Russia’s wheat export tax may end up weakening its hold on trade in the crop – but potentially lead to it becoming a more influential in grain markets overall, as farmers switch to corn.
Jack Watts, the lead analyst in cereals and oilseeds for the UK’s AHBD agriculture bureau, said that the Russia’s wheat export tax could – long-term – prompt a “shut down” in Russian production and exports of the grain, under certain market conditions.
“Russia’s influence as a supplier of the grain to the world would decline,” as the prospect to farmers of lower rewards from wheat prompts farmers to turn away from the crop, Mr Watts told Agrimoney.com.
However, much of the area lost to wheat would likely be switched to corn – so turning Russia into a growing force in a global feed market in which, up to now, the country has been a small player.
Russia’s corn exports for 2014-15 totalled 2.9m tonnes, a fraction of the 20.0m tonnes shipped by neighbouring Ukraine, or indeed the 50.7m tonnes exported by the US, according to US Department of Agriculture data.
‘More influence for Russia’
Overall, the changes “would put more influence in the hands of Russia” in grain market terms, Mr Watts said on the edge of the AHDB Grain Market Outlook Conference in London.
“It would become a force in the global feed grain market as well.”
However, he cautioned that this scenario was dependent on the country sticking with its trade levy, which in a revised formula, from October, will in essence takes half the price of wheat exports above 13,000 roubles, compared with the 50% take above 11,000 roubles currently enforced.
Weakness in the rouble, and elevated grain prices, would raise the tax take, and feed through into growing disenchantment among farmers over growing wheat rather than other grains.
‘Increasingly enticed to corn’
A growth by Russia in corn, of which it produced an estimated 13.5m tonnes this year, would follow that in Ukraine, which lifted its production from 7.4m tonnes in 2007 to 30.9m tonnes six years later.
“We have got used to seeing Ukraine as a huge producer,” Mr Watts told the conference.
“With the presence of the Russian wheat export tax, farmers could be increasingly enticed towards maize, especially if grain prices rise.”
Such an outcome would also require farmers meeting the raised agronomic challenges of growing a crop which requires “technical” expertise, Mr Watts added to Agrimoney.com.
‘Decline of farmers’ margins’
The comments follow a forecast made by Andrey Sizov Jr, managing director at influential Moscow-based analysis group SovEcon, in an AHDB document that the Russian export tax could provoke a cut in Russian wheat sowings.
“A key medium-term consequence for Russian farmers is that the government has started to regulate the wheat price – their key cash crop”, Mr Sizov wrote.
“If the tax stays, it could result in a noticeable decline of farmers’ margins and a gradual decline in production and exports.
“Farmers may switch to other crops, such as oilseeds or barley and maize.
“From 2017-18, we might see a gradual decline in both wheat output and exports if the export tax remains.”
The potential switch Mr Sizov and Mr Watts outlined would drive into the feed grains market a country renowned in wheat for competitive pricing, and intervention in exports.
(Source – http://www.agrimoney.com/news/wheat-export-tax-could-turn-russia-into-a-force-in-feed-grains–8888.html)