October 22, 2007


Russia to impose prohibitive wheat export duty



Russia, a major grain exporter, is considering a prohibitive tariff on wheat exports, a move that could cause an abrupt rise in world prices, according to analysts.


A source in the economy ministry said Friday (October 19), the ministry was considering a tariff of 30 percent, or no less than 70 euros (US$99.80) per tonne of wheat.


Currently, there is no tariff imposed on Russian wheat exports but a duty of 10 percent, or no lower than 22 euros a tonne, is to take effect in mid-November.


The increase is designed to secure domestic grains while the government sells intervention stocks to combat record high grain prices that have threatened to push Russian inflation above last year's level of 9 percent.


Though the agriculture ministry has not confirmed yet, analysts said they expected the move to go ahead.


Andrei Sizov Sr., CEO of leading agricultural analyst group SovEcon, said the prohibitive tariff would push through, otherwise government grain sales to the market would appear to be stimulating exports.


Dmitry Rylko, director of the independent institute for Agricultural Market Studies (IKAR), agrees, stating that "the wheel of the anti-inflation struggle appears to be spinning so fast that it may smash those who stand in its way."


Sizov said such as sharp increase in the tariff could have a dramatic impact on the world wheat market, pushing prices up.


A closure of Russian exports even for one month will keep 1.2 to 2.0 million tonnes of wheat out of the world market, he said. If this happens in November or December, when new crop wheat from Argentina and Australia has not yet reached the market, an explosive rise of world wheat prices is expected, Sizov noted.


The 10 percent tariff will be effective from the middle of November until April 30, 2008. The government has also set for the same period a tariff of 30 percent, but no less than 70 euros per tonne on barley.


Analysts have said that the barley tariff will effectively keep the cereal inside the country, but the wheat tariff at this level is too low to stop exports.


IKAR's Rylko said the new tariff could not be introduced at the start of the intervention sales, as bureaucratic procedures for its approval would take over a month.


The Russian Grain Union, the country's influential grain lobby, also on Friday (October 19), said it would oppose setting the new tariff, because it could hurt domestic grain growers.


According to Arkady Zlochevsky, the union's head, the ten percent tariff takes into account the difference between world and domestic price, thus, it will only stop domestic price rise while the 30 percent will stop exports. He said Russia had an exportable surplus of grain which, if not shipped, could damage the domestic market.


Russia expects a grain crop of 80 million tonnes this year and an exportable surplus of 12 million tonnes in the marketing year of 2007/08 started on July 1, according to the latest agriculture ministry forecast.


Sizov said intervention sales would only delay exports.


The grain not bought by millers during the intervention period may well be exported later as world prices would go up and Russian grain will become competitive again, he said.


The country's National Mercantile Exchange (Namex), in charge of intervention sales, said it was ready to start tenders in time.


The government has set minimal sale prices for benchmark third grade milling wheat of 5,000 roubles (US$201) per tonne, fourth grade wheat at 4,700 roubles and for grade A milling rye at 3,900 roubles per tonne, the ministry's order said.


Namex director Sergei Naumov said only flour millers will be allowed to buy grain at the tenders. He did not say when sales might end or how much grain would be sold. The government has some 1.5 million tonnes of grain, mainly milling wheat, in its stocks.

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