Experts Warn: Poor European Wheat Harvests May Strengthen Russian Economy

In the upcoming weeks, the global soft wheat market is expected to reveal critical dynamics as Europe faces low yields and Russia incrementally captures a larger portion of the export market, according to insights shared with Euractiv.

On August 20, Egypt declared its intent to make the largest wheat purchase in its history, totaling 3.8 million tonnes. Discussions with Russian suppliers are already underway, as reported by Reuters.

This scenario underscores a significant trend where traditional markets for EU soft wheat are contracting in favor of alternative suppliers, particularly Russia, noted Thierry Pouch, an economist and head of studies and forecasts at Chambres d’Agriculture France, in remarks to Euractiv.

The primary global wheat importers are situated in the Middle East and North Africa (MENA), with France leading the EU’s export efforts, holding approximately 25% of the market.

As more importers initiate talks with exporting nations, Pouch emphasized that “the next few weeks are pivotal,” urging that “the EU must swiftly address Russia’s market encroachments and secure its trade routes.”

Pouch pointed out a significant turning point in 2014 when Russia retaliated against EU sanctions following the Crimean annexation by banning EU food imports. This event effectively enabled Russia to emerge as the world’s top wheat exporter by 2015, triggering a shift towards a “Russification” of the agricultural market, especially in cereals. The ongoing conflict in Ukraine has further amplified this trend.

Since the onset of the Ukraine war in 2022, agriculture and food supplies have become integral components of Russia’s strategic approach, enabling it to gain ground in markets that were once loyal to European exporters.

Notably, Russia has now supplanted France as the primary supplier to Algeria, which has been a traditional customer for many years, a shift exacerbated by rising tensions between Paris and Algiers over the Western Sahara issue.

Pouch remarked that Egypt, which sourced most of its food from France a decade ago, now relies on Russia and the United States as its main suppliers.

This trend is also evident in other key EU markets, such as Tunisia and Morocco.

“These nations aim to secure reliable supplies and will gravitate towards exporters that can assure them of consistent volume and pricing that aligns with their economic conditions and debt levels, which Russia is able to provide,” Pouch explained.

Under these circumstances, the “Russification of the global agricultural market is likely to accelerate,” he added.

Declining European Exports and Heightened Demand

This situation is further complicated by lower-than-anticipated EU soft wheat exports, expected to decrease from an average of 35 million tonnes to 26 million tonnes, representing a shortfall of 9 million tonnes as per the latest projections.

France has been particularly affected by poor harvest yields, though this has been somewhat mitigated by better performances in Eastern Europe.

Philippe Heusele, chair of the French inter-professional association Intercéréal, indicated that the EU’s internal demand is expected to be lower this year compared to the previous year. “Consequently, the EU needs to play a significant role in exports to third countries,” he cautioned.

This need is further amplified by recurrent droughts in North Africa, which have escalated import reliance. This year, the three Maghreb countries—Morocco, Algeria, and Tunisia—imported 19.5 million tonnes of wheat, up from 17.1 million tonnes last year.

In addition, Ghana has halted its cereal exports amid a drought impacting its harvests, and is collaborating with the private sector to facilitate cereal imports.

Russia’s Ascendance

In the competition for dominance in the global wheat market, Russia holds a distinct advantage.

While the nation anticipates a slight reduction in exports from last year—projected at 43 million tonnes, down from 56 million tonnes in 2023—it has achieved its third-highest harvest in five years, producing 82 million tonnes, Pouch noted.

Moreover, a relatively weak rouble enhances its export competitiveness.

Russia is poised to leverage this situation to further lower prices, Pouch stated, aiming to capture new markets.

This challenge is compounded by global pricing pressures, which contrast sharply with Europe, where regional wheat harvests have exceeded expectations.

For European farmers, the confluence of declining volumes and prices presents a “double whammy,” Pouch remarked.

He stressed that the EU requires “a bold agricultural diplomacy,” asserting that “decision-makers need to recognize the critical importance of maintaining and enhancing European trade flows, as the EU’s standing against Russia fundamentally depends on it,” added Heusele.