An order by Prime Minister Vladimir Putin to extend the current ban on wheat, rye, barley and corn exports until July 1 next year — announced last week — will make an exception to allow Russian millers and traders to ship milled flour abroad. Allowing 1.4 tonnes of wheat to make one tonne of flour, the tonnage of wheat not allowed to be exported, which may be shipped as flour, may reach a million tonnes, triple the volume of the flour trade in the year before the drought.
According to the decree signed by Putin on October 20, the ban on exports of wheat imposed between August 15 and December 31 will now run another six months. A spokesman for the prime minister has said there will be no loopholes for what he called “unscrupulous exporters”.
The extension of the ban reflects not only the 30% reduction in the summer season’s harvest due to drought. The winter planting, according to Putin, has been reduced by more than 3 million hectares, 20% less than a year ago. This will mean that the next harvest will also fall short of domestic consumption and stockpiling requirements, unless the control on exports remains in place. Fear of wheat price inflation triggering further rises in the price of bread is also driving the prime minister to make sure that as next year’s parliamentary election campaign accelerates towards polling day in December, Russian voters don’t let their stomachs and their pockets rebel against the government and the ruling United Russia party.
President Dmitry Medvedev’s chances for re-nomination for the presidential poll, scheduled for March 2012, will be seriously damaged if the governing party is badly defeated in the parliamentary election. So he is keen to keep up appearances that he is doing everything he can to assure the supply of grain into flour and flour into bread.
Putin told a meeting of farm policy officials in Rostov last week that he is offering the farm sector subsidies to help cover their fertiliser costs; subsidies to lower their railway expenses; a postponement of interest payments on agricultural loans; and subsidies for their spring planting costs. “It is important,” Putin said, “to reduce the financial burden on enterprises, thereby stimulating them to increase acreage in the spring. Therefore I propose to allocate an additional 1 billion rubles in subsidies for spring sowing, including the purchase of seeds.”
Victor Zubkov, the deputy prime minister in charge of agriculture, added that in order to make up for the deficit in winter planting, additional subsidies for fuel and lubricants will be arranged in time to finance the spring planting. He also mentioned legislation and budget funding for improvement in agricultural insurance cover for farms, and to establish irrigation of crops in the drought zone.
Alexander Korbut of the Russian Grain Union told Fairplay: “We asked the government to exclude flour from the ban, and they agreed. We are very grateful for this exception. Flour exports will not do any harm to the Russian domestic market. On the contrary, it will keep the situation in balance.”
Exactly what this balance may be is indicated from the sharply rise in the Russian flour trade.
Russian exports of wheat flour, 2004/05 to -2008/09 seasons
In thousand tonnes
Since the 2006 season, the volume of wheat flour exported has doubled, reaching 312,000 tonnes, according to the chart for 2008/2009. Adding other types of flour, the total exported in the 2008/2009 season came to 387,000 tonnes.
According to the Russian Customs data, for the first half of calendar 2010, exports of wheat (including wheat mix or meslin) totaled 8.5 million tonnes; that was up 1.5 million tonnes on the same period of 2009 — an increase of almost 21%. In value terms, these grain exports jumped from $1.2 billion to $1.5 billion.
Russia’s share of the global flour trade has also been growing fast. According to the International Grains Council (IGC), before 2006 Russia’s flour exports were too small to count in the top-10 of the global trade. But in the past two seasons, Russia moved into fifth place. Kazakhstan leads, followed by Turkey, the European Union, and Argentina. The main buyers of Russian flour are Mongolia, Afghanistan, and other former Soviet countries in Central Asia and the Caucasus
Russia’s share in world exports of wheat flour in 2008/09
How much more flour can Russian exporters and traders sell into the global market?
Anton Shaparin, press secretary of the Grain Union, said on August 20: “Russian manufacturers of flour have been capturing foreign markets for four years with great difficulty. An agreement on supplying flour to the very promising market of Indonesia has been almost reached. The market for flour is generally very specific — it is not a commodity. It is easy to lose the captured foreign markets, but it’s very difficult to get them back.”
That said, it is possible to calculate that after the 30% reduction in this year’s wheat harvest, the volume of wheat available to export in the first half of 2011 would be that much less than the 7 million to 8 million figure recorded as exported in the first half of 2009-2010. That subtraction would leave between 5 million and 6 million tonnes, assuming the pre-drought level of foreign trade. Putin’s extension of the ban order means that none of this can be exported.
However, if flour exports are allowed instead, the millers can, in theory, convert these wheat volumes into roughly 3.6 million tonnes to 5.7 million tonnes of flour. Such volumes dwarf the flour export volumes which Russia has been shipping, even in the fast-growing global market. So long as the spread between the price of domestic wheat and export flour allows a sizeable profit for the conversion, the door to unlimited flour exports remains open. Thus, the only limit will be the price at which Russian flour marketers attempt to beat the competition in foreign markets. This number, the projected jump in next year’s flour exports over 312,000 tonnes, may be 1 million or more.
Asked for their estimate of this number the Russian Grain Union and two of the leading grain producers, Russian Grain and Razgulyai, decline to say anything.