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. Last Updated: 07/27/2016

Battling High Bread Prices With a Cartel

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The idea of creating a grain OPEC is similar to the idea of creating a gas OPEC, the plans to conquer the Arctic and the revival of Russia's strength in strategic aviation. The only difference between all of these initiatives is the degree of their economic implausibility.

Ukraine and Kazakhstan apparently have approved the idea of a grain OPEC, while the United States has reportedly expressed some interest as well. Agriculture Minister Alexei Gordeyev plans to discuss this issue with his Australian colleagues in early September. Gordeyev believes grain producers and exporters must create a cartel to regulate prices.

Grain prices are definitely growing, while global supply has been decreasing for the past three seasons. Some of the most important factors behind this phenomenon are the rise in demand in Southeast Asia and the fact that a whole series of grain producers have been hit by drought.

This has caused a small panic at stores and markets across Russia, because bread prices are a very sensitive and important consumer indicator.

What are the goals of this grain OPEC? It is clear that Gordeyev is attempting to lower the grain prices for the domestic market. But there is not enough market share among potential cartel members to have an impact on world prices. Russia, Ukraine and Kazakhstan combined have only 10 percent of the global market for grain exports. The real OPEC has about 40 percent of the market for oil production and, what's more, its role in regulating prices in recent years has been decreasing.

Unlike the OPEC producers, the grain producers in Russia and Ukraine are not government monopolies. Even under the best intentions, the Agriculture Ministry would not be able to dump additional grain on the global markets (it is hard to imagine how Russian farmers would be able to sharply increase production of wheat). Moreover, it would be difficult for Moscow to reach an agreement with Ukraine and Kazakhstan on a unified grain price because these three countries are competitors on the grain market.

To have any chance of creating a grain cartel, Gordeyev would have to receive an unlimited amount of money to create a huge government grain corporation. The likelihood of this happening is difficult to assess.

The dream of wielding serious global influence is shared by many ministers and high-ranking bureaucrats. The idea of creating a gas OPEC, the plans to conquer the Arctic and the revival of Russia's strength in strategic aviation ... The list could go on and on. Gordeyev's latest idea could fit in nicely with all of these ambitious initiatives. We can only hope that no one in the Kremlin is taking the idea of a grain cartel seriously.

This comment appeared as an editorial in Vedomosti.