Russia is rapidly losing its position among the world’s largest grain exporters.

According to the Russian Grain Union, grain exports were down more than 50% year over year in July, from 6.146 million tons to 2.978 million. Wheat exporters – wheat being the country’s main grain export – also dropped sharply: from 111 in June 2024 to just 34 in July 2025.

The immediate reason is a poor harvest. The initial grain yields in southern Russia this year are 25% lower than last year, even though last year’s result was weaker than the record harvest of the 2022/23 season (in Russia, the grain marketing year starts in July). As in the previous year, the main culprit appeared to be the weather: late frosts in May, followed by heat and drought in June. Yet this is not the full story.

Bad weather

In recent years, farmers have faced increasingly erratic conditions: heat, cold snaps and rainfall arriving at the wrong time. But is the weather really the decisive factor? Southern Russia shares the same natural and climatic conditions as, for example, Vojvodina, a northern province of Serbia located in the same climate zone and in the same so-called Black Earth Region, which stretches from southern Russia through Ukraine, Hungary and Serbia to Austria.

This season, Vojvodina faced similar challenges: late frosts, unprecedented summer heat and drought. It was also hit several times by squall winds and large hail. As a result, harvests of stone fruits such as cherries, sweet cherries and plums were poor. Meanwhile, grain crops like wheat, corn and sunflower fared well, especially wheat, for which drought is not the biggest threat. That is hardly surprising: wheat originated as a crop of arid plains and is genetically adapted to heat and low moisture.

That the weather is not the only problem is also evident from differences within southern Russia itself. Rostov Region, Krasnodar Region and Crimea all suffered poor harvests, while neighboring Stavropol Region posted record grain yields. Could the explanation be a different climate? No – in Ukraine too, despite the danger of shelling and landmines, harvests are good enough that forecasts have been raised. These fertile lands lie right next to Rostov Region.

Clearly, the causes lie elsewhere. What are they?

Import substitution

Agriculture Minister Oksana Lut has urged Russian farmers to embrace domestic seed varieties. “Once again, for everyone: our task is to provide our own seeds of domestic breeding. We will not be able to avoid this. You should not resist; you must accept it,” she told farmers.

At first glance, it may seem odd for the state to dictate what farmers should sow. Yet this reflects the current nature of relations between government and business in Russia. Moreover, the shift away from Western seeds, breeding stock, veterinary medicines and feed additives did not start yesterday.

Back in 2014, after sanctions were imposed over Russia’s annexation of Crimea, Vladimir Putin signed a decree on “countersanctions,” which banned the import of goods from countries that were part of the Western sanctions regime. The ban did not only apply to consumer goods; it also covered imported agricultural inputs, from seeds and breeding animals to veterinary drugs and vitamin feed supplements. At that time, imports accounted for up to 90% of seeds used in Russia.

The world’s largest seed exporters are Bayer (Germany) and Corteva (US). Russian farmers have also long favored seeds from Dutch companies such as Bejo Zaden, Barenbrug and Enza Zaden, all ranked among the top 20 exporting companies in the world. These are high-tech firms that actively incorporate the latest advances in biotechnology, maintain vast seed banks and have strong research teams.
Russian seed production cannot boast of such scientific capital. It started falling behind during Lysenkoism in the mid-20th century and has not seen notable breakthroughs since – in part because modern research requires enormous investment.

For decades, Russian breeders mostly adapted imported varieties to local climatic and soil conditions or created their own lines based on them. Now, cut off from foreign colleagues by countersanctions, they have achieved little progress, despite optimistic assurances by government officials. The official stance is clear: foreign is bad, local is good. Without foreign competition, the authorities insist, local breeders will get stronger.

This is the third factor.

Money

Agriculture has always lived on debt: a farmer takes out a loan before sowing and repays it after selling the harvest. This was once the norm in Russia as well. Now, however, getting a loan has gotten harder. Commercial loans are prohibitively expensive given the Central Bank’s key rate of 23-25%. For farmers, whose profit margins never exceed 10-15%, such rates are far too high.

Not every bank is willing to deal with a sector where the borrower’s credit quality depends heavily on seasonal conditions. In the past, regional banks – familiar with local realities and often supported by regional governors – filled the niche. But amid the Central Bank’s prewar clean-up of the banking sector, most of these banks disappeared.

In recent years, farmers have relied mainly on Russian Agricultural Bank, which offered loans at subsidized interest rates. Now, however, with the federal budget running a growing deficit and most spending is directed toward the war, Russian Agricultural Bank – itself under sanctions – has reportedly stopped issuing new loans and is only restructuring existing ones.

The lack of financing prevents the agricultural sector from investing for the future or creating a financial safety cushion, leaving it vulnerable to seasonal risks. This is the fourth factor contributing to declining yields.

Meanwhile, pitched by the Ministry of Agriculture, the government is considering setting long-term prices for essential food products so as to curb food inflation, which hits the poorest households hardest. The plan would see a government “troika” – the Ministry of Agriculture, the Ministry of Industry and Trade, and the Federal Antimonopoly Service – determine “reasonable” prices and sign three- to five-year contracts with producers.

The likely outcome is easy to predict. If prices are high enough, farmers will readily sign up.

That means prices would need to be set above what would be considered normal in good years.

If the “troika” insists on lower prices, farmers will simply refuse to go along. In that case, the government would be forced to impose a form of prodrazverstka (“food requisitioning”), setting mandatory volumes and prices (noncompliance would entail punishment); or to accelerate the developments described below.

M&A po-russki

Vadim Moshkovich, the owner of one of Russia’s largest agricultural holdings, Rusagro, recently saw his accounts frozen and his companies nationalized. In late June, it emerged that the detained businessman had agreed to transfer his assets to the state. A campaign to redistribute property in Russia is now beyond doubt, but until recently few imagined it would extend to the agricultural sector.

In southern Russia, “land redistribution” has long been under way, and often by force. Previously, it was done by criminal groups with backing from local authorities, such as the notorious Tsapkov gang. Now, the state itself is doing the redistributing, acting in the interests of businessmen close to the Kremlin.

Rumors suggest that Moshkovich crossed paths with a businessman connected to the Patrushev family (the father, once one of Putin’s most trusted confidants, was recently appointed to oversee shipbuilding, while the son is the deputy prime minister for agriculture).

Beyond the high-profile Rusagro case, another, quieter redistribution is going on in southern Russia, affecting farms both big and small. Investigative journalists report that land in the region is now being contested by the Patrushev and Kovalchuk clans, each family a Putin favorite. In drought-stricken areas such as Rostov Region, small and medium-sized farms are already selling out.

Other players will have to look beyond southern Russia’s black earth. Siberia is in play, though: less fertile, yet promising for grain cultivation, especially in the southern and southeastern regions. Agribusiness consolidation is under way here too.

Companies linked to Oleg Deripaska, who, in addition to his aluminum empire, owns agro-industrial assets in the Kuban, are active in the region. The New Land Grain Corridor, a company established in 2017 (RP: it is a state-supported export holding specializing in exporting grains, legumes and oilseeds from the Ural, Siberia and the Far East to China, Central Asia and the Middle East) and well known in Siberia, is seeking to grow winter wheat exports to China. Players from other agribusiness segments are also moving into grain, such as Prodo Group, a major poultry and meat producer, along with large local firms.

We should mention nationalization. When the state seizes assets, it transfers them to Kremlin-linked individuals either to manage or to own. In 2023, the Pokrovsky and Danone groups were nationalized; in 2024, Kuban-Vino, Agroterra, Makfa, Ariant and Glavprodukt. Of these, only Pokrovsky has been incorporated into VTB Group, with the fate of the rest expected to be decided in 2025.

This does not include the assets of foreign businesses that have exited Russia – PepsiCo, Mars, Kraft Heinz Company, Mondelez, Remington, Sucden, Bonduelle, Lactalis – whose future is still uncertain. Many of these companies own land suitable for, among other things, grain cultivation.

In 2024, agricultural-sector M&A deals were up 4%, and there is little doubt the pace has picked up this year.

Consolidation in itself is not necessarily bad, but in Russia it produces perverse incentives. For many small farms, investing in production makes little sense: the more successful they become, the more likely they are to attract the attention of someone in power.