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article imageOp-Ed: Russia considers limiting grain exports to lower domestic prices

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By Ken Hanly     Sep 22, 2012 in Business
Moscow - Severe drought in some areas has lowered Russia's grain yield by about 25%. This has raised prices within Russia prompting the government to consider ways of lowering prices.
In 2010 Russia placed an export ban on grain exports after a severe drought shrank the Russian crop to just 61 million metric tons and sent prices soaring both in Russia and internationally. In 2011 there was a record 94.2 million tons produced. Production is predicted to drop this year to around 72 to 73 million tons.
Russian Economy Minister Andrei Belousov said: "The question of shutting off the export of grain is one of the dynamics of the domestic price for grain. We are currently monitoring that trend. Given such trends, it's entirely possible that the government will decide to limit exports." Other authorities say that Russia has no plan to impose a ban or even export limitations at least at the moment.
Russian Deputy Prime Minister Arkady Dvorkovich maintains however that the government is considering market intervention to regulate the price of grain. Domestic prices in Russia could rise from the present $260 per metric ton to $290 by the end of the year. Belousov the Economy Minister said the government will discuss the issue this fall. Given the different statements by authorities it would seem that the Russian government is undecided how to act in the situation. Earlier this year the government position was that there would not be even any limits on exports in spite of the drought.
Both Dvorkovich and many experts agree that export restrictions are not the best option to ease the effect of the price hike on domestic buyers. Aleksandr Korbut from the Russian grain union said:. “Higher grain prices are very attractive for grain producers as it stimulates growth and attract investment into the sector. Russia is the world leading food supplier, so any export limitations will push prices up worldwide as it was in 2010. The prices have already grown on speculations about the drought in Russia this year."
While an export ban would raise prices globally one would think that this would increase the supply domestically resulting in lower prices. Korbut claims that the price hike in the global market would in time lead to an increase in the domestic market as well causing more inflation. Korbut maintained:. “The Russian state has more effective tools, such as selling grain from the intervention fund to keep prices down." Perhaps Korbut is spinning the facts somewhat to push for maintaining higher grain prices.
Even if the harvest should drop as low as 70 million metric tons Russia would still have an exportable surplus of about 10 million tons according to Belousov. Global prices for grain are headed higher and this could cause problems for people with limited income who may not be able to afford basic food items made from grain.
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This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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