Government to Raise Grain Purchases

BLOOMBERGWorkers with their grain harvest at a silo near Rostov. Russia has reaped a particularly large harvest this year.
The government will double its grain-intervention program next year and buy nearly 20 million tons of grain, said First Deputy Prime Minister Viktor Zubkov, speaking at a meeting on Tuesday in the Moscow region.

Increasing grain purchases will "give us the necessary reserves for a bad harvest in the future," Zubkov said, Interfax reported.

He added that this will allow the country to export grain in more favorable market conditions.

After global and domestic prices plummeted early in the harvest season, the government began buying and storing millions of tons of grain to prop up prices and protect its producers and exporters from further price drops.

Since May, Russian grain prices have fallen more than 50 percent. As of Dec. 8, Russian class-3 wheat stood at 4,344 rubles per ton, down from 9,128 in May.

The government, which has bought wheat at up to a 25 percent premium to market prices, has spent 15.1 billion rubles on 3.2 million tons of grain, and before the end of the year it plans to buy another 1.8 million tons.

Buying up grain on the open market might not be the most effective way to support farmers, however.

"Export subsidies are better for the market. They provide you with financial leverage because for the same amount you can export four times more grain than you can buy in an intervention," said Dmitry Rylko, a regular ministry work-group participant and director of the Institute of Agricultural Market Studies.

In addition to the direct cost of intervention, the government also must buy storage space and spend time and money shipping the grain to appropriate facilities, he said.

Earlier this month the government began to run out of storage space for corn, wheat and barley in the Central Federal District, where most of the country's grain is grown, and began shipping excess grain to the northwest and the Volga region, where storage space remains.

"There is a limited supply of high quality storage facilities in Russia, and when you have such a large amount of state-owned grain, you must pay for storage at an additional cost. Plus, it will be a burden on domestic infrastructure, which is not in good shape to begin with," Rylko said.

Speaking at the meeting with Zubkov, Prime Minister Vladimir Putin also announced measures to provide farmers with cheap credit. "We have agreed that we will subsidize loans to farms at 80 percent of the refinancing rate," Putin said, RIA-Novosti reported.

The government will also capitalize Rosselkhozbank to the tune of 45 billion rubles, which is intended to "widen the scale of the grain interventions," he said.