RUSSIA- Russian authorities have effectively prohibited farmers from selling grain to foreign customers at prices below the government’s minimum threshold. 

This strategy, while intended to benefit the Russian farming industry, has begun to strain the supply chain and could potentially hurt the country’s grain exports.

The Russian government blocked the delivery of 480,000 tons of wheat to Egypt in September because the sale price was below the minimum threshold of US$270 per ton Free on Board (FOB), as reported by Russian newspapers Kommersant and Forbes, citing their own sources.

The Russian Ministry of Agriculture appears to believe that foreign buyers have no alternative to Russian grain and will eventually purchase it at the government-mandated price. This policy aims to bolster Russian farmers’ financial well-being and contribute to the federal budget.

Farmers are already feeling the impact. According to Russian publication Gorodn, the government’s commitment to the minimum export price has put pressure on the supply chain. In the southern regions, many trading companies have ceased purchasing grain from farmers, citing a lack of available warehouse space to store it.

Andrey Sizov, director of SovEcon, a Moscow-based consultancy, acknowledged that the government’s policy is slowing down Russian grain exports, potentially leading to record carryover stocks, similar to what occurred the previous year.

One source, wishing to remain anonymous, told Gorodn that wheat similar to Russian wheat is currently selling for a maximum of US$240 per ton FOB on the global market.

The Russian Ministry of Agriculture’s confidence that foreign buyers will eventually acquiesce to their price raises questions about the sustainability of this approach. Algeria recently purchased sufficient grain to last until the end of the year, while Egypt may conduct a few more tenders but is likely to halt grain purchases until January.

The source expressed concern about this strategy, particularly considering that Argentina and Australia will begin their harvesting seasons in November, contributing to a surplus of grain in the market. Additionally, Ukrainian grain, which had faced export restrictions, has resumed its supply through Odesa, further complicating the situation.

The minimum export price also applies to sunflower oil, leading some Russian oil factories to delay their usual September 10 openings until the end of September. On the domestic market, farmers are attempting to sell sunflower seeds at prices that barely cover their production costs.

Farmers who are already grappling with export duties have expressed concerns that this new measure is adding further pressure to an industry facing profitability challenges. According to Alexander Yaroshenko, director of grain company Ural-Don, the implementation of export duties has caused the industry’s average profitability to plummet from 17% to just 3%. The minimum export price is now perceived as an additional setback for farmers.

Yaroshenko shared his apprehension, stating, “I believe that if these restrictions persist for another four years, there will be no more grain exports from Russia. Perhaps we won’t return to the days of buying grain from Canada, as in Soviet times, but we will certainly lose the opportunity to export it.”

The situation raises questions about the sustainability and long-term effects of Russia’s strategy to maintain the minimum export price for its grain and agricultural products.