Putin’s Feed-Russia-First Initiative has Global Grain Markets on Edge
Last year, Russia was the world’s fourth biggest wheat exporting country, but the implementation of a 15% (plus $8.05 per ton) export tax on wheat exports beginning February 1, as a measure to ensure domestic supply and hedge against food inflation, has since disrupted global markets and the country’s producers.
This season the tax is expected to cost farmers 20 million roubles (US$373 million). If the tax is extended, it is expected to cost 50 million roubles (US$980 million), according to SovEcon, as input costs for fertilizer and seed have increased 14%, according to U.S. Department of Agriculture (USDA) estimates.
A drop in crude oil prices last year pushed Russia’s energy-dependent economy into its first recession in six years. The decline in the rouble following the country’s involvement in Ukraine and its banning of Western agricultural goods drove up the price of food imports. So far, the decline in Russian shipments have not affected global grain prices, however the industry is wary of Russian exports falling further.
Lower prices could cause an overall decline in Russia’s grain production and cause producers to exit the industry. Agrobiznes Group of Cos., which manages 34,600 acres in western Russia, has indicated it will sow 20% less land in winter wheat beginning this August if the export tax is not lifted, and in the face of the country’s farmers sitting on huge stockpiles that the domestic market cannot absorb, according to Director General, Alexander Chil-Akopov.
Over the past decade, Russian wheat exports have doubled, but this is not the first time that Moscow has restricted exports. In 2010, the government banned shipments for 10 months after the country suffered its worst drought in 50 years. On the contrary, market players must be prepared for the possible lifting of the tax - with global stockpiles already high, if the tax is lifted, the flood of Russian wheat onto global markets will likely cause a drop in prices.