October 25, 2012

Europe Market Review: Russia will not restrict grain exports
An eFeedLink Exclusive 
By Steven Wheatley
Russian President Vladimir Putin has categorically ruled that there are no on-going talks about Russia imposing export restrictions on grains, despite months of speculation and concerns over rising grain prices.
However, it appears that senior government officials are still at odds over Moscow's grain export policy, following the country's lowest wheat crop harvest in nearly a decade due to severe drought. Russia is one of the world's largest wheat exporters and plays a crucial role in supplying food-deficit countries of the Middle East and North Africa, yet has experienced the country's lowest wheat harvest since 2003-04.

In 2010, Russia shook world markets when it imposed a year-long ban on grain exports in the wake of severe drought which destroyed a third of its crops. The embargo caused grain prices to soar worldwide and many feared that the Kremlin would follow similar tactics after hot and dry weather decimated this year's Russian cereal crops. However, President Putin has told ministers that there would be no discussion regarding an export ban. 

The comments by the Russian premier come shortly after Deputy Economy Minister Andrei Klepach stated that, while Russia will not impose any limits on grain exports this year, some restrictions may be imposed in 2013, if wheat exports continue on a large scale. Klepach's comments indicate that the Kremlin has yet to agree on an official position, despite both President Putin and Deputy Prime Minister Arkady Dvorkovich firmly ruling out any tariffs or bans.

Global wheat and corn prices have been sent into overdrive as Russia's cereal harvest has been slashed by a quarter at the same time as the United States experienced its worst harvest in more than fifty years.  This month, Russian wheat exports have slowed down significantly after prices in the country's major export terminal in the Black Sea, in the port of Novorossiysk, increased to a 20-year high.

During the last four months, Russian wheat export prices have risen nearly 40% and are US$15-20 per tonne higher than prices worldwide. The recent speculation about a possible repeat of a grain export ban, and the drought in the United States, are two of the main factors behind a surge in wheat prices.

Speaking at the Reuters Russia Investment Summit, Deputy Prime Minister Arkady Dvorkovich denied any possibility of export restrictions. Dvorkovich, who is also responsible for the agriculture sector, added that Russia's government policies have changed since the "brutal" wheat export ban was imposed in 2010.

"You can trust or not trust, you can ask questions, but we will not impose any export restrictions. It is the same as saying 'Are we going to change our roubles into a different currency because we did it in 1991?'".

Dvorkovich also said that he expects to see Russia's 2012/13 grain exportable surplus at 10-12 million tonnes - of which 7 million tonnes have already been shipped - down from the 27 million tonnes produced last year. Despite this year's harvest being decimated by the hot and dry weather, Russian sources are optimistic that this winter's wheat sowing season will be successful and the Russian Grain Union has stated that its target for the 2013/4 harvest will be no less than 50 million tonnes, 10 million tonnes more than last year.

Speaking during a grains conference in Sharm el-Sheikh, Egypt, President of the Russian Grain Union Arkady Zlochevsky said: "We have successfully made the winter sowing of wheat in Russia so that we hope there will be much more harvest next year than this year."

"This year we have about 40 million tonnes of wheat. We hope that next season it will not be less than 50-55 million tonnes

Russian officials have said that this year's drought was not as devastating as that of 2010, yet overall wheat and cereal yields are significantly lower than that of 2010/2011. Deputy Prime Minister Arkady Dvorkovich has stated that Russia has already harvested 68 million tonnes and is looking to consolidate this year's drought-damaged harvest to 72-73 million tonnes, down from 90 million tonnes last year. 

A recent report from the Russian agriculture ministry showed that, as a result of this year's drought, the country's total loss of land for crops was 5.95 million hectares and affected 9,815 households. Current figures indicate that the damage to the regions most affected is estimated at 45.3 billion roubles (US$14.5 billion).

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