Inflation Drives Up Wheat Prices
// Wheat Prices in Russia Grow by 10% in Two Weeks
A sharp inflationary spike of 1% in June that was caused by an increase in prices for farm commodities might not be the last. Prices in Russia for one of the agromarket's most basic staples, wheat, have jumped 10% over the last two to three weeks, and grain consumers are ready to appeal to the government to follow Ukraine's example and ban the export of grain. Experts believe that higher prices throughout the country's agricultural sector are on the horizon.
The publication by Rosstat on July 2 of data that reveals the high level of inflation (1%) in Russia in June was a hot topic of discussion in the government for all of last week. On Friday, Finance Minister Alexei Kudrin announced that he has not yet certain whether there will be a lowering of prices and deflation in the country in August. That is the scenario that the federal government, with its insistence on keeping inflation in 2007 to 7.5-8%, is counting on. Inflation has grown 8.5% so far this year, and it has caused, among other things, a sharp (11.2%) increase in the price of vegetables: cabbage now costs 30% more, and carrots 22% more. Bread got more expensive by 1.2%, and the price of sugar increased 1.6%. Now inflation is targeting one of the agromarket's key commodities: wheat.
The increase in grain prices began after Russian Agriculture Minister Alexei Gordeev made a public prediction about the wheat crop for this year: he anticipates a harvest of 76 million tons, 2.4 million tons less than last year. As a result, according to WJ InterAgro analyst Vladimir Petrichenko, price hysteria swept through the market, and by June 29, two weeks after Mr. Gordeev's announcement, the average price for third-class wheat had jumped by 475 rubles, reaching 5,800 rubles per ton (a 9% increase). Fourth-class wheat appreciated by 525 rubles, to 5,775 rubles per ton (a 10% increase), and prices are continuing to rise.
According to Mr. Petrichenko, the skyrocketing prices are caused by "an unexpectedly small export quota of wheat from Ukraine" (in June 2007, Ukraine's export quota was 3,000 tons, which is the equivalent of an export embargo). Other factors include a massive purchase of grain by Egypt and the rising cost of shipping grain by sea, as well as more long-term factors, such as an increase in demand from the countries of the Third World for grain for animal fodder and from the EU for the production of biofuel.
Many in the agriculture industry fear that rising prices for grain and flour will drive up the price of bread, resulting in a domino effect of higher prices throughout the industry. Kommersant has learned that several key industry players are already preparing to approach the government with an appeal to set a limit on grain exports from Russia or to freeze them entirely.
Russia exported around 13 million tons of grain worth $1.5 billion in 2006. Grain Union vice president Andrei Slavutin has already said that predicted export volumes for this year are 9-10 million tons.
Svetlana Mentyukova and Dmitry Butrin
All the Article in Russian as of July 09, 2007
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