According to a recent analysis by the FINAM investment group, the Russian grain market is expected to grow by around 26 per cent to some $6 billion this year, helped by a steady increase in prices (to $180-200 per ton) as crop levels are reduced in major growing nations such as the US, Canada, Australia, and in Russia itself.
Demand from countries such as China and other south east Asian nations - where increasingly affluent consumers are swapping rice for other grains - is also likely to drive growth, while the rise in cattle numbers in Russia (6.2 per cent in 2004) will contribute to rising demand for forage grains.
According to Polina Titova of FINAM, "These factors, together with an ineffective national grain policy and favourable price conditions on international markets for Russian producers, mean that Russian's grain traders are likely to become increasingly eport orientated. In 2005 about 8 million tons will be exported and the main users will be CIS and European countries, as well as the countries of Northern Africa and the Middle East."
The development of the grain market will also mean further consolidation in 2005, Titova said, with foreign players in particular expected to play an important role. FINAM suggested that major groups such as Glencore and Louis Dreyfus were constantly on the look-out for acquisitions which offered a significant return on investment (above 20 per cent) and that Russian companies were now in a position to offer such returns.
"If we compare the grain market with the oil market in terms of its attraction for investors, then we can see that they are almost equal," said FINAM's head of investment banking, Serghei Oparin. "If anything, the returns from the grain market are a little better, with a rapid turnover, renewable sources and a consumer market showing excellent growth prospects."
But for companies wishing to capitalise on the predicted growth, FINAM suggests three basic criteria which must be fulfilled. Grain producers and traders need first and foremost to focus on only the very best quality grains - but this needs to be backed by investment in modern processing technology and good marketing.
In addition, companies focused on export markets, particularly those in Asia, are likely to benefit this year, FINAM said, warning that companies focused exclusively on flour wholesaling were the most likely not to benefit from the growth in the market, most of which is expected to come through branded products sold via the retail channel.