Food for thought: Why Russia-China grain pact is a big deal

This deal with China gives Russia a solid option for its own grain exports and allows it to better resist pressure from the West on this topic in the context of the war in Ukraine.

Majalla/Agencies

The grain deal between Russia and China is part of a growing trade portfolio and has important implications for both countries and the rest of the world.

Food for thought: Why Russia-China grain pact is a big deal

Nazareth Seferian

last update on 29 Oct 2023

In a deal valued at around $25.7bn, a Russian export firm, EPT grain export company, signed an agreement on 17 October 2023, to supply China with 70 million tons of grains, legumes, and oilseeds.

This news came very soon after the deal announced the previous month between Russia and China to invest in a “land grain corridor” worth $160mn, located between Vladivostok in Russia and the province of Heilongjiang in China. Taken together, these deals have serious implications for both countries, as well as the rest of the world.

Russia is enjoying a bumper wheat harvest in 2023 and, according to the country’s agricultural watchdog, has exported a record 3.5 million tons to China since the beginning of 2023, which was only around 2% of annual imports into the country, and more than the 2.2 million tons exported throughout the whole of 2022.

Wheat production in Russia has grown by over 60% during the past decade, making Russia the top exporter of this grain in the world. Russia accounts for around 14.4% of total wheat exports globally, and Ukraine is not far behind at 9.5%.

Wheat exports from Ukraine had come to a complete halt in the first few months after Russia’s full-scale invasion in February 2022. Joint coordination among several international players led to the Black Sea Grain Deal in July 2022, which created procedures for the safe delivery of wheat from Ukraine through certain routes.

AFP — A combine harvests wheat near Kramatorsk, in Donetsk region on August 4, 2023, amid the Russian invasion of Ukraine. Known as the world's "bread basket", Ukraine grows far more wheat than it consumes.

However, that deal expired in July 2023, and Russia said it did not intend to review its position on this matter “until concrete results were achieved, rather than promises and reassurances.”

The objections that Russia voiced include the claim that more than 70% of the exported wheat went to economically advanced countries, while the poorest countries in the world received only 3%. They also claimed that Western companies make unethical profits from the deal.

The grain deal between Russia and China is part of a growing trade portfolio, and has important implications for both countries and the rest of the world.

This recent deal with China now gives Russia a solid option for its own grain exports and allows it to better resist pressure from the West on this topic in the context of the war in Ukraine.

That pressure clearly continues to exist, as demonstrated by recent comments from Josep Borrell, the High Representative of the European Union for Foreign Affairs and Security Policy, "I asked China to use their influence to make Russia go back to the (Black Sea) Grain Deal initiative to (allow) the Ukrainian grain to be exported to the rest of the world. Otherwise, we will face another food crisis."

AFP — EU High Representative for Foreign Affairs Josep Borrell (L) and China's Foreign Minister Wang Yi attend the EU-China High-Level Strategic Dialogue at the Diaoyutai State Guest House in Beijing on October 13, 2023.

For China, this deal with Russia is a big step forward in food security. The Global Times reports that the Chinese Government has managed to achieve some levels of staple food self-sufficiency. Still, China has only 7% of the world's arable land while being home to almost 18% of the world's population.

This deal with China gives Russia a solid option for its own grain exports and allows it to better resist pressure from the West on this topic in the context of the war in Ukraine.

China had lifted restrictions on Russian wheat and barley imports in February 2022, but logistical challenges remained because the Black Sea route was still the main option for these supplies.

The grain deal between Russia and China is part of a growing trade portfolio between the two countries. Additionally, it is worth noting Russian President Vladimir Putin's statement in March 2023 that two-thirds of this trade is already being conducted in RMB yuan and Russian rubles, thus decreasing the dependency of these countries on the US dollar.

This deal also has an impact on the rest of the world. It is already clear that one of the levers that the West had to put pressure on Russia—limiting its wheat exports—is now largely off the table. The West had imposed no sanctions on Russia's wheat exports directly, but the restrictions imposed on some Russian banks and companies had made it more difficult for some of these transactions to take place.

Reuters — Combines harvest wheat in a field in the course of the Russia-Ukraine conflict near the settlement of Nikolske in the Donetsk Region, Russian-controlled Ukraine, July 19, 2023.

Given that Russia has no such restrictions in the Chinese market, this new deal will make things easier on that front as well. Additionally, by meeting its needs through Russia, China will take a considerable amount of pressure off of the grain markets for other global consumers.

Wendong Zhang, an associate professor of economics at Iowa State University, said in June 2022 that China is pushing for self-sufficiency, but may never be able to achieve this goal.

"Overall, unless China dramatically increases yields, which is unlikely in the short run, it will continue to be very consequential in the global market," he said.

"Especially with the increasing income it could potentially play a bigger role in consumer-oriented agriculture products. Certainly, the political challenges with China are always going to be there. But I'm optimistic they're going to continue to import, whether from the US or someone else." That "someone else" is now Russia.

The grain deal is set to be reinforced in an intergovernmental agreement when the Prime Minister of Russia, Mikhail Mishustin, visits China at the end of November or early December. And the world is watching.

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