“If the Chinese leave, it will all go to seed.” This was a view often heard in discussions about the role of Chinese capital and labor in the development of Russian agriculture, above all in the Far East. If ever that pessimistic scenario was going to come true, 2020 should surely have been the year: the borders were closed, quarantine measures slapped on cargo goods, and now Joe Biden’s victory in the U.S. presidential election could end the trade war between the world’s biggest buyer and seller of soybeans. Yet toward the end of the year, it became clear that nothing of the sort had happened to the Far East’s agriculture, which, just like in Soviet times, is becoming one of the mainstays of the regional economy.

Long before the pandemic prevented Chinese seasonal workers from entering the country this year, their role in Far Eastern agriculture was already on the wane, and had been since the mid-2010s, following the collapse of the ruble and subsequent fall in seasonal workers’ wages, which made it harder to attract Chinese workers.

Back in the spring, there were fears there would be no one to work in the fields. Yet the sector has managed without the Chinese, and a decrease in planting and harvest hasn’t had a fundamental impact on the state of the market. 

Chinese laborers were replaced with local people, and 2020 became the first year since the late 1980s in which Far Eastern land was tended almost exclusively by Russians. The main problem was not the lack of workers, but their lack of qualifications. Training courses were hastily put together for local tractor drivers, who had previously only seen new technology in the hands of foreigners. With the borders still closed indefinitely, it’s doubtful whether Chinese seasonal workers will return to Russia after such a long absence.

Exporting Russian agricultural produce is becoming more profitable, with prices for grain and oil-bearing crops growing much faster than their production costs, especially at the end of this year. Soybeans, for example—the main crop cultivated in the Far East—brought in about 15,000 rubles per ton in the Amur region in 2016. This year’s harvest is selling at 38,000 to 43,000 rubles ($518–587) per ton.

Russian produce has also been helped by the decline of the ruble against the dollar in the past year, and for Far Eastern soybeans in particular, proximity to the Chinese market is an advantage. China consumes over 100 million tons of soybeans per year, of which up to 87 percent is imported.

Since the start of its trade war with the United States, its main supplier of soybeans, China has been looking to Russia. While Russia can’t yet satisfy its neighbor’s demand for soybeans on its own (it sent 800,000 to 900,000 tons to China per year in 2018–2019), these favorable circumstances do allow it to sell nearly all of the soybeans it produces to China.

The short logistical route from the Russian Far East to northeast China was a crucial factor in starting the trade in grain. But in the long run, it is becoming a bottleneck hindering the expansion of exports, because of the limited capacity of border crossings and the restricted volumes that can be transported by road and rail. The only way to increase supply volumes is to transport soybeans by sea.

This year, it became clear that corn could become another key component of agriculture in the Far East. Imports of corn to China reached record levels in 2020, with large shipments (about 5,000 tons at a time) shipped to China from the port city of Vladivostok.

Yet there is also a downside to the boom in sales of Far Eastern soybeans and corn to China. As long as farmers have the enormous and profitable Chinese market just next door, nearly all of the harvest will go to export, and no serious effort will be put into developing the processing industry in the Russian borderlands. There is so much demand for unprocessed soybeans (making them expensive) that the region’s only soybean-processing factory has been mothballed. It’s simply more profitable right now to sell unprocessed soybeans to China than to expend time and money processing them.

Processing enterprises in western Russia have called for prohibitive export tariffs to be imposed on unprocessed soybeans, which would be a blow to farmers in the Far East. The domestic market simply doesn’t need the kind of volumes currently being sent to China, and shipping soybeans by rail to western Russia for processing would be slow and expensive.

Right now, the cost of producing soybeans ranges from 13,000 to 22,000 rubles per ton, depending on what technology, fertilizer, and seed stock the farmer uses. At the end of October, Chinese buyers in the Far East were oriented on prices of about 4,400 yuan (about 44,000 rubles) per ton: the price they can get for the soybeans at China’s State Reserve. Prices, therefore, would have to fall a long, long way before growing soybeans for export would stop being profitable. 

One promising area of Far Eastern crop farming is using technology to increase the protein content in soybeans and carve out a more attractive market niche by selling soybeans not for processing into oil and animal feed (an area in which Russian produce competes with cheaper, genetically modified produce), but for use in human food. That would make it possible to increase the added value, even while remaining exclusively a supplier of raw materials.

One way out of the golden soybean trap for farsighted producers would be to consider moving into processing, no matter how unappealing that might seem under the present conditions. There are already positive signs in this respect: the company Rusagro is building an animal feed plant to supply its pig farms, and there are plans for processing corn into feed for poultry and other animals, with an eye on exporting it to Japan. Japan is an attractive partner—both to reduce dependency on the Chinese market, and as a country with more flexible phytosanitary standards than those China imposes for protectionist purposes—and deliveries there are already in place.

As far as diversifying production is concerned, experiments to turn land over for corn growing are already paying off, while an expensive but very promising undertaking is the restoration of the large-scale rice-growing system constructed in Soviet times, with the goal of producing rice using cutting-edge Chinese technology. The climate and soil in the south of Russia’s Primorye region differ little from conditions in the border districts of China’s Heilongjiang and Jilin provinces, whose rice is considered among the best in China.

The future, therefore, lies in diversification and increasing the produce’s added value. Both strategies require major financial reserves and long-term effort. Despite the many years of talk of the Far East’s economic dependence on Chinese capital and labor, both of those resources have been found in Russia itself. It’s true, however, that this was made possible by being incorporated into the global market, the availability of foreign technology and equipment, and also, if we are being completely honest, at the cost of reinforcing Russia’s status as a producer of raw materials.

This publication is part of the Sino-Russian Entente project carried out with the support of the UK Foreign and Commonwealth Office. 

By:
  • Ivan Zuenko