Russia Blocks Wheat Exports As Recession Likelihood Grows

Russia’s decision to ban wheat exports may have quite an effect on the local price of wheat, and possibly flour, as a result. Georgia imported 77% of its imported wheat from Russia last year, and imports will make up probably 95% of Georgia’s wheat consumption this season (August 2014-July 2015). Domestic production was only 81,000 tonnes last year, and this year is probably less than a third of that due to drought.

As a good deal of Ukraine’s wheat production is in the country’s war-torn east, Georgia is likely to be very dependent upon Kazakhstan wheat shipped across the Caspian from Aktau and railed from Baku to Tbilisi.

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On Tuesday, the Russian government restricted grain export certificates to a few nations, leaving exports unaffected to Egypt, Turkey and Armenia, reports show, though Veterinary and Phytosanitary Surveillance Service (VPSS) officials deny it’s happened yet. Regardless of whether it’s been mandated yet, analysts say it’s inevitable and though the nation still has an estimated 30 million metric tons of grain available to the export market before key domestic stocks are impacted, it’s a sign that the economic contraction won’t likely go away soon. And, that kind of demand restriction could have long-lasting implications for the nation’s farmers, says Iurii Mykhailov, correspondent and editor-in-chief of Agribusiness-Ukraine magazine in Kiev, Ukraine.

“I think that the possible ban on the grain export will be introduced because of the sharply increased refinancing rate by the Russian central bank. This means the sharp increase in the interest rate (maybe up to 25% to 30% per annum) so there well will arise big problems for the growers next spring as they will be unable to buy inputs such as seeds, fuel, fertilizers, pesticides, etc., in the necessary volumes,” Mykhailov says of the announcement Tuesday. “So growers either will have to decrease the planting area or to decrease the volumes of inputs per hectare. Either way this means the decrease of the crop.”

The implications of recession unfolding in Russia will be magnified by a federal government that’s unpredictable in its actions at best, Mykhailov says. Continued restrictive economic policy to reverse the economic downturn could have the opposite effect.

“Russian economists start to talk about the collapse meaning it is to late to do anything; regardless of the measures taken, the situation will go from bad to worse,” he says. “The Moscow authorities are absolutely unpredictable. There are proposals in Moscow to ban the possession of hard currency by the population in order to provide the hard currency influx to banks. The authorities may also introduce the mandatory 100% selling of the export income in hard currency (now the requirement is 50%). Also the authorities may cancel the ban on the import food though this again requires the spending of the hard currencies. There are a lot of possible decisions.”

via Russia Blocks Wheat Exports As Recession Likelihood Grows.