Russians fear grain shortage, bread inflation

Russia's government has acted to stabilise the cost of bread, after it jumped by up to 8% in the past two months. Duties on grain exports have been increased this week.

Russia's government has acted to stabilise the cost of bread, after it jumped by up to 8% in the past two months. Duties on grain exports have been increased this week.

Russian grain exporters now have to pay €22 for each tonne of wheat they take out of the country and €70 per tonne of barley.
However grain exporters say there is no shortage of cereals on the domestic market and warn the measures could mean losses for Russian farmers.

The government believes the duties will counter grain shortages on the domestic market and hold down prices.

The head of tinned vegetables producer Bonduelle says higher export duties are better than the government’s previous agreement with food producers to simply freeze prices.

“Concerning export duties we are talking mostly about grain cereals and for sure the demand for such product in the world is so big that there is a risk that the producer in Russia could export most of the grain to get a better price on the world market which of course could have a disastrous effect on local consumption,” warned Philippe Cohen, general manager of Bonduelle Russia.

But grain traders say the new duties are an effective ban on exports and say they could create new problems.

“There is no deficit of grain on the domestic market. According to the Ministry of Agriculture, Russia grew as much as 80 million tones of grain this year. That means it can export 12 million tones without harming the domestic market. And the current level of exports is well within this limit,” objected Nikolay Demyanov from International Grain Company.

Experts say higher duties may hold down prices and inflation, but only in the short term.

In the longer term exporters will decrease the price at which they buy grain from farmers, hurting Russian agriculture.

“We believe the overall impact of these measures will be negative. Farmers will lose money. To stabilise prices we need to support domestic production and right now we are destabilising it,” added Mr Demyanov.

Experts say grain represents only 25% of the cost of bread while retailers add another 40% hinting that the government may be targeting the wrong people.

Central Bank to target inflation

The Central Bank of Russia believes it can reduce inflation in 2008, but has conceded that it will hit double figures this year.

Speaking at a meeting of Russian and foreign businesses in Moscow, Aleksey Ulyukayev, First Deputy Chairman of the Central Bank said the upcoming parliamentary and presidential elections won't bring about any major changes in economic policy.

He predicts a surge in foreign and domestic investment in Russia, and says this will be the most significant economic development in the short-term.

“Investment spending will grow strongly in spite of the inflation rate and will be a major factor for the Russian economy but of course the investment expenditures are much less affected by inflation than consumer spending,” Ulyukayev believes.