December 18, 2008

Russia's plan to increase domestic grain purchases may weaken the competitiveness of Russian grain in foreign markets.

As of Tuesday (Dec 16), the government has purchased 3.4 million tonnes of grain for a total of RUB16.5 billion.

However, the government is likely to buy up to 15 million tonnes of grain, which could provide stable support to the market and clear price indication.

However, the increase in domestic prices may not only hurt exports but may also lower the efficiency of subsidies to grain exporters, which are currently discussed in the range of RUB700-970 per tonne.

Subsidies may require additional funding, which would be difficult due to the global credit crunch.

No measures aimed at boosting exports are likely before February, which by then large domestic purchases could lead to stronger prices and shortage of quality wheat in certain regions.