Despite ongoing uncertainty and some difficulties, the past year for the crop farming industry has been marked by adaptation to changing conditions and continued development. In this analytical commentary, ACRA examines the main trends of 2024 and further prospects for the development of one of the main agricultural sectors, which plays an important role in ensuring the country’s food security.
A near-record grain harvest
In 2023, on the backdrop of declining crop yields, the grain harvest in Russia amounted to 144.9 mln tons vs. 157.6 mln tons a year earlier. At the same time, the sowing of winter crops, which form the basis of the future harvest, took place during favorable weather conditions at the end of last year. This indicates that the crops are in good condition, which, coupled with the increase in sown areas, has a positive impact on expectations for the gross grain harvest in 2024. The Agency assumes that the future harvest may exceed last year’s harvest and reach 146–148 mln tons, which would be second only to the record harvest of 2022.
Figure 1. Gross grain harvest in Russia, mln tons
Sources: Rosstat, ACRA
Russia’s growing share in the global wheat market
In recent years, Russia has become a world leader in terms of export sales of wheat. ACRA expects that Russia will have strengthened its status as the world’s largest exporter of this crop by the end of the current agricultural year (July 2023 to June 2024). Currently, the largest buyers of Russian grain are Egypt and Turkey, who together account for around 40% of shipments.
In the Agency’s opinion, Russia will increase its wheat exports by 10–12% in 2023–2024, on the condition that the harvest is good, high demand is maintained among the majority of importing countries, and the geography of exports is broadened. ACRA regards production growth outpacing the dynamics of domestic demand to be another important condition for increasing exports. According to the forecast of the Institute for Agricultural Market Studies (IKAR), Russia’s share in global wheat trade may increase to 25% this season vs. 22% last season.
Figure 2. Grain exports from Russia, mln tons
Sources: Russian Ministry of Agriculture, ACRA
For further details, see ACRA’s research Reserves of Russia’s Labor Market from March 5, 2024.
Profitability of crop farming will continue to decline
The low average annual price of wheat and other crops amid a significant increase in costs for agricultural cultivation technologies led to a decrease in farmers’ profitability of last year. This year, ACRA does not expect a material change in the price trend for grain. Price growth in the domestic market is hindered by high supply as record-breaking grain reserves had accumulated by the start of the current season. At the same time, global prices are at a minimum, under pressure from high supply from Russia and other Black Sea region countries.
In the Agency’s opinion, in 2024, the profitability of the crop farming industry may fall to its lowest level since 2019 — 20–25%. Among the reasons for the continued decline of profitability, ACRA notes current inflationary processes and the forced increase of payroll expenses on the back of a labor shortage in the industry and in Russia in general.
Figure 3. Profitability of crop farming in Russia, %
Sources: Rosstat, ACRA
Import substitution remains one of the key factors of stability of the industry
The exit of a number of foreign seed producers from the Russian market served as an impetus for the development of the country’s own seed production base. The process of import substitution in the field of seed production is enshrined in the Food Security Doctrine of the Russian Federation, which provides for an increase in the share of domestic seeds in agriculture to 75% or more by 2030.
Figure 4. Plan to increase the self-sufficiency of the most import-dependent crop seeds, %
Source: Decree of the Government of the Russian Federation No. 4133-p dated December 23, 2022: “On approving the list of the main agricultural crops and annual targets for the country’s self-sufficiency in seeds of domestic selection for each of these crops (until 2030), as well as the list of the main types of livestock and annual targets for the country’s self-sufficiency in domestically produced breeding products (material) for each of these types (until 2030)”.
According to Rosselkhoznadzor, the total volume of imported agricultural seeds fell by 34% in 2023 compared to the end of 2022. In total, 57,700 tons of seeds were imported last year vs. 87,900 tons in 2022, which was largely due to the development of domestic seed production. In order to accelerate import substitution, the Russian government introduced quotas for seed imports from unfriendly countries in February 2024. The quota is 33,100 tons this year and applies to potatoes, barley, corn, rapeseed, sunflower, and sugar beet.
An important area in ensuring the country’s technological sovereignty is the localization of agricultural engineering. The production of domestic agricultural machinery in monetary terms in 2023, according to the Rosspetsmash Association, reached RUB 271.1 bln compared to RUB 250.6 bln in 2022. At the same time, in quantitative terms, the trend is multidirectional: for example, the production of combine harvesters has increased, while the production of tractors, on the contrary, has decreased. On the other hand, the volume of agricultural machinery imports grew at a faster pace last year, so the share of domestic machinery decreased from 61% in 2022 to 53% in 2023.
This year, ACRA expects continued growth of the production volume of Russian agricultural machinery (by 10–15% in monetary terms compared to 2023), including through the expansion of subsidies under Program 14321. However, the Agency assumes that the declining profitability in farming and high interest rates will hinder higher growth rates. The long-term target set out in the consolidated strategy for the development of the manufacturing industry is to increase the share of Russian mechanical engineering industry in the agricultural sector to 80% by 2035.
1 Decree of the Government of the Russian Federation No. 1432 dated December 27, 2012 “On approval of the Rules for granting subsidies to agriculture machinery manufacturers” regulates subsidies offered to domestic agriculture machinery manufacturers to increase the availability of this machinery.
Figure 5. Volume of agriculture machinery manufactured domestically, RUB bln
Sources: Rosspetsmach Association, ACRA
The demand for digital solutions in the agricultural industry is growing
Since 2019, when the Digital Agriculture government-run project designed until 2024 was launched, the degree of penetration of digital technologies has been growing, but still lags behind other key sectors of the economy. In 2023, the level of digitalization of the Russian agricultural industry was estimated by experts at 20–25%. According to Geomir, a software developer and supplier of digital farming solutions, the growth in demand for digital technologies in 2023 amounted to about 20–30% compared to the previous year. In 2024, the growth rate of digitalization of the country’s agroindustry, according to market participants, may reach 40–50% thanks to, among other things, government support through subsidies.
Agroindustry digitalization helps mitigate labor shortage issues, streamlines production processes, and increases yields. The Agency notes the high demand for satellite navigation equipment designed for monitoring agricultural machinery and vehicles. To this end, Rosselkhoztsentr Federal State Budgetary Institution, on behalf of the Ministry of Agriculture of the Russian Federation, is developing a program for the introduction of agro drones, which is expected to be implemented in 2024–2026.
