By John Helmer, Moscow

The Russian government has made good on an earlier threat to penalize grain exports if the export tonnage exceeds the level that threatens domestic supplies and triggers grain and bread price increases before the December parliamentary elections. Fear of bread price rises detonating voter discontent first appeared a year ago, when the Kremlin’s front-line defence at the time was an embargo on all grain exports until the new harvest was in.

The embargo was lifted on July 1.

An announcement yesterday by Victor Zubkov, the deputy prime minister in charge of the food and farm sector, fixed an export cap of 24 million tonnes for the trading season that will conclude next June. Zubkov made clear that the move, to be formulated in a government decree for issue next month, is designed to preserve price stability for grain producers and consumers, based on current estimates of an incoming harvest of 90 to 92 million tonnes, and a domestic consumption requirement of 72 million tonnes.

In the three months since the lifting of the embargo, there has been a record outflow of grain from Novorossiysk and other Black and Azov Sea ports, headed for Russia’s traditional grain markets in the Middle East and North Africa. Shipments have been running at 3 million tonnes per month, 50% higher than the monthly levels of the 2008 season, which set the last trading record.

Ukraine already imposes a 14% export duty on grain shipments, but the Kiev parliament this week ordered an end to the measure, thereby adding to the market competition for Russian traders. The export penalty threat isn’t new — between November 2007 and June 2008, the Kremlin regulated the grain outflow by imposing export duties of 40% on wheat, 30% on barley.

Alexander Korbut of the Russian Grain Union, representing the commercial trade, told Fairplay today that Zubkov’s anxiety to disarm the bread bomb is having the opposite effect: “We understand that the government is concerned with the possible oversized grain exports which could affect domestic demand. But we believe the measure proposed by Victor Zubkov is not necessary, because Russia is unlikely to reach the target volume. Ukraine is going to take up a big market share. [Zubkov’s] message has already caused speculative price growth on the market. We wouldn’t like to see a panic on the market with unreasonably chaotic sales and purchases.”

The state-owned grain purchaser, stockpiler, and new trader in the marketplace, United Grain Company (OZK), said through its spokesman, Victor Krupenin, that it doesn’t comment on this topic.

by John Helmer - Wednesday, October 12th, 2011