[R-G] Moscow to Seize Grain Export Controls

[Yoshie Furuhashi]

On the front page of the Financial Times!

<http://www.ft.com/cms/s/0/debdb184-5f3f-11dd-91c0-000077b07658.html>
Moscow to seize grain export controls

By Javier Blas in London

Published: July 31 2008 23:31 | Last updated: July 31 2008 23:31

Russia plans to form a state grain trading company to control up to
half of the country's cereal exports, intensifying fears that Moscow
wants to use food exports as a diplomatic weapon in the same way as
Gazprom has manipulated natural gas sales.

The move by Moscow, the world's fifth-biggest exporter of cereals, has
been sharply criticised by US agriculture diplomats as a "giant step
back" to the Soviet era.

The decision to control food exports is the latest sign of how soaring
food prices are reshaping the agriculture industry. The recreation of
Soviet-style state trading will aggravate anxieties of food-importing
countries about their dependence on the international market, which
has been severely disrupted this year after exporters, including
Russia, imposed prohibitive foreign sales duties or export bans.

Western diplomats and agriculture industry officials said Russia
intended to transform its Agency for the Regulation of Food Markets
into a state trader, controlling between 40 and 50 per cent of
Russia's cereal exports within the next three years.

The company would take over government interests in 28 important
storage depots and export terminals, including the country's biggest
at the Black Sea port of Novorossiysk. The plan, pending governmental
approval, could be implemented before the year's end, diplomats said.
An internal report of the US agriculture department said that if the
new entity had a dominant hold over the export market, it would
jeopardise "a vibrant private grain trading sector".

"Essentially, [it will be] the latest in a series of industry
renationalisations, and a reversal of what till now has been one of
Russia's privatisation success stories," the report said.

Dmitry Medvedev, Russian president, emphasised at the last G8 summit
the need for government involvement in foodstuffs trading, calling for
a "grain summit" next year in Moscow to discuss "pricing policies and
stabilisation measures".

Russia's former state-owned grain trading system was dismantled after
the Soviet Union fell in the 1990s. Roskhleboprodukt, successor to the
Soviet-era Ministry of Grain Products, has declined in importance.
Exportkhleb, the foreign grain trading arm, was privatised.

The plans resemble action by Russia to form national champions in
energy, aircraft, weapons and metals. It is unclear what role will
remain for the commercial traders that dominate the grain export
market.

"This is not a second Yukos," said Andrei Sizov, a managing director
at Sovecon, a leading Russian consultancy analysing agriculture. "I
believe the shares [of the state company] will be managed jointly with
private owners or they will be bought on market-based conditions."

Another expert, on condition of anonymity, said to form the company –
combined with its ownership of the export terminals – "would be bad
for the entire development of the market".

The value of Russia's grain exports last season hit $3.5bn, and
analysts forecast it would double in the next five years as Moscow
aims to increase its grain exports to at least 25m tonnes from last
season's 13m tonnes.

Moscow's move to create a state grain trading comes as Australia
deregulates its grain export market, which has been controlled by the
70-year-old wheat export monopoly operated by AWB.

Additional reporting by Catherine Belton in Moscow