Experts consider Russia’s mega grain contract with China a declaration of intent

Russia and China have signed the largest 12-year contract in the history of the countries for the supply of 70 million tons of grains and oilseeds worth about 2.5 trillion rubles (almost $25.63 billion). The agreement was signed within the framework of the One Belt, One Road forum, Russian news agency TASS reports.

The leader of the New Land Grain Corridor initiative, Karen Hovsepyan, announced the imminent launch of the land grain initiative: an interstate agreement will be signed at a meeting of the heads of government of Russia and China in late November or early December.

The contract provides for the supply of agricultural products from the Urals, the Far East and Siberia. The agreement was signed between the Novosibirsk Production and Export Company ELT and the state-owned China Chengtong International, which is part of an initiative involving the State Administration of State-owned Assets of China (SASAC), the Russian specialized publication Agroinvestor said.

Experts believe that the agreement is more like a declaration of intent than a contract with obligations.

The Russian Institute of Agricultural Market Conditions (ICAR) does not see the potential for supplying 70 million tons of agricultural products. According to ICAR Director General Dmitry Rylko, in the short term, the possible volume of exports to China from the Urals, Siberia, and the Far East is 3-3.5 million tons of grains, legumes, and oilseeds per year.

Moreover, the Chinese need high-quality wheat with a protein content of 14.5%, not feed wheat. There is no such wheat in the Far East at all, and there is little of it in the Urals and Siberia, and it is usually quickly snapped up by local companies, Rylko emphasized.”This is not a contract, but a memorandum of intent, and the question is between whom it was signed – between two private companies or between Russia and China?” said Alexander Korbut, an independent grain market expert.

It is unclear whether the agreement between Russia and China provides for grain imports under quotas. The fact is that wheat outside the quotas is subject to a 65% import duty.

Potentially, the signing of the agreement on the sidelines of the One Belt, One Road forum gives hope for a new export route for Russian grain, but the issue of quotas needs to be resolved at the state level, Korbut believes.

The estimated price of the product – $360 per ton – also raises doubts. This is more expensive than the current price of public procurement in China – $320 per ton.

Tags: wheat, Russia, China