Europe Has Most to Lose From Russia's Expanding Wheat Empire

(Bloomberg) -- European farmers, particularly in France, will be the hardest hit if Russia succeeds in breaking into the fourth-biggest wheat importing market.

France is currently the top supplier of wheat to Algeria, which buys huge amounts of grain to feed its population. But there’s growing speculation this key trading relationship will be undercut by Russia, which can supply wheat at a cheaper price.

Russia and Algeria have recently taken preliminary steps to increase trade. Last week, Russia hosted a tour of Algerian officials, including a visit to a bakery and grain quality office. A trial shipment of Russian wheat will be sent in the near future, according to agriculture agency Rosselkhoznadzor. So far, Russian wheat had been restricted from Algeria because of quality problems.

“If Algeria decides to open the door to Russian milling wheat, it will be an earthquake on the global market,” said Gabriel Omnes, an analyst at Strategie Grains. “It would be a nightmare for French exports.”

Read: Russia Lays Out Red Carpet for Algeria in Bid for Wheat Exports

European farmers have struggled to compete with low-cost Russian production, ceding ground in their key markets in recent years. EU exports fell 16 percent in the season that ended in June just as Russian shipments reached new highs thanks to bumper harvests. EU wheat sales are down by about a third so far this season with more than 40 percent of the crop destined for Algeria, according to the European Commission data.

The opening of Algeria to Russian wheat has “been feared for some time,” said Ben Bodart, a director at adviser CRM AgriCommodities in Newmarket, England. The full effect on trade flows “would have a much more burdensome impact in a well-supplied market," he said by email.

The development would further erode Europe’s position in global markets, and cement Russia’s position as the No. 1 supplier in North Africa. Russia has dominated imports by top wheat buyer Egypt, accounting for three-quarters of the country’s purchases so far this season. The EU, represented solely by Romania, sold 19 percent.

France, the top EU wheat grower and exporter, has depended on Algeria to pick up the slack after wheat trading shrank elsewhere. It lost market share in countries like Morocco, Cameroon and Senegal after a dire harvest in 2016-17.

Many market participants believe that Russia will export to Algeria sooner or later thanks to the competitiveness of its grain, Strategie Grains’ Omnes said. Still, an agreement between Algeria and Russia at this time would have limited effect this year as Russia already has destinations for the grain, according to brokerage Benson-Quinn Commodities in Minneapolis. France instead could face competition from Argentina by the end of the year, it said in an emailed note.

To contact the reporters on this story: Agnieszka de Sousa in London at atroszkiewic@bloomberg.net;Anatoly Medetsky in Moscow at amedetsky@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Alex Devine, Dylan Griffiths

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