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CRU's Russian Field Trip Confirms Strong Prospects for Fertilizer Demand
The strong growth in global fertilizer demand over the past five years has been driven by increased sales into mature consuming countries as well as the development of new markets. In the medium term, consumption growth is set to be more evenly spread across world regions, and mid-tier markets such as Russia are key to global demand growth going forward.
With the rise of Russia as a major player in global wheat production, fertilizer demand has been exceptionally strong over the past five years. CRU recently visited Rostov Oblast in South Russia to better understand the domestic fertilizer supply chain and agricultural demand drivers.
Background to Russia's agriculture dynamics Grains account for three quarters of Russian agricultural production, with wheat representing close to half of total harvested area. Russia harvested 27.3 million hectares (ha) of wheat in 2017, but this is anticipated to drop 7% y/y to 25.5 million ha in 2018 following drought.
Climatic and geographic factors limit Russia's agricultural output. Russia's northerly location results in cold weather and low thermal conditions leading to shorter growing seasons compared to the rest of the world. A significant proportion of crop area is in West and South West Russia in the Southern, Central and Volga regions close to the Ukrainian border.
Winter wheat is mainly grown in Central, Southern, North Caucaus districts, whilst the production of spring wheat is concentrated in Volga, Urals and Siberia. The shorter growing seasons in these regions permits wheat to be grown in spring only.
Rostov Oblast in Russia's Southern region is a key agricultural powerhouse with 5.8 million hectares of cropped area. Rostov Oblast makes up for 3.9% of all agricultural land in Russia. Rostov has the second highest grains planted area in Russia but is tenth largest in arable land. The soil and climatic conditions of the region, despite periodically recurring droughts, are favourable for the production of crops. The region has several ports from which wheat is exported to Egypt, Indonesia, Lebanon, Georgia and Turkey. The Southern region accounts for 60% of Russia's sunflower area.
Drivers of crop expansion After the fall of the Soviet Union in 1991, Russia's farming business model changed drastically. Collective farming shifted to individual farms and large agricultural enterprises. However, in this period, farmers continued to rely on outdated soviet technology and practices, which limited agricultural productivity. The farming sector has slowly adapted to the societal and business changes over the past two decades. Crop expansion has been driven by modernisation, investments in technology, rising use of chemical fertilizers, new seed varieties and adoption of new production methods. All of these factors have significantly improved yields and operational efficiencies.