BRICS grain exchange: A potential game-changer for global trade amid challenges

The final declaration of the BRICS summit announced plans to establish a new grain exchange, a proposal initially put forward by Russia and supported by other BRICS members. If successful, this exchange could bring about a significant change in global grain trade. About six months ago, the Union of Russian Grain Exporters (RUSGRAIN Union) presented the idea to President Vladimir Putin.

The five founding BRICS nations – Brazil, Russia, India, China and South Africa – hold a unique position in the global grain economy, being among the largest producers and consumers of staple grains such as rice, wheat, maize and barley. These countries act not only as major exporters but also as important importers.

For example, India and China together produce more than half of the world’s rice, and both countries also top the list of largest rice consumers. China is the world’s leading importer of corn, soybeans, wheat, barley and sunflower seeds, while Russia is the top global exporter of wheat. China, Russia and India together account for more than 40% of the world’s wheat production. Meanwhile, Brazil and South Africa are major exporters of wheat, corn and soybeans.

The BRICS countries are also major players in international grain trade beyond their alliance. For example, China imports a significant portion of its grains – such as wheat, corn and soybeans – from countries such as Australia, Argentina, the European Union, and the United States. Additionally, Brazil and Russia export grains to more than 100 countries. However, their grain import and export prices are determined primarily by exchanges in North America and Europe. Despite Russia’s status as a leading wheat exporter, it lacks its own international grain exchange. Since most transactions take place on Western exchanges, deals are settled in US dollars, which has presented challenges for Russia due to sanctions imposed after its invasion of Ukraine. This has led Russia to propose the creation of a new BRICS grain exchange.

BRICS members aim to promote a more transparent and fair grain trading system built on their own standards and hedging mechanisms. The new exchange is expected to initially facilitate trading in each country’s currency, potentially laying the basis for a unified BRICS currency in the future. However, this exchange will likely face competition from well-established international platforms.

According to the international publication World Grain, this proposal may currently be considered ‘political hyperbole’ due to the lack of a clear theoretical and operational framework. For global grains traders to engage with this initiative, greater clarity is needed, particularly regarding the specific challenges the new exchange aims to address.

The Russian Federation of Grain Exporters first proposed the BRICS grain exchange in December 2023 and formally presented it to President Putin in March 2024. Russia officially raised the idea at the 14th BRICS Agriculture Ministers Meeting to be held in Moscow on June 28, 2024. The proposed objectives of the exchange include balancing supply and demand of agricultural products, securing existing supply chains, enhancing food security within BRICS, stabilizing grain prices, and reducing market speculation.

However, significant challenges remain. Each BRICS member except Russia already has its own grain exchange. For example, India operates a multi-commodity exchange; Brazil, Mercantile and Futures Exchange; China, Dalian Commodity Exchange; and South Africa, the futures exchange under the Johannesburg Stock Exchange. Technologically and strategically, these exchanges are more advanced than Russia in agricultural derivatives trading.

BRICS countries often implement policies to manage domestic grain reserves and control prices. For example, China’s market is partially closed to Russian wheat and some other imported grains. India often bans exports of rice and wheat, while Russia imposes export duties on wheat, corn and barley. Additionally, there is a lack of regulatory uniformity among the BRICS countries with respect to commodity exchanges and derivatives markets. Without coordination, implementing this new exchange could be extremely complex. For BRICS grain exchange to be successful, integration with both member economies and external markets will be critical.