Russia, Ukraine and Kazakhstan are turning to policy described as food nationalism — protecting their domestic grain markets amid the coronavirus (COVID-19) pandemic, including major grain export restrictions, a highly concerning development for countries dependent on their grain supplies.

The price of grain has soared in the Eurasia Union during the past two months. In Russia, where the number of COVID-19 cases and deaths began spiking in mid-April, the price of wheat on the domestic market reached 13,300 rubles ($195) per tonne for the first time in modern history, surpassing the price of Russian oil, according to the Russian Agricultural Ministry.

It was the decline of the Russian ruble that contributed to the increase in domestic prices for grain in the first place, said Sabina Sodikova, general director of the Moscow-based office of Agrozan Commodities. Russian farmers were holding grain, waiting for better prices, since they wanted to get a stake in extra margins that the Russian grain exporters were getting due to the weak ruble, Sodikova explained.

The strategy of holding grain in stock is strongly driving up prices on the domestic market, but it is also a rather risky approach since amid the disruptions in logistics because of the nationwide quarantine in Russia, farmers could end up with warehouses full of grain when the next harvest commences, she said.

To constrain prices and guarantee supplies during the COVID-19 pandemic, the Russian government set a grain exports quota for April-June, but wheat allocated for export has begun to run out quicker than expected. Therefore, Russia announced it would suspend grain exports until July 1 once the 7 million tonnes quota is exhausted, which is likely to happen by mid-May.

Russia harvested 110.7 million tonnes of grain during the 2019-20 season. The carryover stocks are estimated at 17.9 million tonnes with the domestic demand forecast at 69.5 million tonnes, while exports reached 32.4 million tonnes as of March 31. The government ruled that domestic stocks should not go below 17.5 million tonnes, with exports not exceeding 41.7 million tonnes.

Russia is exporting wheat primarily to Turkey, Egypt and Bangladesh, according to the Federal Customs Service. Russian government officials are not commenting on how the grain export restrictions could affect their trade partners.

Other members of the Eurasia Union — Kazakhstan and Kyrgyzstan — also limited grain exports. Kyrgyzstan is a net importer of grain and flour, while Kazakhstan is one of the major suppliers to the global market. Kazakhstan originally introduced a grain export embargo, sparking fears that this decision could become a real disaster for the food industries of neighboring Uzbekistan and Tajikistan. For instance, Uzbekistan purchased 500,000 tonnes of flour and 3.2 million tonnes of grain in Kazakhstan in 2019 — roughly 50% of the domestic demand, the country’s government estimated. Tajikistan purchased 1 million tonnes of grain and 56,000 tonnes of flour, or 60% of demand on the domestic market.

Dos-Mukasan Taubekbayev, director of the Kazakhstan flour milling company Mutlu, said the government’s decision “would doom the neighboring countries to starvation.”

It is becoming clearer that while threatening to the lives of people, the COVID-19 pandemic also is pushing the world to the edge of economic abyss, the press office of Uzbekistan President Shavkat Mirziev said. The government managed to constrain the increase in prices on the domestic market so far due to the large stock accumulated in the country in 2019, it said.

Kazakhstan withdrew the ban and instituted a quota as of April, allowing the export of 200,000 tonnes of wheat and 70,000 tonnes of flour, which was significantly lower than the usual export level of 350,000 tonnes and 123,500 tonnes per month, respectively.

Flour, Feed industries hurting

Rising grain prices already have impacted food and feed companies across the Eurasia Union. The Russian Bakers Union (RBU) has appealed to the Russian government, asking to subsidize rising costs. The price of flour jumped from 17,000 rubles ($220) in 2019 to 21,000 rubles ($280) in early April 2020, said the RBU, who described the baking industry as being “caught in a perfect storm.”

The COVID-19 epidemic and the resulting slump in food consumption in Russia, coupled with the fall of the exchange rate of the Russian ruble, drove the country’s entire baking industry to the edge of bankruptcy, the RBU said. All flour milling companies in the country have either ceased operation or are suffering losses, the RBU warned.

With the price of grain reaching 15,000 rubles ($210) as of mid-April and the price of flour limited to 17,000 rubles ($230), Russian mills are suffering losses on average of about 4,000 rubles ($55) per tonne of grain, the RBU estimated. Russian flour milling companies are not allowed to raise prices above the limits set by the government, and since 2017 they were exempted from the list of businesses subjected to state subsidies, according to the RBU.

Also suffering is the Russian feed industry, where multiple factors are contributing to an increase in prices. Russian dairy companies could have gone through this crisis without raising prices for their products, but it was inevitable because of the sharp rise in domestic grain prices, said Georgy Zhitmarev, deputy general director of the Piskarevsky dairy plant. In Russia, grain makes up to 70% of feed composition.

Additionally, the price of premixes in Russia is predicted to increase by 30% to 50% in the coming months because of the currency depreciation and the disruption in feed additives imports, members of the Russian Union of Feed Producers forecasted. The price for some vitamins and amino acids in Russia jumped by as much as 150% since the beginning of the year and this badly affected the market.

Food and feed companies are hoping for some price relief in the second half of the year. Arcady Zlochevsky, head of the Russian Grain Union, said Russian farmers are likely to harvest between 115 million and 130 million tonnes of grain in 2020. Under the favorable weather conditions, the farmers could beat their record of 135 million tonnes and collect the biggest harvest ever, Zlochevsky said.

The average price for Russian wheat in the new season is expected to be $30 per tonne lower than in the current season, Zlochevsky said. Russian Agricultural Ministry forecasted wheat production at 125.3 million tonnes.

Ukraine debates export restrictions

In recent weeks, Ukraine businesses have been arguing over the need for grain export restrictions. Ukraine Union of Flour Mills, together with the country’s Union of Bakers, asked Ukraine President Volodymir Zelensky to restrict export supplies, since the price for wheat on the domestic market had jumped by UAH 500 ($18.30), and this meant that the price for bread on the country’s grocery shelves was about to climb by 15% to 20%.

This could be especially concerning since 10 million Ukrainians are living in poverty, according to government estimates.

The farmers are not selling their grain, looking for more attractive prices in the export market, Vladimir Chereda, director of the Ukraine agricultural company Kievhleb, said. In this situation, the restrictions on grain exports appears to be a least-evil solution, he added.

The proposal has been lambasted by Ukraine grain exporters. Nikolay Gorbachev, president of the Ukraine grain association, argued that the proposed measure “would drive the industry to catastrophe” and “would cause a tsunami that could damage the entire Ukraine economy,” since grain exports generated $9.6 billion for the country in 2019, or 40% of the total country’s export revenue.

The government is not rushing to introduce restrictions on grain exports. To maintain the price stability on the market, it would be enough to introduce government regulation of prices on 10 goods with high social importance, like milk, eggs, poultry, sugar and flour, said Igor Petrashko, Ukraine Economy Development Minister.

This is the worst possible scenario, said a Ukraine farmer who wished to not be named. The price of premixes sharply rose, the price of feed grain already has climbed by 30% and so livestock producers’ costs have been seen skyrocketing. Without measures to constrain the rise in production costs or some direct subsidies, the government could destroy half of the livestock industry, he added.

Speaking recently to Reuters, Ukraine Deputy Economy Minister Taras Vysotskiy said Ukraine could introduce restrictions on grain exports if the country exports more than 2 million tonnes in April. However, Vysotskiy added it was unlikely this would happen. Ukraine is exporting its grain mainly to Iran, Turkey and Egypt, according to the government’s estimations.

Last year’s grain harvest reached a record 75.1 million tonnes, up from 70 million tonnes in 2018. Ukraine could export a record 52 million to 55 million tonnes of grain this season, including 19 million to 20 million tonnes of wheat, Vysotskiy said.

However, government officials are concerned about how unfavorable weather conditions could affect the 2020 harvest campaign. Production is expected to shrink to 70.4 million tonnes, according to the Ukraine Economy Ministry.

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