Russia imposes ban on grain exports
Move designed to restrain domestic food prices due to worst drought in more than a century.
Last Modified: 15 Aug 2010 11:29 GMT
Al Jazeera looks at how prices of everyday staples are set to rise sharply following ban on grain exports

Russia has imposed a ban on grain exports after a severe drought and a series of wildfires devastated crops.

According to a government decree signed by Vladimir Putin, the Russian prime minister, on August 5, the ban will extend from August 15 up until December 31, although he has indicated it may even extend beyond that date.

The order came into force on Sunday, with the government battling to keep down prices of basic foodstuffs amid a record drought.

Russia, the world's number three wheat exporter last year, has already warned that its grain harvest this year will be just 60-65 million tonnes, compared to 97 million tonnes in 2009.

The drought amid the worst ever heatwave in Russia's history has ruined one quarter of the country's crops, according to Dmitry Medvedev, the Russian president.

Natalia Leschenko, an analyst at Global Insight, told Al Jazeera that compared to Europe, Russia's food prices are "quite high anyway because they do not have enough domestic production".

"Any further rise in the prices of most staple commodities will spark a lot of social discontent," she said.

Price increase

The export ban is aimed at keeping the Russian domestic market well supplied with grain to prevent sharp rises in prices. Russia's leaders, wary of social unrest, will be keen to avoid any discontent over food prices.

"We must not allow an increase in domestic prices and must preserve the headcount of our cattle," Putin said as he announced the ban.

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Last year, Russia exported 21.4 million tonnes of grain and had even embarked on a major new campaign to boost its international market share, an ambition that now must be set aside for some time.

Russia requires 78 million tonnes of grain domestically and can cover the shortfall with 9.5 million tonnes from a state fund and 21 million tonnes left over from last year's harvest, the government has said.

Medvedev acknowledged last week that both market participants and ordinary people were worried about "how this extraordinarily hard summer would affect the prices of the most basic foodstuffs".

He vowed the authorities would not allow grain prices to rise and would keep a close watch on costs for food products such as flour, bread, meat and milk.

Supply crisis

The export ban from such a key global player hit world wheat markets, sending prices to two-year highs and sparking worries of a crisis in global food supplies.

Putin has warned that the ban could even be extended.

Analysts warn the ban risks driving domestic grain producers out of business [EPA]

"There is no need to count on a quick removal of the export ban," he said, adding that anyone waiting for December 31 was doing so "in vain".

There has been criticism of the ban even within Russia, with some analysts saying it will take the country years to regain its international market position and risks driving domestic grain producers out of business.

In contrast to the prime minister's comments, Medvedev admitted that producers had been put in a difficult position. He said they should be helped so they can prove they had no option but to comply with the ban, allowing them to claim "force majeure" when they fail to meet contracts.

"We have put producers involved in exports into a difficult position," he said.

"Having done this, we must help them have the legal proof that [there] was a force majeure and it was not possible to fulfil deliveries."

Al Jazeera and agencies
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