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Russian Grain Export Duties Possible

03 June 2011

HGCA

RUSSIA - Over the weekend, Russian Premier Vladimir Putin said the country's grain export ban would be lifted by July 1, and the Russian first deputy Prime Minister has already cautioned that grain export duties could be introduced in the second half of the season should domestic prices rise "unacceptably high".

The impact was quickly seen when the UK and US markets opened on Tuesday after the long weekend and prices fell by the largest daily amount for several weeks. However, with the Russian parliamentary elections set to take place in December this year and a Presidential Poll in March 2012, there is speculation that policy may change to suit political objectives.

Pressure has been growing on the Russian government to lift the ban in July. In late February / early March it was suggested the ban may be extended until September to allow a full assessment of the size of the crop and ensure it was sufficient to cover domestic needs before allowing exports. In their May report (published prior to Sunday's announcement) the IGC estimated the total Russian grain crop at the coming harvest at 84Mt (59Mt ‘10/11), with grain exports more than doubling from 2010/11 levels to 10.5Mt.

Impacts of the ban

However, the financial implications of the drought and export ban on Russia's arable farmers and grain business have already been substantial. Domestic grain prices, particularly in the southern regions where access to domestic markets is more limited have been dampened since February 2011 when discussions of a possible extension to the ban beyond July first emerged.

In a March report, the USDA attachés reported wheat prices in Southern areas as much as $100/t below international price levels. The financial impact of the drought is further illustrated in a report by Interfax. Interfax report that in January-March 2011 Black Sea Farming (a business which farms larges areas in Russia) sold 88 per cemt less grain than a year earlier with a 69 per cent fall in revenue for the same period.

Although Premier Putin has announced that the ban will be lifted on Jul 1st, pressure to maintain the ban is likely to come from the livestock sector, cattle and pigs, which contracted despite the ban due to the higher prices. Across Russia USDA attachés report that by December 2010 the total number of cattle in Russia had decreased by 3 per cent, while the number of pigs, sheep and goats had fallen by 1 per cent. As a result, the total volume of agricultural production in 2010 was 16 per cent lower than the 5-year Agriculture Development Program's target. Special measures including an additional 25 billion rubles ($833 million) of loans and an additional 10 billion rubles ($333 million) of subsidies were also adopted by the government to support the industry.

Export duties?

Further, Russian inflation is currently running at 9.7 per cent and food prices are cited as a significant risk factor for further increases in inflation levels. Viktor Zubkor, the Russian first deputy Prime Minister has already cautioned that grain export duties could be introduced in the second half of the season should domestic prices rise "unacceptably high". This call also been echoed by the Russian Grain Union, proposing that such a system be implemented from July to protect domestic markets from significant wheat price increases. Consequently politics could once again become an important driver in grain markets.

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