November 3, 2010
Restriction on grain exports will likely prove ineffective in taming food inflation as the country may have to import grain from international markets, according to a report from the World Bank.
"It is likely Russia will become a net importer of grain, depending on the use of reserve stocks," the bank said. "In these circumstances, the export ban will be largely ineffective in reducing domestic prices as they will continue to be influenced by world grain prices."
Imposed in August after wildfires tore through many of Russia's most fertile regions, grain prices rocketed in response to the ban as buyers scrambled to secure supplies after the world's cheapest wheat was taken off the market.
Continued fears that poor winter plantings may damage Russia's harvest for a second season prompted the Kremlin to cede the country's share of international trade until July 2011, and market participants remain concerned that next season's harvest may suffer.
In Russia, rising domestic grain prices have boosted inflation expectations to 8%, up from the government's previous expectation of 7%, after prices for grain staple buckweat increasing by nearly 150% in some regions.
Russian grain exports have been growing in importance in recent years. The government has placed increasing emphasis on the country's agriculture sector and experts estimate that, along with other Black Sea producers Ukraine and Kazakhstan, Russia has the potential to supply up to half of the world's wheat.
However, the World Bank warned the export ban may undermine Russia's long-term goal of becoming an important player in the global grain market by "encouraging hoarding in expectation of the ban's removal, distorting prices, and affecting the investment and production responses."
Instead, it recommended boosting trade, increasing intervention stocks and reducing tariffs on foodstuffs should similar harvest problems arise, and boosting investment in agriculture and logistics programmes to ensure such supply squeezes do not happen in the future.
