November 21, 2012

In order to curb prices and control export, Russian authorities have started full scale intervention in the domestic grain market.

The Ministry of Agriculture will contribute up to 130,000 tonnes of grains per week to market intervention. Meanwhile, 60,000 tonnes has already been sold during the first days of the week. The fourth grade grain was sold at RUB7,850 (US$250) per tonne and the third grade at RUB7,720 (US$246).

"The state intervention is already having an impact on the market. Grain is traded successfully; with intervention prices close to the market, but still lower" said Aleksandr Korbut, Vice-president of Russian grain union.

At the beginning of the session there were 71 participants in the trades, now there are 124, according to Korbut. "It's a positive effect as processors are interested in buying grain for lower prices and delivering production at lower costs. That boosts competition in the market", he explained.

The state intervention fund currently holds about 4.8 million tonnes of grain. Selling up to 130,000 tonnes of grain per week, the fund will keep 75% of its reserves by 2013. However, Russian flour millers' union said the country could face a grain shortage by early 2013 as the authorities have started intervention too early. If so, Russia would have to import grain from Kazakhstan and Germany, it said. But experts argue the state has enough reserves to avoid a shortfall.

"The average consumption of grain in Russia is about 71 million tonnes. This year's harvest is 70 million tonnes. With exports totalling 10-14 million tonnes, it could lead to a shortage in the domestic market. But the country has reserves of 20 million tonnes, that is enough to compensate for the exports," experts said.

In October Minister of Economy Development Andrey Belousov said that "it's quite possible the government will decide to restrict grain exports," if the prices on the domestic market continue to soar. However Deputy PM Arkady Dvorkovich stressed that Russia does not plan to impose any export limitations at the moment.