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Made in Russia: Putin vs GMOs

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Dry Bulk,

A war is brewing between Moscow and Washington. Even as Russia and the West make tentative overtures towards one another over long-term solutions to the conflicts in Syria and Ukraine, fundamental differences are manifesting themselves. Like the Cold War, this is a clash by proxy, which will have knock-on effects around the world, affecting decision-making in Europe, Asia and Africa.

Unlike the Cold War, however, the implications are likely to play out on plates around the world and the balance sheets of trading houses, adjusting trade flows, creating new risks and opening up new opportunities.

Welcome to the corn war. Differences between the two in the grains sector will be part of some of the industry’s most interesting developments over the coming years, cutting to the heart of modern trade, business, political, ideological and even ethical debates.


The GMO debate


The GMO debate is a long-running and complicated one. Essentially, however, it boils down to two camps: those in favour of manipulation of the DNA of crops in order to promote desired traits in crops, such as increased yields or resistance to failure; and those who are opposed on safety and environmental grounds.

Russia’s relationship with GMOs is long, but was kick-started back in 2012. With oil over US$120/bbl and Vladimir Putin in the President’s seat for a third term, a programme was approved for the development of the Russian biotechnology sector. It promised US$39 billion to the sector over eight years with some US$6.2 billion earmarked for the agriculture and food biotechnological industries.

Since this announcement, however, a lot has happened. The rapprochement between Russia and the West has stalled. Revolution in Ukraine, war in the Donbas and Syria, sanctions and import bans have all put pressure on an already fragile relationship. And budgets have had to be balanced as falling oil prices and a weakened ruble slash the Russian state’s ability to invest in all but the most essential projects.

Needing to prop up support for the state wherever possible, GMO development has been sucked into this. Pre-existing hostility towards the industry among grassroots activists has been tapped into over the course of the last year, with the Kremlin using it as part of a wider plan to ferment nationalist attitudes to compensate for lower standards of living. In policy terms, this led to Russia demanding clear labelling of GMO products back in January 2015. Then, in June, Deputy Prime Minister Arkady Dvorkovich – who has responsibility for the agriculture sector – declared to the St Petersburg Economic Forum that Russia had chosen a “different path”. Finally, in December, an outright ban on the commercial development of GMO crops was signed into law.

Even though Russia has the largest commercial market in Europe by virtue of the size of its population, the impact on the ban on the import market will likely prove to be negligible. In global terms, its 140 million-strong population is not enough to sway global trade dynamics. Further, a highly-publicised import ban on other food imports from many Western states in response to sanctions over its actions in Ukraine has undone much of this inwards trade flow already.


Looking closer


It is on the export market where things should get more interesting. Russia is a net exporter of grains, shipping some 30.5 million t of grains in the 2014 – 2015 marketing year – including 22.2 million t of wheat and 3 million t of corn. And while the immediate impact of the GMO ban may not be obvious and could take some time to filter into global trade flows, there have already been some early signs in a shift of the corn market.

Ukraine – traditionally the Black Sea’s biggest corn exporter – has seen some of its market share eroded during the current marketing year despite a strong campaign. According to the latest Russian Ministry of Agriculture data, corn exports are 64% higher than at the same point last year, despite total grains sales falling almost 4%. Ukrainian corn sales, meanwhile, are 4% higher y/y, while total grain sales are up 13%.


Russia's potential plan


So what is the logic behind this move from Russia? There is the possibility that this is nothing to do with politics at all, and this is purely a commercial decision. In banning GMO development, Russia is looking to provide an alternative supply to the global market, branding its product as organic and promoting scare stories surrounding GMO crops to boost its market share.

Underlining this argument, in December Putin told the Parliament’s Upper Chamber his vision that “Russia is able to become the largest world supplier of healthy, ecologically clean, and high-quality food, which the Western producers have long lost,” adding that “demand for such products in the world market is steadily growing.”

And he might be right. On the demand side, a number of countries already insist on GMO-free corn imports, with anecdotal evidence from traders suggesting that more and more state import agencies are saying no to genetically modified grains.

As for supply, it should also be noted that Russia is in a position of relative luxury with regards to its decision not to use GMO crops. It has vast territory, some of the world’s most naturally fertile lands, a long agricultural tradition and a vast body of knowledge to draw on in this sector. With such a low barrier to entry, in all likelihood, it simply does not need GMO crops as much as other less productive parts of the world to increase its harvests’ size and yield.

At a broader level, there is also a political and ideological dimension to the shift.

Russia’s competition with the US after the end of the Cold War has had to take place by proxy. And food is just one of the multiple fronts in a post-modern confrontation. Putin has made no secret of his desire to see Russia considered among the great powers again. But Russia is not the Soviet Union and the US is still the only global power in town. There is no more global ideology or movement that Russia can position itself at the head of anymore. Instead it has to rely on back channels.

Of these alternative routes, Russia has made overtures to the emerging world, instrumental in the development of the BRICS bank – a modestly successful alternative to Western development banking models. It also works with the likes of Syria, Iran and North Korea at times to get what it wants and as a wider gesture of defiance against a US-led world order.

Closer to home, Putin has flirted with positioning himself as the head of a global movement of social conservatives, allying himself with some politically-dubious parties across the spectrum of the European right. Somewhat paradoxically, at the same time, he has pandered to the far-left and adopted some of the key worldviews of the anti-capitalist, anti-globalisation movement.

And this might really be the crux of the issue. Rather than offering a positive, alternative platform, Putin is letting Russia be a blank canvas upon which the disaffected and disinterested in Western political systems can paint their worldviews.

The Kremlin-backed TV channel RT, formerly Russia Today, is one example of this. Rather than filling the news with stories of Putin visiting a fish cannery in Murmansk, it tailors its content to local markets, pointing out inconsistencies and contentious issues that make the local political system tick. And rather than offering answers, it simply seeks to muddy the waters in a debate, pointing out hypocrisy and inconsistency, and further extending the idea of an inability to attain objectivity in the modern world.

While a cynic might argue that this is just a way of exploiting political difference for commercial gain, the GMO debate remains an example of this broad, post-modern proxy conflict. A highly contentious and politicised issue, genetic modification elicits strong emotions on either side of a largely binary debate. Russia has pointed to the US as the ugly face of a pro-GMO movement, pushing a big business agenda with little regard for the ethical consequences of its action. Putin and Russia, meanwhile, are projecting themselves as the face of a traditional, organic and reliable movement via anti-GMO stance.




Just how feasible Russia positioning itself as the global champion of the non-GMO movement remains to be seen. Putin already had some big guns on his side, although their commitment to the cause seems to have wavered somewhat as part of a slowdown in emerging markets. China, which has ostensibly prohibited GMO imports for human consumption, has tempered its attitude towards the issue somewhat since Russia amended its own policies. India, meanwhile, insisted on organic corn at its recent 250 000 t tender before opting to buy from a low-priced Ukrainian supplier, which would not be able to guarantee locally-sourced produce as GMO-free. And, of course, free market dynamics will continue to largely be the final arbiter in what goes where and when.

But it will have implications on global trade flows as consumers look to make more informed decisions about what they eat and where their food comes from. In this scenario, lowest cost does not always equate to the most desirable or best value option. Changes to importers’ demands will put strains on traders’ risk appetite and hedging strategies, necessitating the development of new models for understanding the world and coping with a fast-paced and rapidly shifting environment, as well as opening new avenues not previously explored.

How Russia plays its hand next will determine whether or not this seed change becomes a sea change.


Thomas Houghton, Platts, UK.

This article first appeared in Dry Bulk Spring. To read this and much more, register to receive a copy here.

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