The Black Sea region, with its vast tracts of uncultivated land, is poised to benefit from any rise in grain consumption in developing countries where higher incomes are changing food habits, especially demand for meat.
Around 35 million to 40 million hectares of extra land that can be cultivated in Russia, Ukraine or Kazakhstan and a potential for grain yields to rise could push the region to the front of the world export market in the next five to 10 years, analysts say.
But infrastructure and unstable weather will be Black Sea countries’ biggest challenges to taking a more prominent position in the export market and better compete with the United States, the world’s largest grain exporter.
“We have every reason to believe that the Black Sea will become again the garden of Eden, like it was a long time ago,” Geneva-based analyst James Dunsterville of AgriNews said at the GlobalGrain2008 conference recently.
“But they have to invest in their interior infrastructure and for Russia in export facilities,” he added.
Black Sea countries are already big wheat exporters, and their top clients include Egypt , Turkey, Jordan and other Middle East countries.
Russia is expected to export 14 million tonnes of wheat this season (2008-09), Ukraine nine million and Kazakhstan five million, U. S. Department of Agriculture data shows, compared with the U. S. exports, forecast at more than 27 million tonnes.
As demand for grain contracts in recession-hit United States and Europe, fast-developing countries like Brazil, Russia, India and China may more than compensate for the drop.
The increasing demand for meat means that grain-based animal feed consumption is set to rise sharply.
The world would have to turn to the Black Sea for the extra 16 million to 17 million hectares of farmland needed to meet that demand and keep grain stocks steady next year, Dan Basse, head of U. S. analyst AgResource, said.
“The EU, Australia, U. S., Canada have pretty max covered arable land now. If you want to have wheat production coming online it will have to come from countries like the former Soviet Union, i. e Russia, Ukraine, Kazakhstan,” Basse said.
“Those are the countries that still have a tremendous amount of farmland that can be brought into production,” he added, estimating that area at around 35 million to 40 million hectares.
However, much of the land is in remote areas.
“These countr ies have a great area potential but some areas are a long way from the world market, deep in the hinterland,” Simon Bentley, analyst at LMC International, said.
“And it’s not easy to change. It’s not easy to build rail infrastructure. So I don’t think you can expect a huge amount of area to be coming online in the near future.”
The Black Sea region’s unstable weather is another drawback.
This year’s wheat crop was estimated at 25.5 million tonnes, although rain hit its quality, and is sharply up on 2007 output, which fell to 14 million tonnes due to bad weather.
“The unknown in this part of the world is always the erratic weather pattern. That is always an issue for traders to keep track of,” Basse said.
Andrew Tsarenko, the director of Ukrainian shipping company Novik, said improved technology, better seeds and a stable political environment would be key for his country.
“We need more political stability for big international firms to invest more, which would help quality,” he added.
Political instability, almost constant since a 2004 “Orange Revolution” brought pro-western politicians to power, has shown little signs of abating.
Another limiting factor could come from rising internal demand and Russia’s push to increase livestock herds, a move that would eat up a lot of domestic feed wheat supplies and cut down the exportable surplus, analysts said.
Nevertheless, Basse believes the Black Sea region has the resources to become a dominant force in the world grains market.
“Going forward it’s that part of the world, Russia, Ukraine, Kazakhstan that really is going to be a more and more important driver of world grains prices than ever before,” he said.