Russia's bumper grain production raises fears of glut

Russia will begin gathering grain crops this week in a harvest that promises to be large enough to fulfil domestic needs and leave a large surplus for export.

 

But what might be good news for consumers in Russia and around the world will pose a challenge for rival grain producers competing for market share. A good harvest will also be a mixed blessing for Russian farmers facing a crisis amid plentiful inventories as domestic grain prices fall.

 

Russia is already one of the world's top wheat exporters supplying the big cereal importers in North Africa and the Middle East. But the Kremlin sees greater opportunities ahead and has set a target to double exports in the coming 15 years.

 

After gathering bumper harvests for two years, Russia is seeing a grain glut that is depressing domestic prices and discouraging investment. Its silos are still crammed with last year's crops, adding to pressure to boost exports.

 

"The situation is not attractive. It does not bring any happiness to farmers," said Arkady Zlochevsky, the president of the Russian Grain Union.

 

The Grain Union appealed to the government last week to subsidise grain exports for the first time to allow farmers to compete more aggressively on global markets. "We plan to help farmers live through these difficult times. Export subsidies will enable us to strengthen our position on world markets," he said.

 

Agricultural analysts said it made no sense for Russia to subsidise exports and strive to be big just for the sake of being so.

 

"It does not matter who is the biggest or second biggest exporter, it matters who is the most profitable," said Andrey Sizov, managing director of Sovecon, a Moscow-based agriculture consultancy.