Putin’s Childish, Self-Destructive Grain Embargo

Paul Goble reports:

The embargo on the export of grain Vladimir Putin has announced will hurt Russia’s image as a reliable supplier to the world, Moscow experts say. Moreover, they say, it will not necessarily keep bread prices down as Putin said but rather may allow Russian companies and officials to profit through the sale of grain later after prices rise. At the end of July, Russia’s agriculture ministry said that Moscow had no plans to impose an export embargo on grain despite indications of a serious decline in the size of the crop because of the drought and despite already dramatic increases in the price of bread and other products in some regions.

But then, last week, Putin called for and the Russian government imposed a temporary embargo on the export of grain for the period August 15 through December 31 in order to ensure that there would be enough grain for the domestic market to prevent any further increases in bread prices.

In the days since then, Russian news outlets have been discussing “the pluses and minuses” of this measure, with almost everyone agreeing that it will have an impact on Russia’s reputation as a reliable supplier to world markets but with sharp disagreements on whether it will keep prices down or only allow Russian exporters to make exorbitant profits later.

Although it might seem logical that limiting exports would keep domestic prices lower, Anzhela Druzhinina writes in today’s Novyye Izvestiya such a step will not necessarily have that effect. Not only are production declines extremely large, but efforts to maintain reserves will limit the amount of grain on the market. The situation in Ukraine, which imposed an embargo last week as well, shows how that might work. There, prices continued to rise after the announcement, a pattern that is at least possible if not certain in at least some parts of Russia. To the extent that is true, the populist impulse behind the embargo will not be realized.

One expert, Agvan Mikayelyan, the head of the Finekspertiza Center, said that there may be “a more complex” set of calculations lying behind what Putin has done. The announcement of the embargo has led to a price rise in the West, and prices there won’t fall anytime soon. Consequently, Moscow may hope to sell the grain it isn’t exporting now for even more. That possibility, he told Druzhinina, is certainly suggested by the remark of First Vice Prime Minister Igor Shuvalov who said just after the embargo was announced that the measure “could be reviewed” after the harvest is in. Moreover, Putin himself stressed that the embargo was a “temporary” measure.

Writing in Politcom.ru today, commentator Ivan Yartsev suggests that the embargo will not prevent Russians from facing rising prices at home, although he says they will not be the only ones to suffer. Others include exporters who will now have to pay penalties for contracts concluded earlier that they cannot meet . At the same time, Yartsev continued, there will be some beneficiaries of Putin’s action: speculators both directly in the market place and in the stock exchanges. Officials may threaten to investigate such people for collusion, he said, but under Russian conditions nothing will come of such threats, at least anytime soon. But what is especially disturbing, in addition to the possibility that more Russians will suffer from rising prices while Russian speculators will reap large profits, is that the embargo is likely to cast a shadow on next year’s crops, even if it is lifted on December 31 as Moscow now suggests.

That is because, Vladimir Plotnikov, the Federation council member who is a leader of Russian farmers, told Krestyanskiye Vedomosti, Russian agriculture acts on the basis of “inertia.” Consequently, there is a very real chance that planting for next year will reflect conditions now, even if those will change. At the very least, Putin’s announcement of the embargo resembles some of his other proposals: They have not been thoroughly coordinated or carefully thought through, or they conceal their real purposes behind language intended to suggest that he is in fact acting in the best interests of the Russian people.

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