March 16, 2011

 

Russia unlikely to remove grain export embargo

 

 

Russia is not likely to remove its grain export ban until the end of the year and may even extend it into 2012 to ensure that the country has enough grain to cover its own needs, according to analysts.

 

A protracted heat-wave and drought in summer 2010 slashed Russia's grain production by 36% and forced the government to prohibit wheat, barley, rye, corn and flour exports for the first time in the post-Soviet era. The embargo was originally in effect until December 2010, but was later extended to June 30, 2011.

 

Agriculture Minister Yelena Skrynnik said in February that debate about removing the export ban may start in October when Russia's grain harvest amount has been confirmed. Russia needs a harvest of at least 85 million tonnes in order to lift the ban, she said.

 

First Deputy Prime Minister Viktor Zubkov later said he did not dismiss the possibility of an extension beyond the end of 2011.

 

Analysts predict Russia's 2011 grain production at 80-85 million tonnes, while local consumption is forecast at 73-77 million tonnes.

 

"Since some carry-over stocks are left at about 7.5 million tonnes, we can accumulate some export potential, but it will be limited," said Institute for Agricultural Market Studies analyst Oleg Sukhanov, who predicted the harvest at about 80 million tonnes. "But the government believes it necessary to make sure the crop is first harvested, then counted and sorted by grain class by each region. This means that in theory the ban could be lifted in November or December, or from January 2012."

 

Domestic Russian prices rose in spite of the embargo as worries about the effects of a worldwide food crisis enticed producers to hold on to their grain.

 

Before last summer's crisis, Russia held a safe spot in the top four global grain producers, mostly thanks to a record 108 million-tonne harvest in 2008, which cut domestic prices and made internal grain more competitive.

 

In the 2009/2010 farming year, Russia reaped 97 million tonnes of grain and exported 21.3 million tonnes, mostly food wheat and barley, worth about US$3.6 billion, or 13% of the world market share.

 

Russia exported just 3.7 million tonnes between July 1 and August 15, 2010. The US, France and Australia took over Russia's market share after the ban was implemented.

 

"In the nearest future, we will not have enough export potential to return to the volumes of 2008/2009 or 2009/2010. It will certainly not happen next season," said Sukhanov.

 

Analysts say Russian grain would be welcome to the hungry market. The market first started to experience a deficit in 2008 as emerging economies raised consumption, while storms and droughts in top agriculture producers such as Australia damaged inventories.

 

The International Grains Council forecasts wheat production in the July 1, 2010/ June 30, 2011 season to fall by 30 million tonnes, and carry-over inventories to be reduced by seven million tonnes. Wheat consumption is predicted at 661 million tonnes, which is 12 million tonnes more than in 2009/2010.

 

"The world food market and most cereals markets have been deficit-ridden for many years," says Tatyana Bobrovskaya, a consumer goods analyst at Moscow-based bank IFC Metropol. "International grain reserves are decreasing, demand for grain will be high and Russia is unlikely to need special measures to find consumers for its grain. To what extent Russia recovers its position as an exporter depends entirely on the harvest."