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25 Jul, 2008 04:42

Calls for wider intervention in agricultural markets

First deputy prime minister Viktor Zubkov wants the government to introduce price intervention for a wide range of agricultural products. So far the state intervenes to stabilise prices only on the grain market. New measures may cost the government 1 bill

According  to preliminary  forecasts Russia will produce a record high of 90 million tones of grain this year. A good harvest is expected in all grain exporting countries, driving down wholesale prices. If it falls to 215 dollars per tonne on the domestic market, the government will intervene.

To stabilise prices and support farmers it will allocate $300 Million dollars to buy grain on the market. And additional funding will come from Rossekhoz bank according to CEO, Yury Trushin.

We expect significant capital growth and will use the money to finance credits for farmers and regulate grain prices.  We want to buy up to 7 billion tonnes of grain.

Farmers have urged the state to intervene earlier, as at 215 dollars per tonne, grain production is unprofitable. But a higher intervention price can squeeze export volumes according to Andrey Sizov, Managing Director at Sovecon.

A higher intervention price will lead to price growth on the domestic market and it may become unprofitable to export. Also if the government buys grain volumes as promised it may change Russia’s export potential from 15 million tones to 8 million.

Meanwhile Russia's agriculture ministry has come up with the idea of creating a large state-own grain trader which will have half of the Russian export market. Market watchers worry about the government taking the roles of both grain price mediator and exporter, and say it could worsen the situation on the grain market.