With grain exports likely to reach 8 million metric tons this year, Russia’s ports admit they are having trouble coping.
This is forcing the government in Moscow into opting between the policy of favoring Russian over Ukrainian and Baltic ports, or letting the surplus of grain eat into farm prices, farmer’s incomes, and farm planting for next year. Watch carefully and you will see how agile the Russian government can be in trading favors with powerful constituencies at the start of an election year.
The strongest pressure from Russia’s current grain boom is being felt at Novorossiisk, on the Black Sea – the traditional hub of Russia’s grain trade – because most of the export grain is produced in the Krasnodar and Rostov regions to the west of the port. Novorossiisk usually ships half or more of Russia’s grain exports.
Executives at the Novorossiisk port company confirm that out of about 2 million tons of grain exported from Russia in the first six months of this year, about 1 million tons went through the port. St. Petersburg port reports grain shipments totaling 621,700 tons in the same period, while an equivalent volume went through the small southwestern Russian ports of Taganrog, Azov, Yeysk and Rostov.
This year’s windfall for Russian barley and durum wheat producers comes at the same time as drought has caused declines in harvests in North America and Australia. After several years of poor harvests, net imports and grain aid, Russia exported 7.2 million tons of grain last season, which ran from July 2001 to June 2002. Official forecasts for this season range between 8 million and 10 million tons.
Russian port capacity for shipment of grain is a maximum of 5 million tons per year.
Rudolf Bulavin, an analyst with a major grain trading company in Moscow, said that at present Russian ports account for about 75 percent of grain shipments; 15 percent move through the Ukrainian ports of Odessa and Ilyichevsk; and the remainder through Baltic ports, notably Muuga in Estonia.
“Russia is trying to do its best to export grain to Western Europe, the Middle East and North Africa, where there is currently a deficit,” Bulavin said. “The price difference between the domestic market and export markets makes it possible to ship grain both by large vessels from Novorossiisk and smaller river-sea type vessels from the Azov and Don ports. However, nobody can say whether grain transportation by smaller vessels will be effective next year.”
The volume available for shipment has been causing problems for rail transportation and terminal storage at the ports, he conceded: “The problem of chartering vessels for grain exports is only a matter of price. While the average charter rate is $17 to $23 per ton for transportation to Europe, if the exporter pays more, he can easily get a vessel.”
Alexander Filimonov, spokes-man for the federal Transport Ministry, acknowledges that the mid-size ports on the Azov Sea, such as Taganrog and Azov, are handling the grain exports, but these and the river ports on the Volga and Don channel, such as Rostov, can only handle smaller vessels; Novorossiisk can currently work with vessels of up to 50,000 tons grain capacity.
“The smaller shipments of grain using river-sea type vessels are not always profitable,” Filimonov said. “And, of course, they are always less profitable than larger shipments made through Novorossiisk.
“But one of the obstacles there is that grain transportation is not a highly profitable operation for stevedore companies, given low tariffs for grain re-loading. This is why stevedore companies are not very active in investing in the construction of specialized grain terminals in the ports.”
Under pressure from farmers to keep grain prices from falling precipitately, the Russian government has decided to encourage exports by introducing a 20 percent rail freight discount on shipments of grain to Ukraine and Baltic ports.
This reverses a yearlong government policy, which drove shippers of Russian export cargoes to use Russian instead of the non-Russian ports by imposing customs bans and other forms of red tape.
The Transport Ministry says this a temporary expedient, and that for the long term, it would like to encourage domestic port companies to expand their grain storage and loading capacities.
A source at the Novorossiisk port company told me it is currently expanding four berths on Wharf No. 3, to be used for grain vessels up to Panamax size.
The water depth there is 13 meters. By next year, the source said, the grain transportation volume should be up to 3 million tons per year. It could go higher if the Rail Ministry improves access to the port, he added.
However, Bulavin warned that in the absence of a clearly stated government policy, “it is hard to make any plans for constructing new grain terminals.”
“The government hasn’t announced whether it will be supporting meat production in Russia. That is why it is impossible to say what domestic consumption of grain will be in the future. It is possible that next year the grain harvest will not be as big as this year, and Russia may become a net importer of grain again. In this situation, stevedore companies cannot predict whether their investment into new grain terminals will pay for itself,” he added.
Anna Vostrukhova, spokesperson for Severstaltrans, explained that until this year Taganrog port had not been handling grain. Severstaltrans is the national transport company that controls Taganrog and Tuapse ports in the south and Vostochny in the east, and is building up its stake in St. Petersburg in the north.
Currently, she said, grain exports amount to over a quarter of the cargo transported through Taganrog. During the first half of the year, Taganrog port reports to have transported more than 800,000 tons of cargo – out of that, grain amounted to 210,000 tons.
The maximum throughput of grain at Taganrog was 60,000 tons per month, but it has increased in September and October, Vostrukhova said. “At the moment, grain exports constitute a good addition to Taganrog’s traditional business, and the port is working on improving its technology for handling grain. Right now this involves loading from trucks to vessels.”
According to Transport Ministry spokesman Filimonov, Novorossiisk, St. Petersburg and Vladivostok are all modernizing and expanding their capacities for grain transportation.
He predicts that as a result of this expansion, they will add 30 to 60 percent more capacity for grain throughput. That’s a potentially costly risk for commercial Russian companies to run, if they must count on Russian farms to deliver consistently high harvests in the near future.
Filimonov adds there is a plan on the drawing board to build a grain terminal at the new Ust-Luga port on the Gulf of Finland, near St. Petersburg.
The aim would be to compete against Muuga, which is currently capable of handling 5 million tons of grain per year; the Estonian port was the largest of the Soviet-era ports for grain. The Ust-Luga move is part of the Transport Ministry’s determination to ship Russian cargo through Russian ports.
But the ambition is a costly one, and though Ust-Luga’s grain terminal has the backing of a large semi-state agribusiness group, construction of the grain facility isn’t likely for several years, Filimonov conceded.
In the meantime, grain exporters like Australia, Canada and the United States are adamant about restricting – if not eliminating – the price support for grain farmers, which the Russian government believes it must maintain to encourage planting and protect future harvests.
This is one of the biggest obstacles to Russia’s accession to the World Trade Organization (WTO). It’s one of the reasons the Russian government is quietly elegating WTO membership from its list of country priorities.