Russia extends wheat export ban, chaos ensues

Last week the Russian government extended its wheat ban export. This expectedly caused chaos. Wheat prices soared when news came that the wheat ban was extended.

Wheat prices rose further on Friday in the wake of Russia’s decision to extend its grain export ban by 12 months, raising fears about a return to the food shortages and riots of 2007-08.

In Mozambique, where a 30 per cent rise in bread prices triggered riots on Wednesday and Thursday, the government said seven people had been killed and 288 wounded.

Vladimir Putin’s announcement on Thursday extended an export ban first introduced last month until late December 2011, sending wheat and other cereals prices to a near two-year high. It came as the UN’s Food and Agriculture Organisation called an emergency meeting to discuss the wheat shortage.

In Maputo, trade and industry minister Antonio Fernandes told a national radio station on Friday that the riots had caused 122m meticais ($3.3m) of damage. Police opened fire on demonstrators after thousands turned out to protest against the price hikes, burning tyres and looting food warehouses.

Although agricultural officials and traders insist that wheat and other crop supplies are more abundant than in 2007-08, officials fear the food riots could spread.

Wheat prices remained high on Friday morning. Futures in Chicago were up 1.5 per cent at $6.91 a bushel, while European wheat futures remained at historically high levels above €230 a tonne, just shy of last month’s two-year high of €236. Wheat prices have surged nearly 70 per cent since January, and analysts forecast further rises after Russia’s decision and concerns about weather damage to Australia’s crop.

The crop problems in Russia, which suffered its worst drought on record this summer, and elsewhere, have heaped pressure on US farmers to supply the world’s wheat. The US Department of Agriculture has increased its estimates for US wheat exports to $8bn for the current crop year.

The 2007-08 food shortages, the most severe in 30 years, set off riots in countries from Bangladesh to Mexico, and helped to trigger the collapse of governments in Haiti and Madagascar.

The FAO said that “the concern about a possible repeat of the 2007-08 food crisis” had resulted in “an enormous number” of inquiries from member countries. “The purpose of holding this meeting is for exporting and importing countries to engage.”

Russia is traditionally the world’s fourth-largest wheat exporter, and the export ban has already forced importers in the Middle East and North Africa, the biggest buyers, to seek supplies in Europe and the US.

Food prices surgeMr Putin said Moscow could “only consider lifting the export ban after next year’s crop has been harvested and we have clarity on the grain balances”. He added that the decision to extend the ban was intended to “end unnecessary anxiety and to ensure a stable and predict-able business environment for market participants”.

“This is quite serious,” said Abdolreza Abbassian, of the FAO in Rome. “Two years in a row without Russian exports creates quite a disturbance.” Dan Manternach, chief wheat economist at Doane Agricultural Services in St Louis, added: “This is a wake-up call for importing nations about the reliability of Russia.”

Jakkie Cilliers, director of South Africa’s Institute of Security Studies, said there was concern over a repeat of the protests of 2008: “That certainly strengthened a return of the military in politics in Africa.”

The United Nations held a special meeting over the wheat ban.

Concerned with the recent outbreak of riots over food prices in the African nation of Mozambique, the United Nations Food and Agriculture Organization (FAO) announced Saturday it will hold a special meeting this month to discuss rising wheat prices. FAO officials, food experts and government representatives are scheduled to meet in Rome on Sept. 24 to find ways to ease the price fluctuation affecting grain markets, U.N. officials said in a statement.

Studies show that wheat prices soared in August, the biggest monthly rise in almost a year, officials said. They want to prevent a food crisis like ones in 2007 and 2008 that sparked riots in several nations.

Russia’s restricted sale of grains, resulting from this summer’s persistent drought, caused wheat prices to go up by five percent in August, the U.N. agency said. Russia recently banned grain exports.

Higher sugar and oilseed prices also contributed to the international food price hike, FAO officials said.

The problem doesn’t lie with the World food supplies as there is enough to go around. The problem is with the way of stocks and hoarding to hedge those stocks. Much like De Beers and their diamonds. When farmers are paid to not produce crops and people are starving because of rising food prices, the problem is government policy, not the weather.

Take Egypt for example. The government subsidizes wheat, which in turn doesn’t give local farmers any incentive to plant wheat since they know that they can’t sell and make a profit. This only makes Egypt more dependent on foreign wheat supplies and that’s the position Egypt is in today.

Here is previous post on the effect of Russian wheat export ban.

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