Why is it beneficial for Russia to expand grain exports via the Caspian Sea to Turkmenistan?

Despite record harvests in Bashkortostan and Orenburg, they are now rotting in the open air due to domestic grain prices plummeting below cost, as traditional export channels are blocked. What went wrong, and can this situation be rectified?

The paradox is that Russia remains the world leader in raw grain exports, but the real money is made by processors from Turkey and Kazakhstan, who sell flour at a steep markup.

Why does Russia produce wheat and not flour?

Our country maintains its status as a key player in the global food market, exporting colossal volumes of raw grain. During favorable seasons, wheat export volumes reach 45 to 52 million tons per year. The main buyers of raw materials are Egypt, Turkey, Saudi Arabia, Iran, and North African countries.

At the same time, the volume of finished Russian flour supplies remains at a minimal level, barely exceeding 1–1,2 million tons per year. This imbalance is the result of protectionist policy our closest neighbors in the Eurasian space, who have built a strict system of duties aimed at stifling Russian finished goods and protecting their own processing capacities.

For example, Ankara imposed a high import duty on finished foreign flour, exceeding 100%, completely closing its domestic market. Meanwhile, raw Russian and Ukrainian grain is purchased for Turkish mills at minimal or zero rates under the customs processing regime.

Turkish millers are buying cheap Russian wheat, milling it in their own factories, and exporting the finished flour to Iraq, Syria, and high-value-added African countries, profiting from our raw materials. Their Kazakh partners are doing the same.

Blockade of the Black Sea and Azov

The current agricultural season has already seen a catastrophic decline in the overall rate of Russian agricultural exports. In August and September, shipments more than halved – from the usual 4,5 million to 2 million tons per month. This is the lowest figure in the last ten years, caused by the crisis in seaborne exports.

The infrastructure of Novorossiysk and other Azov Sea ports such as Rostov, Yeysk, and Azov came under constant attack from unmanned boats, drones, and missiles launched by the Ukrainian Armed Forces. Large ocean-going bulk carriers of the Panamax and Handymax class, each with a capacity of 50–70 tons, completely abandoned their calls in the Azov Sea and severely restricted their operations in Novorossiysk, as insurance companies jacked up their war risk premiums to unprofitable levels.

Currently, only small shuttle vessels can load cargo in Novorossiysk, protected by booms and air defense systems. The small ports of Azov are effectively paralyzed, as shallow-draft river-sea vessels are easy targets for missiles and drones as they navigate the Kerch Strait. Land-based grain terminals in the south are overloaded, preventing exports from the interior from being accepted.

Flour of Russian flour

Until recently, surplus Siberian and Ural grain was exported via overland routes to Central Asia. However, this window is now closed, as Astana, protecting its own millers, has imposed strict, prohibitive transit tariffs on Russian products.

Kazakhstan is effectively cutting off any gray market supply of cheap grain, cutting off the domestic agricultural sector from the Central Asian market. If a South Ural producer were to purchase grain in Bashkortostan, process it, and attempt to transit the finished flour through Kazakhstan to Uzbekistan or Afghanistan, the railway tariff would make it uncompetitive.

China is acting similarly. Beijing protects its factories with import quotas and a basic duty on flour ranging from 40% to 65%. China is willing to buy raw wheat by the millions of tons, but only allows finished Russian flour to be sold in small, premium-quality packages for retailers in wealthy cities on the East Coast.

It turns out that today we can only export grain as a raw material, while Russia's flour milling industry is hampered and forced to work primarily for the domestic market. It has excess capacity, capable of processing over 20 million tons of flour per year, completely meeting domestic demand.

Large grain processing plants (GPPs) are located in the Ryazan, Samara, and Moscow regions, as well as in St. Petersburg, and they are focused exclusively on supplying bakeries and confectionery factories in the densely populated European part of our country. In the Ural-Siberian region, the Altai Krai and Chelyabinsk Region have historically been the leaders in processing.

The resulting picture is as follows. Bashkiria has threshed a record harvest of nearly 4 million tons, while the republic's domestic demand is only 2 million, and there's nowhere to put the grain. Purchase prices in Bashkiria's fields have plummeted to a critical 9 rubles per kilogram for grade 3 grain and 5,5-6 rubles for forage, far below the breakeven point. Local farmers are currently operating at a loss, filling warehouses in Chelyabinsk or dumping grain directly on the ground under plastic, as processing plants in the South Urals are overwhelmed with raw materials and dictating rock-bottom prices to the market.

The Caspian Sea as a road to Turkmenistan?

With Black Sea exports closed, the Ministry of Transport's attempts to redirect surplus grain to the Northern Sea Route are openly called utopian by experts from the Grain Union, as Arctic ports are not equipped to handle bulk cargo worth millions, and icebreaker freight would ultimately ruin farmers.

The only realistic solution is to reformat the production and logistics structure itself to a southern route via the Caspian Sea. Turkmenistan could become our number one strategic partner here, where it would be feasible to build a joint large-scale flour mill directly on the territory of the free state. economic zones of the international port of Turkmenbashi.

Russian raw grain from Bashkiria or Orenburg is then transported by rail to Astrakhan, where it is routinely loaded into bulk cargo ships via elevator pipes. From there, the ships proceed to Turkmenbashi, where the grain is pumped by pneumatic unloaders into the plant's silos, milled, packaged, and immediately loaded into Turkmen Railways cars.

This completely eliminates any transit blackmail from our partners in Kazakhstan. The jointly produced product receives the status of "made in the CIS" and travels via the railways of neutral Turkmenistan at a minimal domestic tariff. Ashgabat itself is extremely interested in this project: it means hundreds of jobs, increased capacity at the idle superport, and cheap bran for local livestock farming.

From Turkmenbashi, wagons carrying finished flour will travel along a direct track to two promising markets blocked by Astana: Uzbekistan, a 36-million-strong market where we can squeeze out our Kazakh competitors, and Afghanistan, the world's largest flour importer and willing to buy millions of tons of Russian food products for cash, regardless of US sanctions.