Russia rejects export ban, but shipments to fall

Failure to get a new global trade agreement and the slow progress of its trade dispute resolution process has tarnished the reputation of the World Trade Organization.

But it has value in the simple fact that it exists and countries want to belong to it.

That was proven last week when Russia, fresh from its induction into the WTO, rejected grain export restrictions, despite producing a crop that is smaller than the disastrous 2010 harvest.

On Aug. 31, Russian officials met to assess the ongoing harvest and supply and demand situation. Deputy prime minister Arkady Dvorkovich emerged to announce there would be no repeat of the export restrictions that sparked a global wheat price rally in 2010.

“We consider any export restrictions harmful. We will use the instruments we have — market interventions and information exchange with market participants,” he said.

There is still skepticism among some in the wheat trade who believe that Russia will run out of exportable surplus by about November and will then institute export taxes or some other measure to choke off exports and prevent domestic prices from rising.

Some believe the Aug. 30 announcement is simply a delaying tactic to allow current contracts to be completed and to prevent the type of damage to its reputation that the surprise 2010 export ban caused.

Back then, Russian grain sellers had to break supply contracts with importers, particularly those in the Middle East, leaving buyers to scramble for supply at much higher prices.

Still, Dvorkovich appears serious, saying that as long as he is in charge of the grain sector, he would be against export restrictions.

It is not surprising that he would not want to anger Russia’s new trading partners in the WTO.

In August, Russia, the world’s ninth largest economy, became a member of the WTO after an 18-year bid to join the trade club that has 156 country members.

Membership has its privileges. Russia will face lower tariffs in other countries, get access to the WTO’s trade dispute remedies, attract foreign investment and be able to integrate its economy more fully with the world. It will also benefit from pressure to end the crony capitalism that drags on its economy.

The WTO rejects trade restrictions and Russia couldn’t join the organization one week and break one of its rules the next.

However, Dvorkovich does have other tools at his command. If the surplus runs out, Russia has government-owned stocks that it can funnel into the domestic market to cool prices.

The harvest situation has been deteriorating in recent weeks.

The government last week reduced the grain production forecast to 70 to 75 million tonnes, down from 75 million previously. Of that, wheat would be 40 to 42 million tonnes.

But private forecasts are already lower.

SovEcon last week cut its wheat outlook to 38 million tonnes.

Russia’s Institute for Agricultural Market Studies cut its grain crop forecast to 69 to 70 million tonnes of which wheat would be about 39 to 40 million tonnes.

In the drought of 2010, the wheat crop was 41.5 million tonnes out of a total grain harvest of 61 million tonnes.

Last year, Russia produced a total harvest of 91 million tonnes, of which 56 million tonnes were wheat.

While much has been made of how Russia’s government will handle the situation, there is the fact that a country can’t export what it doesn’t have.

Domestic grain use is about 70 million tonnes, about equal to current crop projections. There are carry-in stocks from the previous harvest and Russia could import from neighbouring Kazakhstan, but it too has a much-reduced crop.

Black Sea region grain supply is tight.

And because of that, Russia will likely be absent from the world wheat market in the second half of the crop year.

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