018 the volume reached 817 thousand tonnes. During Xi’s visit to Moscow in June 2019 the two sides signed a ‘Plan for Deepening Cooperation between Russia and China in Soybeans’ according to which the goal is for China to import 3.7 million metric tonnes of Russian soybean by 2024. This has since been connected to the larger project of reaching $200 billion USD in total bilateral trade by 2024. In July 2019, the Chinese General Administration of Customs approved imports of soybeans from all territories of Russia, as well as expanding modes of transport to include sea shipping.
China is the primary buyer of Russia’s soybean crop. The volume, however, is notably small when compared to China’s overall imports of 88 million metric tonnes. Russian targets are expected to more than double the value of soybean exports from 2018, to $600 million USD by 2024.78 Estimates regarding the potential of soybean export vary, however. Some experts are sceptical that 3.7 million metric tonnes to China can even be reached considering climate, geographic factors, and the scarcity of available arable land. According to Dmitry Ryl’ko, head of the Institute for Agricultural Market Studies, the RFE’s potential for soybean is already ‘practically exhausted’ and a maximum of 2 million metric tonnes is more likely. Finally, Russian soybeans are non-GMO. There are also advantages to this (see below), but among other issues, including pests and lower yields, Russian soybeans are not competitively priced against other major exporters. Thus, while there are prospects for growth, it is likely that Russian soybeans will remain a negligible part of China’s overall demand.
As for other oilseeds and oilseed products, sunflower oil has notably been competitive in the Chinese market. Sunflower oil is a relatively niche product, viewed as a healthier alternative to standard cooking oils. Different packaging standards and expectations—for example litre size—however, can limit its appeal. Moreover, Russia faces high competition from Ukraine, including due to infrastructural issues and port capacity. Regarding other intermediary products, a 2019 protocol for Russian export of soybean, rapeseed, sunflower meal was also signed.
Ecological products: Genetically modified (GM) foods are seen in a negative light by a substantial proportion of Chinese consumers. Since GM production was banned in Russia in 2016, an opportunity exists for Russia to expand its non-GMO exports to China. For example, soybean imports are suitable for niche ‘ecological’ markets, in particular for non-animal feed uses of soybean. Other niche markets include processed products such as soy milk, soy sauce, tofu, and other seasonings. Non-GMO food presents an advantage for the marketing of healthy products for higher-end markets. Russian legislation including the 2020 federal law ‘On Organic Products’ on this should assist with labelling and quality standards in this regard. Notably, the development and marketing of ecological products is also a part of Russian export strategy.
Higher value-added products: Russian leadership is quite clear about the need to move up the supply chain, towards processed and value-added products rather than raw agricultural materials and bulk commodities export. In this area, Russia’s chocolate confectionary products have a strong showing on the Chinese market, comprising $112.6 million USD of $438 million USD total Chinese imports of chocolate products in 2019. Russian brands of beer and ice cream have also made inroads into the Chinese market.
Overall, to reach its export targets for 2024, Russia’s exports will need to move beyond bulk commodities and raw agricultural materials exports. This requires not only domestic processing, but also vertical integration both at industrial and regulatory levels, across the wider value chain. This includes quality control, monitoring, and inspection, but also packaging, product promotion, and retail, in order to raise the profile, reputation, and overall competitiveness of Russian products on the Chinese market.
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