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. Last Updated: 07/27/2016

Speculation Mounts Over Grain Imports

Russia's top agriculture minister left Monday for Canada amid continued speculation that Russia will be forced to import grain to make up for this year's poor harvest, expected to be the worst since 1963.


Experts say the poor harvest could result in bread prices doubling or even tripling in some regions of the country on the eve of December's parliamentary elections -- unless the government steps in with subsidies.


Officially, Deputy Prime Minister Alexander Zaveryukha is in Ottawa to co-chair a meeting of the Russian-Canadian joint commission on economic cooperation. Reports in the Russian press Monday suggested that Prime Minister Viktor Chernomyrdin, who leaves for Ottawa later this week, will also discuss grain purchases with Canada.


Russian officials, including Zaveryukha, responsible for the government's agricultural policy, have repeatedly ruled out such purchases this year.


Prior to his departure Monday, Zaveryukha denied that grain purchases are in the offing. "The matter has not yet been raised by either the Russian or the Canadian side," he told Interfax. His press secretary called the rumors "not quite correct," Reuters reported.


Some analysts, however, believe that the Russian side will raise the issue of grain imports.


"It is a reflection of the fact that the situation in Russia is much more serious than what is being said about it at the official level," said Andrei Sizov, general director of SovEcon Ltd., an independent agriculture and trade research organization.


Government officials estimate that this year's grain harvest, which is nearly completed, will be 65 million to 67 million tons, the lowest figures in 32 years. Last year's harvest totaled 81.3 million tons.


Sizov of SovEcon has revised his own estimates downward, predicting a yield this year of just 63 million to 64 million tons. He said the bad numbers come at a very bad time: The Russian government imported only 3 million tons last year, as compared with 11 million tons in 1993, and used these grain reserves without replenishing them.


Whatever the final numbers, consumers are bound to be hit hard. Sizov said bread prices, which currently average 2,000 rubles to 2,500 rubles a loaf, will rise next month to 5,000 rubles to 6,000 rubles a loaf in "typical" Russian regions, and even higher in areas further north. Experts at the Ministry of Agriculture and Food warned last month that the price of bread could rise to 4,750 rubles a loaf.


Yevgenia Serova, an economist and head of the division of agrarian policy at the Institute for the Economy in Transition, a reformist think-tank, said the government would take steps to avoid letting consumer costs rise so high -- either by increasing grain reserves, or else by directly subsidizing the cost of bread.


Steeper costs are a function of the high price of grain on the international market -- now $80 to $90 a ton -- and Sizov said prices are now even higher domestically, due to costs for transportation, storage, processing, and taxes.


Another factor that will drive up prices, some experts say, is that private entities are moving to monopolize the grain market.


"Financial structures -- many banks and financial corporations -- are now accumulating grain stocks, buying both abroad and inside the country," Serova said. "And they can monopolize the market this year and they will accelerate prices."


Ironically, some specialists believe that despite its current dire circumstances, changes are beginning to take place in the agricultural sector that bode well for the future.


"In my opinion this year we have obvious signs of the agrarian sector adjustment," said Serova. "Even if the next year the yield will go down again ... the adjustment of the sector has started. "