Moscow To Seize Grain Export Controls

Moscow To Seize Grain Export Controls

Quote:

Russia plans to form a state grain trading company to control up to half of the country's cereal exports, intensifying fears that Moscow wants to use food exports as a diplomatic weapon in the same way as Gazprom has manipulated natural gas sales.

The move by Moscow, the world's fifth-biggest exporter of cereals, has been sharply criticised by US agriculture diplomats as a "giant step back" to the Soviet era.

The decision to control food exports is the latest sign of how soaring food prices are reshaping the agriculture industry. The recreation of Soviet-style state trading will aggravate anxieties of food-importing countries about their dependence on the international market, which has been severely disrupted this year after exporters, including Russia, imposed prohibitive foreign sales duties or export bans.

Western diplomats and agriculture industry officials said Russia intended to transform its Agency for the Regulation of Food Markets into a state trader, controlling between 40 and 50 per cent of Russia's cereal exports within the next three years.

The company would take over government interests in 28 important storage depots and export terminals, including the country's biggest at the Black Sea port of Novorossiysk. The plan, pending governmental approval, could be implemented before the year's end, diplomats said. An internal report of the US agriculture department said that if the new entity had a dominant hold over the export market, it would jeopardise "a vibrant private grain trading sector".

"Essentially, [it will be] the latest in a series of industry renationalisations, and a reversal of what till now has been one of Russia's privatisation success stories," the report said.

Dmitry Medvedev, Russian president, emphasised at the last G8 summit the need for government involvement in foodstuffs trading, calling for a "grain summit" next year in Moscow to discuss "pricing policies and stabilisation measures".

Russia's former state-owned grain trading system was dismantled after the Soviet Union fell in the 1990s. Roskhleboprodukt, successor to the Soviet-era Ministry of Grain Products, has declined in importance. Exportkhleb, the foreign grain trading arm, was privatised.

The plans resemble action by Russia to form national champions in energy, aircraft, weapons and metals. It is unclear what role will remain for the commercial traders that dominate the grain export market.

"This is not a second Yukos," said Andrei Sizov, a managing director at Sovecon, a leading Russian consultancy analysing agriculture. "I believe the shares [of the state company] will be managed jointly with private owners or they will be bought on market-based conditions."

Another expert, on condition of anonymity, said to form the company – combined with its ownership of the export terminals – "would be bad for the entire development of the market".

The value of Russia's grain exports last season hit $3.5bn, and analysts forecast it would double in the next five years as Moscow aims to increase its grain exports to at least 25m tonnes from last season's 13m tonnes.

Moscow's move to create a state grain trading comes as Australia deregulates its grain export market, which has been controlled by the 70-year-old wheat export monopoly operated by AWB.