Russia, Ukraine to Ban Grain Exports

By Ilya Rzhevskiy
Ilya Rzhevskiy
Ilya Rzhevskiy
August 17, 2010 Updated: October 1, 2015

GRAIN SHORTAGE: Farmers harvest grain on land near Zhovtneve village, in the region of Chernigov, some 220 km (136 miles) north of Kyiv, Ukraine, in this file photo from last year. Following Russia's ban on grain exports, Ukraine, the world's biggest barley exporter, may also introduce ban quota to its grain exports that were also damaged by severe summer draught. (Genya Savilov/AFP/Getty Images)
GRAIN SHORTAGE: Farmers harvest grain on land near Zhovtneve village, in the region of Chernigov, some 220 km (136 miles) north of Kyiv, Ukraine, in this file photo from last year. Following Russia's ban on grain exports, Ukraine, the world's biggest barley exporter, may also introduce ban quota to its grain exports that were also damaged by severe summer draught. (Genya Savilov/AFP/Getty Images)
Following raging forest fires, an extreme heat wave, and a record draught, Russia has lost one-third of its crop harvest, as an estimated 10 million hectares of agricultural land has been either burned or devastated by extreme weather conditions.

As a result, Russian Prime Minister Vladimir Putin has put a ban on grain export starting on Aug. 15 and ending on Dec. 31. The intention of the ban is to avoid grain shortages and to control the local prices of grain and therefore avoid a sharp price hike on food supplies in Russia that could easily lead to hunger and social unrest.

"We must not allow an increase in domestic prices and must preserve the headcount of our cattle," said Putin in a public address.

If the price of grain rises, it would not be profitable for farmers to keep cattle because they are mainly fed on grains and they will be slaughtered as a result.

This year Russia expects to harvest around 60 million-65 million tons of grain, which is low compared to the 97 million tons generated in 2009. It needs 78 million tons of grain to cover its domestic needs. Therefore the gap of 18 million tons will be compensated by 9.5 million tons from a state fund and 21 million tons left over from previous year’s harvest.

Russia, being the world’s third-largest crop producer, has sent a worrying message to food markets worldwide. The export ban will certainly affect global prices on grain even further, which have already risen to the maximum point over the last two years.

In contrast to the prime minister, the Russian President Dmitry Medvedev, has expressed a concern for crop producers who have been put in a tough position by the export ban.

"We have put producers involved in exports into a difficult position. Having done this, we must help them have the legal proof that (there) was a force majeure [superior force] and it was not possible to fulfill deliveries," said the Russian president.

Some people in Russia have criticized the ban, citing that it would take the country years to regain its international market position, as it will lose its customers. The ban can also put many Russian producers out of business, as they would lose the opportunity to sell for better prices to the foreign customers.

Ukraine Considering Similar Measures

Following Russia’s ban on grain exports, Ukraine, the world’s biggest barley exporter, may also introduce ban quotas for its grain exports that were also damaged by a severe summer draught.

“We will reach an agreement with grain producers and exporters by Monday,” said Agriculture Minister Mykola Prysyazhnyuk to reporters last week, following a government meeting in Kyiv. “Our main task is to ensure food security in Ukraine, while not to lose export position and image abroad. I think introducing quotas for exports makes sense.”

Ukraine harvested 13 percent less grain compared to the same time last year. The export quotas could initially be applied to wheat and be set at between 7 million and 8 million tons of grain. After the harvest, the government will make further adjustments to the quotas according to the abundance of different grain types.

“It’s no use waiting for a quick solution to the problem,” UkrAgroConsult said today in a note. “Practice shows that the distribution of quotas is not a quick process.”

U.S. Grain Production to Compensate

In response to the market shortage of grain, mainly caused by poor harvests and export bans in Russia, Ukraine, and Canada, United States grain production will rise 2.2 percent, said the U.S. Department of Agriculture last week.

U.S. grain reserves this year will be the second largest since 1987, reaching 2.265 million metric tons.

“Grain elevators are full of wheat in Kansas,” said Sid Love, the president of Joe Kropt and Sid Love Consulting Services LLC. “The United States has enough wheat to offset reduced world crops and meet increased export demand.”

Kansas is the biggest producer of winter wheat in the United States.