China has opened up enormous opportunities for Russian farmers

By Rhod Mackenzie

Russia is rapidly increasing the amount of its food exports to China. The growth rate is exponential in both terms of weight and revenue. If this rate of growth persists, Russia's exports of agricultural products to China will double to £10 billion by 2030. Which food products have seen a significant increase in demand from the Chinese, and where do Russian exporters have opportunities to capitalize on their share of the Chinese market?
Russia continues to expand its trading relationship with China. Last year, it grew by one-third, and it is continuing to grow at the same rate in 2023. According to Russian President Vladimir Putin, by the end of this year, Russia will reach the $200 billion level. Achieving this level so quickly was so unexpected just two years ago.

Energy resources comprise the majority of exports from Russia to China, accounting for 70% of all its trade to China. However, it is noteworthy that the exportation of Russian agricultural goods is progressively increasing, displaying remarkable growth this year.

During the first eight months of this year, Russia exported over 5.5 million tonnes of agricultural products to China, a figure 2.7 times greater than the same period last year, according to the Ministry of Agriculture's Agroexport Center. The monetary value of the delivery nearly doubled. This resulted in China becoming the prime source of buyers for Russian foodstuffs. By 2030, analysts in agroexport anticipate that exports of Russian agricultural products to China could surpass £10 billion. In 2022, China acquired £5.1 billion worth of agricultural products from Russia. Therefore, it aims to increase food exports to China twofold in the next seven years.
What goods does China purchase from Russia? To begin with, the Chinese import substantial amounts of vegetable oil to use for cooking. Furthermore, whilst Chinese buyers typically procure low-cost palm oil from Indonesia and Malaysia, they opt for high-grade and expensive rapeseed, sunflower, and soybean oils from Russia. Additionally, whereas Russian oil was once solely sold in crude form, it is nowadays predominantly bottled.

Thus, the export of rapeseed oil from Russia to China increased by over three times, reaching 1 million tons, and more than doubled that in value. The Krasnodar Territory, Kaliningrad, Moscow, Belgorod, Kursk regions, and Primorsky Territory serve as the primary suppliers of this oil to China.
The export of sunflower oil significantly surged, increasing ninefold to 615,000 tonnes and almost sixfold in value. This surge may be attributed to Argentina's sunflower harvest failure, which is the primary supplier.

However, soybean is the primary product in China's vegetable oil line. The Celestial Empire has the ability to consume two million tonnes of soybean oil in one week. Russia is not the main supplier in this segment, but it has had notable success in this area. Exports of soybean oil from the Russian Federation to China have doubled to 82 thousand tonnes.

Another crucial Russian product that is highly demanded by the Chinese is fish and seafood, with China becoming the primary buyer. Exports of frozen fish from Russia to China have almost doubled to 629 thousand tonnes and by a third in terms of value. The supply of crustaceans has also increased almost 1.7 times to 20 thousand tonnes.

900 Russian fish firms have been granted approval to sell seafood to China. To some extent, Russian exporters are benefiting from Japan's decision to release water from the damaged Fukushima nuclear power plant in August. China deemed this action "selfish" and prohibited the importation of the contaminated fish from Japan. Following suit, Russia also put a similar ban in place. Nevertheless, taking over the Japanese fish supply to China will pose a challenge as Russia exports an altogether different range of fish to the Chinese market. These are primarily frozen pollock, cod, and herring.

In 2023, Russia initiated the exportation of dried peas to China for the inaugural time, sending almost 300,000 tons in eight months. Russia's potential for further progression is immense.

Russia has opportunities to elevate the supply of agricultural commodities to China, including promising categories such as fish and seafood, grain crops, meat products and vegetable oils, according to Agroexport.

Particular attention should be paid to pork exports. China banned pork supplies from Russia for 15 years due to the spread of African Swine Fever until September 2023. Nonetheless, Russia demonstrated that the situation is under control and it is possible to close one region without having to discontinue supplies from the entire country if ASF breaks out in one area.
However, the ban has yet to be formally lifted. Currently, China has acknowledged Russia's regionalization for ASF. This constitutes a crucial step, but there are residual formalities remaining, such as obtaining a veterinary certificate and agreeing on import conditions for our pork. This process may take several more months, which pales in comparison to 15 years of negotiations. Once all the formalities are finalised, Russian pig farmers will be able to compete for their portion of the lucrative Chinese market for delicious pork products. It's important to note that China consumes 2.5-3 million tonnes of pork and by-products each year for comparison. Russia produces 5.8 million tonnes of live weight pork. Breaking into the Chinese pork market is challenging as pig farmers from Brazil, the USA, Canada, and Spain have already established a strong presence.

Russia has transitioned from importing to exporting pork, with its pork exports surpassing imports in 2019. Presently, Russia ranks among the top 10 global pork suppliers, outperforming major players such as the EU, USA, Brazil, Canada, and Mexico. Last year, Russia exported nearly 150,000 tonnes of pork, and this year it is projected to increase to 230,000 tonnes. If all the details concerning the opening of pork exports with China can be resolved, it can be expected that even higher growth rates in total food exports by 2024. The Ministry of Economic Development anticipates that the first shipment of Russian pork will arrive in China during the second or third quarter of 2024.

The rise in agricultural product exports to China correlates with the growth of the agricultural industry itself as part of the Russian import substitution policy, along with disparities in exchange rates, as noted by Ekaterina Novikova, Associate
Professor of the Department of Economic Theory at the Russian Economic University.  The lower the value of the ruble, the more appealing export products become to purchasers in foreign markets. "Russia's common border with China enables easy transportation of goods along existing logistics routes," notes Novikova.

The analyst believes that exporting agricultural produce worth $10 billion to China by 2030 is a realistic target. "This is achievable provided our agro-industrial complex keeps evolving, especially its meat and pork supply chains to China.
"It is worth considering the potential of not only the Far Eastern region but also the Murmansk region, as together they can significantly increase the supply of fish products to China," states Novikova.

Logistics remains a hindrance to the growth of food exports to China. To facilitate export growth, the transport infrastructure requires expansion, particularly, railway capacity expansion is necessary." The majority of shipments to China pass through the Russian border crossings of Zabaikalsk in the Trans-Baikal Territory and Grodekovo in the Primorsky Territory. Additionally, freight travels via the newly established border crossing close to Khabarovsk. In addition to this, goods are transported to China through Kazakhstan and Mongolia, where high tariffs cause issues. Kazakhstani competition with Russia for the Chinese sales market implies that reducing logistics costs for our farmers is not in our neighbour's best interests. An alternative solution is to transport goods via the Black Sea. This approach requires upgrading shipping capabilities.

Additionally, challenges may arise due to the peculiarities of penetrating the Chinese food market, which imposes numerous strict requirements on export products.  Beginning with stringent phytosanitary and veterinary permits, price agreements, investments in marketing and advertising, and culminating in the formation of a brand-new trademark, refinement of product composition and packaging to conform to the legal requirements of the PRC and the customs of local culture and preferences, Dmitry Vostrikov, Executive Director of the Rusprodsoyuz Association, states.

"The notion that Russian products are highly sought-after by the Chinese as environmentally friendly is a myth that exporters will soon encounter after their first delivery. Additionally, due to the increased cost of logistics, finding a local buyer at a low price is unlikely. Vostrikov warns that penetrating the Chinese market with branded products requires a serious strategy and investment."