July 22, 2010

 

Russia sells grain to aid struggling meat producers

 

 

Russia will begin selling grain to its struggling meat and dairy producers after a severe drought killed at least one-fifth of grain crops across the country, the Agriculture Ministry said Wednesday (July 21).

 

The market interventions, totaling at least 3 million tonnes of grain, are aimed at containing food prices, Agriculture Minister Yelena Skrynnik said.

 

Russia -- the world's third-largest wheat exporter -- has suffered its worst drought in 130 years, according to officials. So far, the drought has destroyed 20% of the grain sown in central Russia and the Ural mountains, affecting more than 9.6 million hectares (24 million acres) of land and spurring an early harvest.

 

Some regions have lost up to 50% of their crops. At least 23 of Russia's 83 regions have announced a state of emergency.

 

As a result, grain traders have been driving up prices despite the fact that Russia and other exporters have large reserves, said Natasha Zagvozdina, head of Russian research at the Moscow-based Renaissance Capital.

 

The interventions will help halt the rise of grain prices which have gone up disproportionally high compared to the drought figures we're receiving, Zagvozdina said.

 

Wheat futures on the CBOT have gained nearly 25% since June to reach US$5.83 a bushel Wednesday on the reports of droughts in Russia and floods in Canada.

 

Russia's grain stock, meanwhile, stood at 24 million tonnes as of July 1, following several years of sizable local and foreign investment in land and modern farming practices after decades of Soviet neglect.

 

The country recorded its biggest harvest in 20 years in 2008 at 108 million tonnes of grain. The government is concerned the rising produce prices may threaten its goal of single-digit inflation.

 

Economists and agriculture experts have said the higher grain prices could add up to 2 percentage points to the overall inflation rate. Consumer prices have added nearly 5% so far this year.