Russia-Kazakhstan wheat dispute and the Ukraine

Russia is determined to control the export of grains, which include barley, corn, and especially wheat, in light of current global situation. According to Kommersant’s article, it implemented two measures in order to limit free export of grains:

  1. Floating export tax on wheat (currently at about $110.5 per ton) and corn/barley (currently at about $75.5 per ton);
  2. Export caps (currently 8 Mt for wheat and 3 Mt for barley + corn).

The projected wheat harvest this year in Russia is about 90 Mt.

The problems arise then considering free trade agreement among the Eurasian Economic Union (EEU) members, who does not have the same caps or export taxes. For example Kazakhstan doesn’t have an export tax on grains, and no export caps for barley and corn. Kazakhstan also refuses to implement whose measures, insisting it will hurt its trade.

In this situation it is theoretically possible for Kazakhstan to buy the cheaper Russian grains –unlimited and uncapped by export restrictions– and export it, making profit on the EEU and the world wheat prices, as well as emptying the Russian wheat stocks (which are becoming a commodity of strategic importance). Alternatively, Kazakhstan may export all of its own-grown wheat and other grains, making nice profits on this highly sought commodity, while filling national market with cheap and abundant Russian grains.

Of course, this presents a problem for the Russian wheat-export-control initiative, as it undermines it fundamentally. So Russians temporarily closed the grains exports to all the EEU countries, until they are ready to implement common measures — no Russian grains until the June 30th. Since the Kazakhstan is resisting to implement these export-control measures, it is possible Russian restrictions for grains export to Kazakhstan will be extended.

So it would seem as a non-problem. If Kazakhstan is an exporter of wheat and other grains, it surely doesn’t need to be importing wheat from Russia. But the problem is that unlike Russia, Kazakhstan mainly (or entirely — I’m not sure) grows autumn wheat, which is harvested in the autumn, while Russia have also spring wheat, which is harvested in spring. So if the grains market from Russia will be closed, Kazakhstan won’t have any wheat until autumn for its internal consumption. In which case, if they wont have enough wheat and grains in stock until then (and I don’t know if that is the case), they may have experience price growth or even hanger.

If Kazakhstan doesn’t plan on reselling Russian wheat, or replenishing its own wheat by Russian in order to export it for profit, and if its concerns are really to preserve their grain industry which relies on exports, then maybe they could propose a solution that will demonstrate this. Like, for example, Kazakhstan could “borrow” an x amount of Russian wheat until the autumn harvest, and then returning it to Russia or exporting it for Russian behalf (to the customer of Russia choosing and at the price they choose) the same amount of wheat. For Russia that would mean only a delay in export of some portion of wheat until autumn. My very rough estimates for wheat consumption in Kazakhstan are about 5 Mt per year, of about 2.5 Mt per spring-autumn period. That is assuming Kazakhstan won’t have any of its own wheat left at all. And it is well below the 7 Mt wheat export cap in Russia.

Ukraine’s part of equation

I have looked at available figures of wheat consumption in Russia, and it seems Russia needs about 45 Mt of wheat per year. Assuming the projected harvest of 89 Mt of wheat in Russia this year, minus 7 Mt export cap, that leaves around 37 Mt of wheat in Russia free for export.

Keeping in mind the situation in Ukraine, it is entirely possible Russia will have to feed a significant number of Ukraine’s population this year (and maybe next also). In the lack of other groups of food, wheat will take a larger portion of the Ukraine’s food basket. The yearly figure of 8.8 Mt can easily become 15 or 20 Mt — I’m in no position to predict.

If so, the Russia trying to keep a large reserve of wheat and grains is becoming understandable. Especially when it seems Ukraine’s authorities are eager to export as much wheat as possible, not giving any real concern to the needs of its own population. It seems to me that Ukrainian wheat is being taken out to EU, to keep its food shortages in check.

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