Further Adventures in Russian Commercial Reliability

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Russia is going to ban wheat exports, and is “coordinating” with the members of its “Customs Union,” Kazakhstan and Belarus, to do the same. This ban has caused a worldwide spike in wheat prices; prices on the CBT and KCBT were limit up, about an 8 percent move on the former, and a 7 percent move on the latter. Moreover, the cancellation is undermining Russia’s reputation (yeah, I know) as a reliable trading partner.

Cargill makes the point that Adam Smith made in the Wealth of Nations in the chapter “A Digression on the Corn Trade:”

Cargill, the world’s biggest trader of agricultural commodities, criticised Moscow’s move. “Such trade barriers further distort wheat markets by making it harder for supplies to move from areas of surplus to areas of deficit, and by preventing price signals from reaching wheat farmers,” it said.

Russian exporters argue that the precipitous announcement will make it harder for Russia to export going forward:

Arkady Zlochevsky, president of the Grain Union lobby group, said that the swift imposition of the ban risked undermining Russia’s reputation as a reliable supplier.

. . . . .

Arkady Zlochevsky, president of the Grain Union lobby group, said the government needed to warn exporters ahead of such a decision and give them time to meet existing contracts, according to Interfax. “What are we to do with the grain that has already reached port?” he asked. “We have no mechanisms for returning it.”

There are understandable domestic reasons for this decision. It is political, not economic, and reflects the government’s concern about a rekindling (no pun intended, given the current circumstances) of inflation, which has abated in recent months. The immediate takes precedence over the future, especially in many Russian decisions.

The interesting question is the “coordination” with Kazakhstan and Belarus. I haven’t been able to find out whether a Union-wide ban would prevent exports from say Kazakhstan to Russia, or just prevent exports from within the Union to without it. I would imagine the latter. Since it appears that Russia is hardest hit by the drought, a “coordinated” ban would benefit Russia, at the expense of the other two countries. Is Russia leaning on the other countries in the Union? Given recent Belarussian obstreperousness, it will be interesting to see how it reacts. Will the threats fly? Reporting I’ve seen doesn’t permit me to answer these questions now, but I will try to keep an eye on how Russia handles this particular issue in the “Near Abroad.”