What stops China from buying significantly more Russian wheat, barley?

Chinese and Russian officials held talks in Beijing this week, where they discussed relations between the two countries and signed a number of phytosanitary documents, however, there remain some obstacles to Russia exporting significantly more grain to China, according to trade sources.

Representatives of the Russian Ministry of Economic Development and the Chinese Ministry of Commerce also signed a Memorandum of Understanding on deepening investment cooperation in the field of service trade, according to a statement from the Chinese side.

The statement also said a protocol on grain requirements had been signed by the Federal Veterinary and Phytosanitary Surveillance Service of the Russian Federation and the General Administration of Customs of China, while another protocol was signed on inspection and quarantine requirements for the import of Chinese medicinal plant materials into Russia, although no further details were given.

Back in early February 2022, the two countries already signed a document that expanded the origination options for wheat and barley imported into China, allowing those commodities to be sourced from all over Russia, which was expected to allow Russian trade to use Black Sea ports to increase shipments.

However, more than a year has passed, and while wheat and barley trade between the two countries has increased compared with the previous year, it has not reached significant levels, with wheat exports pegged at 14,000 mt and barley at 78,827 mt for the whole of 2022.

The main obstacle Russian traders face to increasing wheat exports to China is the phytosanitary requirements, as China only allows imports of wheat free from dwarf black ears disease, which suggests only spring wheat can be imported.
Winter wheat is not allowed, and moreover, Chinese regulations stipulate wheat in China cannot be mixed with winter wheat or wheat from areas infected with dwarf black sheaf disease.

Trade sources said while it is fairly easy to guarantee the absence of dwarf black sheaf disease for Siberian regions, from which deliveries are already being made by rail, it is hard to do the same for other parts of Russia.

Spring wheat’s share in the country’s harvest amounts to about 45% of the total area sown, with the rest being planted with winter wheat.

Sources also said that to be able to export to China, the whole logistics chain has to be authorized, including the production farm, the silo, the trader and the port used.

Trade sources said that part of that work had been done already, and therefore they expect some further movements soon.

“Accreditation is going slowly. I think it will go eventually soon, not millions, of course, but at least hundreds of thousands should come out,” a local source said.

Market sources said Novorossiysk and Taman ports had already been approved for Chinese exports.

But at the same time, sources said that even if those were approved, the Chinese documents were very strict and companies needed to have the right papers to export.

"You don’t want the vessel to arrive at a Chinese port and [find you] can’t get clearance," a Chinese source said.

He also said the approval might also be seen as purely a political “gesture,” as “customs never give official clearance to Russian wheat.”

There are usually four major steps needed before a new origin can enter the Chinese market, which includes establishing phytosanitary standards, registering companies with the General Administration of Chinese Customs (GACC), Chinese state company Cofco importing the first cargo to see how the clearing process goes, and only then private traders stepping into trade, according to the sources.

Russia has not yet reached the third step.

Currently, China allows the import of wheat from Australia, France, the US, South Africa, Turkey, Sweden, Russia, Mexico, Lithuania, Kazakhstan, Italy, Hungary, the UK, Spain, Denmark and Canada.

Barley can be imported from the US, Ukraine, Russia, Kazakhstan, Japan, France, Denmark, Canada, Argentina and Uruguay, while the market expects that Australian imports will be also allowed back soon following talks earlier this year.