The Issue

Historically, the Black Sea region has not been a major importer of soybeans. American soybean exporters have had difficulties finding customers in Russia and Ukraine because of import duties and value-added taxes (VATs) collected by the government after each purchase in the supply chain.

Why It Matters

Demand for meat over the past decade has resulted in substantial growth in Russia’s and Ukraine’s animal agriculture sectors. A study conducted by the United Soybean Board’s (USB) Global Opportunities (GO) program shows these two countries in the Black Sea region represent potential new avenues for U.S. soy exports. Through its GO program, the soybean checkoff can promote the advantages of biotech varieties and the value of higher-protein soybean meal, thereby supporting demand for U.S. soy globally.

Issue Summary

Russia’s economic improvement from 2000–2008 boosted commodity trading to the overall benefit of the country’s agricultural sector. Its soybean production has historically been limited due to harsh weather, low yields and low net returns, but during the last decade, a 78 percent growth in animal agriculture production resulted in more soybean production to meet animal feed demands. However, soybean farming in Russia has not kept pace with the growth of the animal agriculture sector, and the Russian government has relied on imported soybean meal for its poultry and livestock needs.

The latest USB-funded research predicts that soybean meal imports could increase substantially in the Black Sea region over the next decade. The study shows the United States is positioned to improve its current relatively small market share. It notes that biodiesel demand in Germany and the Netherlands has prompted oilseed processors in those two European Union (EU) countries to crush more rapeseed, thus reducing EU soybean meal available to export to Russia.

The animal agriculture sector has also increased substantially in the Black Sea region country of Ukraine, but the checkoff-funded study shows it currently produces sufficient quantities of soybeans and soybean meal to meet demand for animal feed. While the United States has increased its export share of that declining market, the study suggests that it will be very difficult to make headway in Ukraine, which could eventually become a U.S. competitor for soy in Middle Eastern and North African markets because of its underutilized, highly fertile farmland. Consequently, the best possibility for U.S. soy export growth would occur if the Ukrainian government’s unpaid reimbursements of its 20 percent VAT remain unresolved.

The study concludes by recommending that the soybean checkoff undertake promotional and marketing efforts to underscore the advantages of biotech soybeans and U.S.-produced soybean meal in anticipation of a decline in Ukraine’s domestic- processing capacity.

The study also says that growth in the Russian market will require trade negotiations that would lower the 4 percent import duty assessed on all soybean meal imports into the Black Sea region. Additionally, the study suggests soybean-checkoff-funded promotional efforts should focus on educating livestock and poultry farmers about the value of buying higher-protein U.S. soybean meal rather than buying less expensive, lower-quality meal from other countries.

Critical Facts

The study cites Argentina as the major exporter of soybean meal to Russia, commanding 52 percent of the market. Presently, Brazil and Paraguay export most of the whole soybeans to Russia because Russia’s primary soybean importer (Sodrugestvo, in Kaliningrad)  has in place formal off-take agreements with soybean exporters in Brazil and Paraguay.

The opportunity to export soybean meal from the United States to Russia proves greater than the opportunity to export whole U.S. soybeans. Russia’s domestic processing capacity has expanded in its northern regions, while animal agriculture continues to grow in the southern Black Sea region.

Domestic soybean-meal production levels in Russia fall far below domestic demand, a gap likely to increase with rising gross domestic product per capita and the resultant increase in demand for meat, which requires a readily available source of high-protein animal feed such as U.S. soybean meal.

Ukraine produces self-sufficient quantities of soybeans and soybean meal to meet domestic animal-protein demand, with annual exports of approximately 16,000 bushels in the North African and Middle Eastern markets.

The U.S. has increased its share of the declining Ukrainian import market. Substantial future growth opportunity is tied to unpaid 20 percent VATs, lowering operation margins for soybean processors. If this trend continues, domestic soy processing could decline in the near future.

The study says promoting the advantages of biotech soybeans could position U.S. exports favorably because the Ukrainian government has shown willingness to drop restrictions on biotech soybeans and soybean meal during supply shortages.

Issue Conclusion

The situation and opportunity for U.S soybean and soybean-meal exporters to Ukraine is different from the situation in Russia. Exporting soybean meal to Russia represents the most attractive opportunity in the Black Sea region, while Russia’s crush capacity and Ukraine’s taxation impede other options. To view the entire Assessment of Agricultural Development in the Black Sea Region (Russia and Ukraine) study, click here.

The United Soybean Board’s (USB) Global Opportunities program publishes the GO Briefing. If you would like permission to redistribute, reprint or repost this information with credit given to the USB/Soybean Checkoff, please contact USB at info@unitedsoybean.org.