Economic Tidbits

Black Sea Competition

The Black Sea region—Russia, Ukraine, and other countries which made up the former Soviet Union—has emerged as a strong player in global grain markets, especially corn and wheat.

Reports indicate the area now comprises 24 percent of the world’s agriculture trade in selected commodities. The area has nutrient-rich soils, and in recent decades these countries have undertaken reforms in their economies to become more capitalistic, meaning their agricultural sectors are becoming more productive and extremely competitive in world markets. Ukraine is now a top ten exporter of corn and wheat. Since marketing year 2015/16, Ukrainian corn exports have grown from roughly 17 MMT to a projected 31 MMT this marketing year. Russian wheat exports now exceed U.S. exports, having increased from 25 MMT to 34 MMT since 2015/16.

While being export competitors, differences exist between U.S. agriculture and agriculture in the Black Sea region. According to William Wilson, a professor at North Dakota State University who spoke at February’s USDA Outlook Conference, one is the ownership structure. Family-based, owner operators with little outside investment predominate in U.S. agriculture. Agriculture in Russia and Ukraine is largely structured around cooperative and corporate farms which invite outside investment. NCH Capital, a private equity fund with headquarters in New York City, is one example. It is one of the largest private equity funds invested in farms in Russia and Ukraine owning 1.5 million acres. Equity funds are also investing in intermediate market functions in these countries—banks, inputs, distribution/handling of commodities. Such firms use elaborate risk modeling to help identify and manage price, yield, quality, and exchange rate risk. It costs less to produce in these countries due to lower land costs, but agriculture in these countries is less productive, uses less technology, has no crop insurance, faces intense marketing risk, and faces more risk from government intervention.

Ukraine, Russia, and other countries in the Black Seas region are competitive forces in world markets in Nebraska-produced commodities. While Nebraska farmers have advantages in terms of mature market structures and infrastructure, these countries are gaining. The dollars, infrastructure, and technology being invested by corporate and cooperative ventures assure agricultures in these countries will improve. U.S. and Nebraska agriculture will need to continue to be on top of its game to compete.

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