On December 23, 2015 the Moscow Exchange Group launched on-exchange grain trading with integrated commodity delivery service.
By Alex Hitzemann
This year, Russia overtook the United States as the world’s number one grain exporter. Bloomberg Businessweek dramatically announced “America is losing the Wheat Wars” due to rising competition and currency fluctuations.
The Black Sea region has always been the primary source for grain imported into North Africa, but only recently Russia has been exporting more and more grain to Central Africa, countries that were traditionally customers of the US and Australia. Demand for grain in central Africa is at an all-time high, and is predicted to more than double in the next ten years.
Russia’s success in this region can be attributed to a variety of factors. The plummeting Ruble has created an economic environment more favorable for Russian exports. Agribusinessmen also point to factors such as: climate change, increases in agriculture technology, a supportive government subsidy system, and good luck.
MOEX: A ‘Big League” Trading Platform & Delivery Service
Behind the scenes of these surging exports, Russia has a shiny new trading platform that’s moving grain from fields to export markets with world class technology and efficiency. Africa Agribusiness Magazine was able to sit down with some of the leaders of MOEX’s grain trading platform to learn more about their system and plans for the future.
MOEX, the Moscow Exchange, is the largest exchange group in Russia, operating trading markets in currencies, equities, bonds, derivatives, and commodities. In December 2015, MOEX launched an innovative and advanced on-exchange grain trading platform with an integrated commodity delivery service.
MOEX has partnered with “National Logistics Company” (a specially founded entity) to provide grain transportation to any railway station in the Russian Federation. This partnership allows MOEX to ensure grain quality throughout transportation and grain elevator loading process. Storage and transportation risks are insured and re-insured under acting insurance agreements.
All of MOEX’s grain elevators must be vetted in order to insure if they are up to high standards. During the vetting process inspectors insure that the elevators are well maintained and have proper financial conditions. It’s also important that each site can test the incoming grain for protein and other quality indicators – the location must also have stable management. Basically, they make sure there are no warning signs of a possible interruption of service and all possible hazards to grain in storage are adequately assessed and approached.
Due to this complex process, as of September 2016 only seventeen elevators have been approved. However, MOEX anticipates more than 50 elevators by next year and the number should exceed 100 in the not so distant future. The leaders of MOEX see this as just the beginning. Grain farming in Russia has huge potential for export and trading. Russia has large amounts of arable land. However, one of the biggest constraints is currently infrastructure.
Portions of the country, especially remote regions have limited access to railroads. A number оf grain elevators were built some decades ago and need to be renovated. This infrastructure would need to be improved before being integrated into MOEX’s system.
The strict standards by which MOEX vets potential elevators provides incentives for elevators across the country to improve. Elevators in their network can expect a wide range of advantages. Once accredited, elevators can expect to gain additional income from increased grain storage and turnover volumes originating from grain market trades by NAMEX trading members. Also elevators become engaged into direct agreements with a systemically important financial institution, NCC Bank. NCC Bank is responsible for clearing trades and serving operations for more than a half of Russia’s financial market participants, including the Central Bank of Russia – which guarantees a high degree of trust in the exchange infrastructure.
Additional advantages for MOEX elevators include access to an online commodities record system. Elevators will also benefit from MOEX’s PR, an increase in competitiveness, a confirmation of their professionalism and more stability in their work with exchange trading, financial and insurance companies.
The MOEX exchange can be a good example for future African exchanges that seek to develop their own trading platforms. While not entirely the same, some of the challenges in Russia are similar to Sub-Saharan African countries. Russian agriculture went through a severe decline in the 1990’s after the fall of the Soviet Union. However, during the last 10 years gradual improvements have been made. Family farms are growing larger and corporate farming operations are becoming more common as agribusiness develops. Many parts of the country have seen tremendous infrastructure improvements. All of this has been catalyzed by a cooperative political climate in Russia, dedicated to agribusiness growth.
From Black Sea Ports to African Homes
From the fields near the Black Sea to African consumers, Russian grain goes through a long journey to reach Africa. From local grain storage and elevators near farms, grain is usually first transported by trucks to major transportation hubs. In southern Russia and areas near Moscow the road and grain storage systems tend to be quite modern. But further North and East, significant improvements could be made to increase Russia’s export potential. The grain is then loaded onto trains bound for the Black Sea.
For African exports, grains usually depart from Russia’s major trade ports on the Black Sea such as Novorossiysk. The grain is then loaded onto boats headed for ports in Africa. The cargo goes through the Turkish straights into the Mediterranean Sea and then to its destination in countries such as Egypt, Yemen, South Africa and Kenya. From these major ports Russian grain is distributed across Africa.
Opportunities for the Future
Analysts, such as Rabobank, predict that Sub-Saharan Africa will eclipse North Africa’s grain demand by 2025 presenting a significant opportunity for grain suppliers.
“Structural differences exist between the regions, and while North Africa has the highest per capita consumption and a saturated market, Sub Saharan Africa has much smaller per capita consumption with higher potential, coupled with stronger population growth,” said Rabobank grains & oilseeds analyst Vito Martielli.
Africa currently accounts for nearly 30% of world-wide grain imports and the demand is still growing. Increasing, almost 4% every year since 2001. In sub-Saharan countries grain imports will rise 50% in ten years. Comparatively, North Africa will only see a 15% rise.
Source: Africa Agribusiness