Russia’s lurking grain industry crisis
Russia’s grain sector is in deep crisis, with nearly 35,000 farmers bankrupt in five years and wheat planting at its lowest in a decade. Export duties, soaring costs, high interest rates, and a strong ruble have drained profitability, while exports are shrinking. Farmers are shifting to sunflowers, risking soil depletion. Exports may fall 25% this season, undermining Russia’s global market share.
A systemic crisis unfolding in the Russian grain industry over the last three years has reached its climax, as farmers massively abandon wheat production, and exports exhibit an unusual negative dynamic.
Nearly 35,000 grain farmers went bankrupt over the last five years, according to the Russian Grain Union, the leading business organization in the industry. The trend is only gaining momentum, as most farmers no longer have a margin of safety in the form of reserves accumulated during the industry’s more profitable days.
“Money in the farmers’ pockets has run out,” said Arkady Zloshevskiy, president of the Russian Grain Union (RGU). “This is primarily because of the export duties, quotas on exports and worsening competitive environment.”
Initially introduced as a temporary measure to protect the domestic food market from price turbulence during the global turmoil triggered by the COVID-19 pandemic, the export duty has been preserved for much longer than expected.
The RGU has repeatedly called on the Russian government to either withdraw the duty or at least revise the formula used to estimate it to lower the financial burden on the troubled industry. However, the industry’s perpetual ringing of alarm bells has fallen on deaf ears.
“It is clear why this is happening,” said Kira Remneva, a local analyst. “The duties are one of the key sources of income for the Russian budget. In 2024, it (grain export duty) brought an estimated 133.9 billion rubles ($1.6 billion), and this year the forecast is 187 billion rubles ($2.37 billion).”
For the country facing a gaping budget deficit amid Western sanctions associated with Russia’s invasion of Ukraine and falling global crude oil prices, this source of income is vital.
The export duty is undoubtedly a big issue but only a tip of the iceberg as Russian grain farmers face countless challenges. Before the current crisis, Russian grain farmers said they didn’t need to attract bank loans to keep their operations running. Now, bank loans remain unavoidable and unaffordable at the same time.
As the Russian Central Bank’s key benchmark rate is now set at 18%, the cost of bank loans issued on general terms is jaw-dropping.
“It makes no sense to take money under the 27% to 28% interest rate,” said Sergei Sukhovenko, chief executive officer of Bison-Yug, a company growing grain in the southern Russian regions. “What kind of business can justify this: arms trade or drug business somewhere in Latin America? In the long term, this is going to kill the (national) economy.”
On top of that, the cost of grain production has jumped by 20% over the past year due to the rise in fuel, energy and fertilizer prices, according to the RGU. However, wholesale price dynamics of wheat and other crops remain flat.
“Everything is getting more expensive, except grain,” the RGU said.
Several factors contribute to keeping wholesale grain prices low. As domestic prices remain largely tied to global prices, the Russian ruble’s unprecedented strengthening by nearly 40% since the beginning of the year — another consequence of the tight monetary policy — also has hampered local grain prices, which are nominated in rubles.
Analysts said the problem is that the Russian ruble is overvalued — a situation where its actual price does not correspond to economic reality. One result of such an extraordinary economic phenomenon is that exported products become less competitive in the global and domestic markets.
Unprecedented consolidation and even monopolization of the Russian grain export business is reportedly another factor keeping prices low.
Currently, nearly 80% of grain exports from the Russian ports in the Azov-Black Sea basin are concentrated in the hands of only five companies. For comparison, in 2020, it was estimated that 15 companies accounted for 80% of Russia’s shipments to foreign customers.
The Azov-Black Sea basin is a key Russian agricultural export gateway, accounting for nearly 90% of all Russian grain exports. With less competition among exporters, collecting grain on the market, farmers frequently are forced to sell crops at a loss.
Russian grain farmers complained that, despite their plight, the pressure from the state continues to rise.
For example, the Russian Agricultural Ministry has been putting great effort into buying insurance for its crops, suggesting that this should make business more predictable. Behind the promising façade, there is only a desire to drain the industry of the few resources left, market players said.
“We do not insure crops,” said Yuri Kashirin, chairman of Agropromsoyuz and head of the Shumilinskoye farm in Rostov region, in southern Russia. “We do not gamble with the state because insurance does not work here.
“There are influential people who oversee insurance, and therefore, they force us to buy it. What is the point? The point is that this money remains in the pockets of businesspeople. However, if my crops are lost, we will never receive compensation for them.”
Crisis coming to light
For years, the Russian grain industry crisis has remained hidden from the public eye behind solid grain production and export figures. However, it now seems to be coming to light, as the problems of small farmers are being reflected in the macroeconomic data.
The amount of spring wheat planted area in 2025 is expected to drop to 11.8 million hectares — the lowest level in a decade, Sovecon, a Moscow-based consultancy, forecasted.
Beyond the Ural Mountains, Russian farmers plan to abandon sowing wheat on 1 million hectares of agricultural land, switching to growing sunflower seeds or other activities.
“The reduction of planting area under grain is primarily happening due to the decrease in profitability, even the decline of this profitability to a negative level over the past two or three years,” said Pavel Vergeichik, director of Agrokapital, a prominent Siberia grain manufacturer. “My colleagues, neighbors, all of us are refusing to sow grain.”
The mass switch to sunflower seeds, one of the few segments of agriculture where production remains profitable, comes at its own cost. Manufacturers already have expressed fears about the oversupply of sunflower seeds this year. Also, the mass production of sunflower seeds threatens to lead to a sharp deterioration of the soil quality.
“It (sunflower) removes nutrients (from soil), so its monoculture cultivation increases the risk of specific diseases and pests,” said Andrey Neduzhko, CEO of the Steppe agricultural holding.
Under the common production standards in Russia, farmers need to maintain a gap of at least six or seven seasons between sowing sunflowers at a field. However, in the current conditions, where long-term planning is hardly possible and farmers fight for their survival, this rule is often neglected.
Despite the accumulating problems, the Russian Agricultural Ministry and some analytical groups close to the Russian government project a slight increase in wheat production this year to 82.8 million tonnes, compared to 82.6 million tonnes in 2024.
The government said the average yield will rise this year, offsetting a drop in sowing area and fewer farms operating due to bankruptcy.
Russian farmers, on the contrary, said they believe that the increase only will be achieved through the manipulation of statistical data — a state practice that has long existed in the Russian grain industry but is not expected to reach a new scale.
“Personally, I understand that this growth is possible only if you make adjustments on paper,” Vergeichik said. “Because of the unfavorable conditions of this year plus the reduction of output, there is no way the harvest will increase.”
Russian farmers have switched to money-saving mode, cutting down on the use of fertilizers and plant-protecting agents, among other things, so it is not entirely clear how production can rise in the current season, said Igor Petrin, general director of Petrakovskoye, a grain manufacturer.
Related industries impacted
The grain industry crisis is sending shockwaves to related segments.
Sales of agricultural machinery in Russia plummeted in 2024, Rostselmash, the leading Russian manufacturer, has revealed. Last year, the company sold around 3,900 grain harvesters — the lowest level in the decade.
The company remains profitable primarily because of generous state aid programs. However, in May 2025, Rostselmash sent a letter to the Russian government requesting additional support, warning that it would have to consider downsizing operations and laying off part of its staff as demand had reached an unprecedentedly low level.
The Rostselmash current predicament is no surprise, as occasional reports indicate that Russian farmers are putting their agricultural machinery up for sale in a desperate attempt to sow their fields, hoping for improvements in the second half of 2025.
The present situation already takes a toll on exports. In May 2025, Russia exported grain to only 18 countries, down from 50 countries in the previous year.
According to Rusagrotrans, a transportation company, Russian wheat exports could decline to nearly 41 million tonnes in the current agricultural season, compared to 55 million tonnes in the previous year. As a result, the Russian share in global exports is projected to decline from 28% last year to 22% in the current season.
The crisis likely will hamper Russia’s long-term industry development program, in which the country’s grain production was projected to rise by 30 million to 40 million tonnes, to 170 million tonnes per year, by 2030. Exports were expected to climb to 80 million tonnes, including around 60 million tonnes of wheat.
To put the industry back on its feet, the government needs to do three things, a Rusagrotrans spokesperson told the local press. The first is to revise the export duties regime to save what’s left of the industry liquidity. Second is a temporary ceasefire and a peace deal with Ukraine, “as it would send a clear signal to the industry that it is possible to invest and things are going to be easier.” Third is lowering the Russian Central Bank’s key interest rate.
To a certain extent, all three factors are related to the war that has been ongoing for nearly four years. Given the conflict’s trajectory, with hopes for signing a peace deal in 2025 fading, grain market industry officials said they expected the situation to worsen.
To Read more about Wheat News continue reading Agriinsite.com
Source : Ukr Agro Consult
