Russia will double its grain intervention programme next year and purchase about 20 million tonnes of grain, said First Deputy Prime Minister Viktor Zubkov on Tuesday (Dec 16).
Increasing grain purchases will protect Russia from bad harvests in the future while allowing the country to increase grain exports in more favourable market conditions, said Zubkov.
Russia began buying and storing grain to boost prices and protect domestic producers and exports from further price drops, after local and world prices plunged early in the harvest season.
Russian grain prices have dropped more than 50 percent since May. As of December 8, Russian class-3 wheat was RUB4,344 per tonne, down from RUB9,128 in May.
The government has spent RUB15.1 billion on 3.2 million tonnes of grain, and plans to buy another 1.8 million tonnes before the end of the year.
However, there is a concern that grain purchasing may not help farmers effectively.
"Export subsidies are better for the market. They provide you with financial leverage because for the same amount you can export four times more grain than you can buy in an intervention," said Dmitry Rylko, director of the Institute of Agricultural Market Studies.
Aside from the direct cost of intervention, the government also must buy storage space and spend time and money transporting the grain to appropriate facilities, Rylko said.
Earlier this month, the government begun to run out of storage space for corn, wheat and barley in the Central Federal District, and had to ship excess grain to the northwest and the Volga regions where storage space remains.
There are limited high quality storage facilities in Russia, and paying for storage will burden domestic infrastructure which is not in a good shape to begin with, said Rylko.
Prime Minister Vladimir Putin has also announced measures to provide farmers with cheap credit, such as subsidised loans to farms at 80 percent of the refinancing rate.
The government will also provide Rosselkhozbank about RUB45 billion to widen the scale of grain interventions, said Putin.
US$1 = RUB27.4806 (Dec 17)