beyondbrics

Russian agriculture is as vulnerable to the weather as anywhere, but this year it has had unbelievably bad luck. A record breaking heat wave and drought devastated the country’s farms – and in the sugar sector the setback was felt especially hard.

The Kremlin has set a goal of modernising agriculture and ensuring Russia becomes self sufficient in food. Modernization efforts were beginning to pay off in the sugar fields, but the drought has brought a run of improving harvests to a sudden halt.

At the height of the drought, the Russian Sugar Producers Union cut its forecast for sugar production this year from an anticipated record of 4m tonnes to 3.2m-3.5m tonnes, enough to meet about half the nation’s needs.

But experts have warned the final tally could be much lower. Russian sugar beet production could fall to 2.7m-2.8m tonnes this year, says Jonathan Kingsman of the Lausanne-based Kingsman sugar consultancy. Farm machinery will struggle to collect beets that have dug deep roots to seek moisture in parched land.

This – along with a shortage of rain in Brazil, the world’s largest sugar producer and exporter – helps explain why the world sugar price has risen this year to one of its highest levels in 30 years: it was roughly 26 cents per pound on Monday.

Another factor is rising demand for sugar as a cheap source of calories in emerging markets, where its importance has made its price far more politically sensitive than in the west.

To darken the mood in Russia further, when heavy rain fell on some farms in the fertile Black Earth region last week, it turned nearby sugar beet fields into a sea of mud, interrupting the harvest and possibly reducing the final tally by even more.

“We must collect all the beets before November when the hard frosts set in,” says Maxim Zhalnin, the chief executive of the October agricultural group that farms in the Tambov region in the heart of Russia’s grain belt.

But the rain did at least nurture newly-sown winter wheat (and it was the impact of the drought on grain that triggered a Russian export ban in August, pushing world wheat prices to the highest level since the food crisis of 2007-08).

“The rain is good for our grain, but bad for beets,” says Zhalnin.

Because modernisation in the agriculture sector has advanced further than in other parts of Russia’s oil-dependent economy, sugar production from domestically grown beets had doubled since 2000.

That had pushed Russia down from first to third place in the ranks of world sugar importers.

The goal is to reduce import dependency to one third by 2012 by increasing beet production and replacing antiquated Soviet-era sugar processing plants.

Overall, Russian agriculture was one of the few sectors that continued to grow during the financial crisis, with cereals and meat production also benefitting from reform efforts.

“Russian agriculture has been a success in terms of production volumes,” says Natasha Zagvozdina, consumer analyst at Renaissance Capital. “But it still lags behind emerging markets in terms of efficiency.”

Modern farming methods introduced at the farm run by Zhalnin’s October group had helped swell the size of beets to the size of cricket balls in good years. But the drought had a devastating impact.

“It looks more like a carrot,” sighs Zhalnin, plucking a wilted beet from the ground.

The damage done by the hot weather is partially offset in financial terms by the fact it increases the sugar content of the beets that survive, says Zagvozdina at Renaissance Capital.

But still, with Russian sugar beet production expected to fall sharply, the country will be forced to turn to world markets for extra supplies.

Related reading:
[Bric Food File] Emerging markets redraw the world food map, beyondbrics
Reforming Russia: changing the engine on a rusting boat, beyondbrics
Russia’s drought threatens Caspian caviar, FT