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Protectionist measures in Russia raise questions

TAGS: Crops Trade
Albert Yarullin/ThinkstockPhotos Wheat field at dawn
Analysts expect Russian farmers to harvest near 80 million tons of wheat, one of its largest ever.

By Megan Durisin and Yuliya Fedorinova

Russia’s bid to cool food inflation with crop-export taxes is bad news for farmers’ profits, though leaves them little choice but to plow ahead with big plantings -- at least for now.

Farmers had already planted winter grains and are hesitant to change spring plans because many bought seeds and fertilizers before the export restrictions were announced earlier this year. The government sees the total crop area rising slightly and while it’s early in the growing season, analysts expect a wheat harvest near 80 million tons, one of Russia’s largest ever.

The big question is the size of the key winter-wheat crop that gets planted in autumn, and some consultants including SovEcon warned sowings may shrink.

The top wheat exporter supplies more than 100 countries -- including some of the biggest buyers -- with cheap grain, so major supply changes can send ripples across the global market. For a nation that’s prided itself on its shift from being dependent on crop imports to an export powerhouse, the protectionist measures also raise questions about its dominance in the future.

Bigger plantings

“We don’t know much about what next season will give us,” said Angelika Melikian, a consultant at adviser Agritel. “The spring sowing season is unlikely to see major changes from recent years because farmers have these constraints.”

Major farm company Ros Agro Plc in February said it would cut grains planting this year, without elaborating, while Steppe Agroholding, one of the top producers in southern Russia, plans to keep sowing steady. Some companies considered reviewing their acreage mix, but that’s a risk given export restrictions on other crops too, Steppe Chief Executive Officer Andrey Neduzhko said.

The taxes are intended to help consumers by keeping domestic prices in check, but risk curbing farmer incomes as the supply chain absorbs the levies.

That’s especially the case for smaller farmers, who unlike big agriculture holdings aren’t partly shielded by their size and diversification. Small growers looking to switch to other spring crops at this stage may also find seed supplies limited, said Eduard Zernin, head of the Russian grain exporters union.

While global grain stockpiles remain tight, expectations for big harvests in Russia and elsewhere this summer have helped wheat futures ease from a multiyear high set in January. That could change if Russian farmers cut plantings later this year.

Reduced access to export markets could also hinder Russia’s long-term growth in wheat output, which has doubled in the past decade, according to Rabobank.

“We start to feel all those negative things from the 2022 crop,” said Andrey Sizov, managing director at SovEcon, which sees winter-wheat plantings falling 5% to 10%. Autumn sowings will prove “an important event” for the world market, he said.

--With assistance from Áine Quinn and Gem Atkinson.
© 2021 Bloomberg L.P.
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