Streetwise Professor

June 1, 2011

As You Sow, So Shall You Reap

Filed under: Commodities,Economics,Politics,Russia — The Professor @ 11:18 am

Russia’s grain harvest is looking fine this year, in contrast to last year’s drought ravaged one, so the country is canceling its export ban as of 1 July.  So line right up buyers!  Russia is open for grain business.  15 million tons–maybe 20 million tons–available!  Step right up.

Uhm, not so fast.  Customers are taking a once burned, twice shy attitude:

“Russia will return once again but it will be dealt with cautiously,” Nomani Nomani, the vice chairman of Egypt’s General Authority for Supply Commodities, told Reuters in an interview.

“We do not want to fall into the same problem we fell into last year,” he said.

Egypt was forced to scramble to replace more than 500,000 tonnes of Russian wheat purchases when Moscow imposed the ban.


The government could yet clamp down if domestic supplies start looking short or inflation accelerates in a crucial political year when parliamentary elections are due in December and a presidential poll in March.

“If issues of price increases arise, we will use means of customs and tariff regulation,” Deputy Prime Minister Viktor Zubkov, who recommended Putin end the ban, told the prime minister on Saturday.

Russia’s farm lobbies, traders and analysts had proposed a more conservative three month export window from July 1 to relieve a stock buildup in the south and help domestic prices off of lows to encourage investment in next year’s crop.

Many senior industry figures had also expected a system of quotas or protective export tariffs to be imposed in order to control the outflows.

“They will track the pace of export growth, the international market dynamics, the pace of retail price growth, and eventually they may still impose export duties,” Andrei Sizov, managing director of the SovEcon think tank, said.

Russia’s central bank, which left key lending rates on hold on Monday in its struggle to restrain inflation without killing off growth, said the decision over the weekend to lift the grain export ban posed the single biggest threat to prices.

Russian inflation is running at an annual 9.7 percent.

“This is the only significant risk factor,” central bank chief Sergei Ignatyev said after the bank raised its key deposit rate, referring to the decision to lift the ban.

With the political odds stacked against unfettered exports, traders said they did not fully believe that free shipments could continue for long.

“Will Russia really open its gates in a lasting way and without any export restrictions? I want a clear and precise confirmation,” a European grain trader said.

I especially like the part about how if prices do spike, Russia won’t ban exports–it will just make them uneconomical using customs and tariff regulations.  That makes it so much better!

Note well, newly nominated US ambassador to Russia, Michael McFaul, who claims to have been the “sherpa” for Russia joining the the WTO.  This is what you are so anxious to help?  Do you think anything will really change?

Russia did its already not too stellar reputation serious damage with the grain export ban.  Just as it did damage with the various gas shenanigans over the past years.  It talks the WTO talk, but walks the protectionist walk.  That’s unlikely to change soon, and indeed is likely to get worse as Medvedev fades to black and Putin the Protectionist and natural state balancer reasserts even greater control.  That grain trader will wait a long time for a “clear and precise confirmation” of anything different.

Print Friendly, PDF & Email


  1. As opposed to Cuba.

    Comment by The Sublime One — June 1, 2011 @ 12:07 pm

  2. Hey Professor — while you’re busy flogging Russia as the epitome of crony state capitalism, here’s something for you and Phobie to chew on:
    People’s Republic of the USA
    Damn! We Must be Belgium!

    “Government spending now comprises 40% of American national income, up from 30% in 2000. That’s the same proportion as in Germany; ‘socialist’ Sweden is at 47%. By contrast, ex-communist Russia is at just 34%, and China at 18%. Since America’s victory over Russia in the Cold War, in a sense, America and Russia have switched places. Comparisons of this sort, to be sure, can be misleading, for most of the increase in US government spending reflects the aging of the US population and the consequent demands on Social Security and Medicare.”

    Comment by pahoben lite — June 1, 2011 @ 1:52 pm

  3. @PL. If you haven’t noticed, I’ve been flogging the grotesque growth of government and regulation in the US too. Get a grip.

    The ProfessorComment by The Professor — June 1, 2011 @ 2:29 pm

  4. FT Lex writes ‘Russia: wheat ban worked’ I’m irritated now

    Comment by noone — June 1, 2011 @ 6:37 pm

  5. SWP — How about the massive, bloated protectionism for the U.S. health care and pharmaceutical industries by maintaining the Embargo against Cuba and the FDA keeping out all manner of helpful European drugs and their cheap generics from India? Should India lodge a WTO complaint against the U.S. over that?

    Comment by Mr. X — June 2, 2011 @ 6:07 pm

RSS feed for comments on this post. TrackBack URI

Leave a comment

Powered by WordPress