U.S. agricultural exports to Russia from 1998 to present

U.S. - Russia Exports

History of Trade between the U.S. And Russia

Historically, Russia was not considered a major trading partner with the U.S. Mistrust that developed out of the Cold War remains in the background of trade relationships with Russia. Since the end of the Cold War, the U.S. And Russia worked hard to develop a relationship built on trust and mutual benefit. Trade between the U.S. And Russia represents only a small portion of U.S. exports, but for certain commodities, the U.S. is a major supplier for Russia. The following will explore the development of trade, in terms of volume between the U.S. And Russia from 1998 to present. It will support the thesis that current expansion in U.S. exports to Russia will continue to grow and potentially increase in the medium to short-term future.

As a whole, the U.S. stake in the future of the Russian economy is small. Other markets, such as South American and Asia are more viable business prospects for U.S. goods at this time. The U.S. does not depend on Russia to secure their economic interests in the future. However, that is not to say that the U.S. has so significant interests in the export potential that Russia hold. The major interests in Russia from an export perspective are in the agricultural sector. For example, the Russian market for chicken in the largest in the world (Gaddy). Russians consume 25% of all chicken exported by American producers (Gaddy). In terms of total imports, Russia consumes less than one half of one percent of the total U.S. exports, which is less than small countries such as the Dominican Republic and Puerto Rico. However, for the agricultural sector, Russia is big business.

Business has not always been good in Russia, largely due to economic hardship. Russia had a long-standing history of poorly managed finances, so much so that it was nearly bankrupt in 1998 (Gaddy). In 1999, Vladmir Putin became Prime Minister, faced with a dire economic situation. Since then Russia has experienced resurgence in the economy and is now in a much more stable situation. The most important factor in Russia's remarkable recovery lies in rising oil and gas prices, of which Russia has a vast supply (Gaddy). However, other sectors of the economy are growing as well. For instance, the Russian economy has experienced a surge in real estate, construction, and consumer goods.

Literature Review surge in the Russian economy means more money to spend on American imports. However, gaining access to this market can be challenging. From an academic standpoint, little information is available regarding the historical trends of U.S. exports to Russia. One of the key reasons for this lack of available literature is that the Russia represented a relatively closed economy for many years. Russia was not considered to be a major contributor to the U.S. economy, therefore academic interests were elsewhere. The Russian economy was too poor to be considered worth the expense and time investment from a research perspective. There were much more interesting subjects to be sought.

Academic interest began to develop after Prime Minister Putin took control, with promises of reform and greater future economic strength. Only after 1998 did interest spark in the importance of potential export trade with Russia develop. Therefore, there is little information available prior to 1998, but there is a wealth of information available after 1998 in terms of academic research and statistical information. This research will focus on the importance of the Russian export potential after 1998.

The Importance of American Agriculture and Growing Russian Industry

Overall, U.S. exports to Russia rose 97% from 2002-2006 (Workman). The profile of these exports tells the story of a growing Russian economy that is in need of increasing its infrastructure in order to support a growing oil and gas industry. Meat exports, including poultry, continue to dominate U.S. exports to Russia. The U.S. supplies 13.5% of the total meat consumed by Russians, which is down from 15% in previous years (Workman). The meat export industry to Russia represented $636.7 million USD in 2006 (Workman). This export category is nearly double the next most important export category, passenger cars, at $399.3 million USD in the same year (Workman). The agricultural export of meat to Russia represents the most important export category for the U.S.

The U.S. also exports civilian aircraft, oil field drilling equipment, excavating machinery, computer accessories, agricultural machinery, service industry machinery, trucks, buses, and materials handling equipment. These items represent the needs of a growing Russian economy. As important as the export items that are on the list, are those that are not represented on the list. For instance, one may notice a lack of luxury items, such as clothing, televisions and other non-essential items. U.S. exports currently focus on supplying the Russian economy with the goods that it needs to continue to improve and grow.

The primary focus has been on agriculture and the manufacturing sector. In the past, the trend has been that as the Russian economy has grown, demand for U.S. goods has increased in direct proportion to this growth. The economy is expected to continue to grow. Thus, one could expect a similar growth in the demand for U.S. goods.

The following represents the most valuable exports to Russia from the U.S. In 2006.

Millions of USD

2006 Growth as compared to 2002 figures

Meat, including poultry

15% down to 13.5%

Passenger cars

8.5% up 25.1%

Civilian aircraft

8.1% up 222.6%

Oil field drilling equipment

6.8% up 2.3%

Excavating equipment

3.6% down 5.1%

Computer accessories

3.3% up 9.9%

Agricultural machinery

3.3% up 9.9%

Service industry machinery

2.7% up 48.8%

Trucks

Buses and other special purpose vehicles

2.5% up 48%

Materials handling equipment

2.1% up 96.5%

Data source: Workman, D. Top Russian Exports & Imports. June 10, 2007. Suite 101. http://internationaltrade.suite101.com/article.cfm/top_russian_exports_imports Accessed April 8, 2008.

This group represents the most important U.S. exports to Russia, but it still does not represent the fastest growing exports. Once again, the emphasis is on supplying the needs of a growing economy. The following represents the fastest growing U.S. exports to Russia in terms of percentage sales increases. From 2002 to 2006.

Iron & steel products... U.S.$2.9 million (up 482% from 2005)

Railway transportation equipment... $18.7 million (up 598%)

Engines & parts... $70.1 million (up 322%)

Coal... $3.8 million (up 1227%)

Civilian aircraft... $384.3 million (up 223%)

Synthetic rubber... $3 million (up 217%)

Source: Workman, D. Top Russian Exports & Imports. June 10, 2007. Suite 101. http://internationaltrade.suite101.com/article.cfm/top_russian_exports_imports Accessed April 8, 2008.

Russia only exports those items that it is unable to produce itself, or in the quantities that it needs. The following represents trends in U.S. exports of selected agricultural products to Russia

Calendar Year and Year-to-Date Comparison (in Thousands of Dollars)

Calendar Years (JAN-- --DEC) (JAN- --MAY) Product 2002 2003 2004 2005 2006 2007% Change Fresh Fruit 1,514 2,139 6,327 9,994 10,806 3,302 4,689 42.02 Fresh Vegetables 470-381-699 1,089 303 0-42 -- Tree Nuts 8,251 16,841 27,404 34,279 31,644 13,520 23,957 77.20 Ag. Product Total 551,564 578,594 801,966 972,187 835,932 317,422 396,285 24,84 Source: Products Marketing Association (PMA). International Resources: global Market Profile: Russia. http://www.pma.com/cig/international/russia.cfm Accessed April 8, 2008.

Exports to Russia declined from 2006 to 2007. The reasons for this decline cannot be determined from the data presented. (Sweeney). Overall exports grew as reform efforts began to have a positive affect on the Russian economy (Sweeney). The introduction of new import tariffs on foreign goods coming into Russia may have had an impact on declining exports, but it is not certain that this is solely responsible for the decline (Sweeney).

Future of the Russian Economy and U.S. Exports

In 2007, the Russian economy achieved a six-year record high of 7.9% (Economist Intelligence Unit Viewswire). As the export tables indicate, growth in construction, manufacturing and trade continue to lead the growth (Economist Intelligence Unit ViewsWire). Much of the attention in the Russian economy has been on the growth of oil and gas as important export commodities, but this sector only represents a small portion of the growth that has been experienced recently (Economist Intelligence Unit ViewsWire).

Several factors aid in the expansion efforts. The boost it economy is being fed by growth in investment. In addition, Russians are experiencing a new financial freedom that they have not experienced in years. Consumer spending is up as much as 13% in 2007 (Economist Intelligence Unit ViewsWire). This increase in consumer spending translates into an increased demand for imported goods. Imported goods were up 38% in the first fiscal quarter of 2007, as exporters struggle to increase volume to meet this growing demand (Economist Intelligence Unit ViewsWire). Russian consumers now have greater access to consumer credit, which continues to increase demand. Individual loans rose by 75%, as Russians took advantage of the economic boom (Economist Intelligence Unit ViewsWire). These factors represent the underlying basis for the numerical trends.

Question of Sustainability

These trends in Russian economic growth are fueling expansion in the U.S. For those wishing to take advantage of the booming economy. However, expansion requires capital investment and there is question as to whether these trends have a strong enough bases to continue into the future. The focus of Russian spending trends is on construction, particularly improvements on the infrastructure. However, this good news comes with a work of caution. Russia still has many obstacles to overcome in terms of competitiveness. They are recent players on the global market and need to invest intensively to become major players. They still have a long way to go. Investors should keep this in mind as they decide to include Russia in their list of expansion projects (Economist Intelligence Unit ViewsWire).

A review of literature regarding the growth of the Russian economy reveals many variables that could affect the long-term ability to sustain the current growth rates. Analysts disagree on the sustainability of the Russian economy. One body of analysts feels that sufficient resources are being placed into infrastructure improvements and building a stable base. Others simply feel that the growth is too much too fast and that it cannot keep up this pace without dire consequences (Economist Intelligence Unit ViewsWire).

Conclusions

The Russian economy has undergone dramatic changes over the past decade. Only after the fall of the Old Russian Empire did researchers take a serious interest in the Russian economy, particularly from the standpoint of developing trade relations. Russians are currently in a period of expansion and growth. The Russian people now have resources that were not previously available to them. They are just beginning to stretch their economic wings and engage in practices such as consumer credit and investment.

There are many opinions among analysts as to the ability of the Russian economy to sustain its current growth rate. However, they are taking extra precautions in the expansion of their infrastructure to support this new development. It may be some time before Russians are considered competitive on a global basis, but they are continuing to improve.

Aggregate exports to Russia from the U.S. are increasing rapidly. However, more important than the trend are the underlying factors behind the trend and its ability to sustain for the long-term. The pattern in Russian spending for U.S. goods reveals an increased interest in manufacturing-related goods and equipment. Agricultural products continue to lead exports, indicating that there is still a need for basic commodities, such as food. Increases in exports of agricultural equipment indicate that Russians have plans to produce more food in the future. However, there is some question as to how long it will take until they are completely self-sufficient. It is expected that it will take quite some time before Russians will become less dependent on the U.S. For basic commodities, such as meat.

Building the Russian infrastructure and economy from the state that it was in almost a decade ago will be a slow process. Over time, Russians will become less dependent on U.S. goods, particularly as they develop the methods and resources to produce their own equipment. It will also be some time before they are able to produce sufficient amounts of agricultural products. It is foreseeable that in the distant future, Russia will need fewer exported goods from the U.S. However, in the medium to short-term range, exports are expected to continue to increase as the money becomes available for further expansion.

Opinions differ in terms of the ability of the Russian economy to sustain its current rate of growth. However, the literature examined as a part of this research project indicates that the fledgling economy is on solid footing. Evidence of this is the emphasis on infrastructure growth and the import of U.S. manufacturing equipment. Like any newly established capital economy, there will be some adjustments along the way. The impact of these adjustments will depend heavily on the faith of the Russian people in Prime Minister Putin and the reforms that he has imposed.

The Russian people may have been hesitant in the beginning and wanted to see the results of the new reforms before launching into a spending spree. Consumer confidence is one of the most important factors in a growing economy. If consumer spending is any indicator, it looks like the new economy has the strength to continue its current growth well into the future.

The key is to focus on the long-term, and in this respect, Russia presents many opportunities for export expansion of U.S. goods. The most sensible approach will be to attempt to match Russian growth with output. However, this task is not an easy one. U.S. companies that can project production needs in the short-term will be able to survive and develop long-term relationships. As the Russian economy expands, it will be more likely to need greater numbers of U.S. goods, particularly technological items that it cannot yet produce itself.

Theoretically, it is possible that as the Russian economy continues to grow, it will result in a decline in demand for foreign goods due to increasing ability to produce these items domestically. However, this projection is in the distant future. It will be many years before Russia is in this position. Even so, it may be cheaper to buy them rather than to produce them. The distant future is speculative. However, as this research indicates, there will be many opportunities for growth and expansion into the Russian market for those companies that wish to pursue them.