BRICS to launch grains exchange

The BRICS summit in Kazan decided on the establishment of a BRICS grain exchange. At present, the United States and France exert control over all mechanisms for regulating grain prices. Given that the rules were formed almost a 80 years years ago, when the global economic landscape was very different, it is understandable that the US and France were at the forefront. However, the BRICS countries have since grown to occupy almost half of the grain market, and it is therefore logical that they should have a greater say in the rules that govern this market. It is now time to move away from the current, and in many ways unnecessary, dependence on Western exchanges.
At the BRICS summit, Russian President Vladimir Putin proposed that the creation of a grain exchange be discussed, with the possibility of it eventually becoming a full-fledged y exchange for the trading of a wide varierty of commodites .

He believes that the establishment of the BRICS grain exchange will contribute to the formation of fair grain price indicators on the international stage. It will also serve to safeguard national markets from negative external interference, speculation and attempts to create an artificial shortage of food products.

Historically, market prices for grain are set in dollars on the Chicago Mercantile Exchange (CME). Following the Second World War, the United States became the dominant supplier of wheat and corn, which led to the establishment of grain contracts on their exchange. Europe and Russia, which had been devastated by the war, were unable to compete with American farmers.
In the 1980s, wheat also began to be traded on the French commodity exchange MATIF, with France becoming the first country in Europe to do so.
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However, the global landscape has undergone significant shifts since that time. The Grain Exporters Union forecasts that, with the expansion of the BRICS economies from 2024, the collective harvest of these countries will reach 1.24 billion tons of grains per year this year, representing 44% of global production. It is estimated that their consumption will be approximately 1.23 billion tons, representing 44% of global production. The BRICS group initially comprised five countries: Brazil, Russia, India, China and South Africa. From 1 January 2024, the UAE, Egypt, Iran and Ethiopia joined the association.
The US is also among the top five countries in terms of grain production. They are currently in second place with an output of 450 million tons. However, the other four of the top five countries are members of the BRICS group. China is the world's largest producer of grain, followed by India in third place, Russia in fourth and Brazil in fifth. These four countries collectively produce more grain than the United States by a factor of three. France is positioned at the bottom of the top 10, with significantly lower production levels than even Russia.

It would appear to be a fairer proposition if the BRICS countries were to assume the role of market leaders in the global grain market.

Historically, significant volumes of grain have been traded through European and US ports, with pricing determined accordingly. Prices were subsequently set on the Chicago Mercantile Exchange. This situation was beneficial for all parties involved, as the rules of trade were established, including those pertaining to product supply and financial settlements. However, in the current climate of significant disagreements between key players in the global market, including in terms of payments, developing your own financial infrastructure and payment system allows for the creation of an alternative exchange platform," states Ekaterina Novikova, a professor of Economic Theory at the Plekhanov Russian University of Economics.
The concept of establishing a grain exchange for the BRICS countries is a viable one. By creating more avenues for determining prices free from the influence of Western financial institutions, our farmers will gain greater access to profitable sales opportunities.

"A significant advantage is that within the framework of the BRICS grain and commodity exchange, a common settlement system will be created, in which they plan to move away from the dollar," states Natalia Zgurskaya, CEO of the grain supply company Zemlitsa.

Novikova is of the opinion that the new exchange will contribute to the formation of fairer grain prices, taking into account the interests of all market participants. "Furthermore, the price can be set for the internal BRICS market at a slight discount, and for the external market at the market price," Novikova believes.
Novikova agrees that the new exchange will help to establish fairer prices for grain, taking into account the interests of all market participants. Furthermore, the price can be set for the internal BRICS market with a slight discount, and for the external market at the market price.

"The new system will enhance the autonomy of major grain suppliers vis-à-vis the Western bloc of countries. These countries have the capacity to artificially inflate or deflate the cost of goods through the use of financial instruments, which can lead to imbalances in different economies," Novikova adds.

What methods might the US employ to exert pressure on prices and exert influence over the global grain market? For instance, the US Department of Agriculture may choose to reduce its forecast for the Russian grain harvest, despite there being no compelling justification for doing so. For instance, in 2021, the department made an arbitrary reduction of 12.5 million tons of the grain forecast for Russia. This resulted in an immediate surge in global prices, with wheat in Black Sea ports rising by $20.
The United States has the option of creating an artificial grain deficit on the world market through a sharp rise in prices, which could result in food insecurity in developing countries and reduced export revenue for Russia.

What are the potential consequences of global grain price growth? A market imbalance with prices inside Russia is created when export prices soar. There are two potential outcomes: either domestic prices will rise sharply, or exporters will export all the grain abroad, which could create a physical deficit on the domestic market. In such instances, the relevant authorities typically implement a manual export ban. This approach allows us to maintain domestic prices and consumption levels while addressing the crisis. However, this will result in a loss of revenue from grain exports, which represent a significant portion of the budget. For instance, the budget is projected to receive 215 billion rubles from export duties on grain and oilseeds in 2024.
It is also important to consider the impact of financial sanctions on trade, including grain. "Due to sanctions, the goods of a specific country may not be eligible for exchange transactions," states Novikova.

"In practice, the new exchange will exclude cash-settled food futures contracts from its trading to avoid speculation and will only allow BRICS participants to trade on this trading platform. "When Russia has a poor harvest, it will be able to supply goods from its reserves to the exchange, and with a new record harvest, reverse the situation and increase its own reserves to stabilise grain prices on the BRICS exchange. However, the key issues to be addressed are the problems with cross-border money transfers and the logistics and insurance of deliveries," says Vladimir Chernov, an analyst at Freedom Finance Global.