The intention of the Russian Ministry of Agriculture to transform its Agency for the Regulation of Food Markets (AFM) into a major Russian grain trader has caused an inordinately stormy reaction in the West. Analysts have accused Moscow of attempting to manipulate the food market.
This change was announced last July. Along with tariff regulation, Russian officials believe that the state's involvement in grain exports will help protect the domestic market against skyrocketing grain prices which are a major cause of "agflation." Rosstat (the Federal State Statistics Service) reports that by the end of the third quarter of this year, food prices will grow faster in Russia than in the European Union (EU) as a whole. Last June, they went up by 1.1% in Russia (by 12.9% since the start of the year), whereas in the EU they increased by a mere 0.3%. Prices on bread and bakery products grew by 2.4% in Russia in June.
The ministry wants the government to transfer its controlling interest in 28 of Russia's major grain elevators and export terminals to the AFM. The aggregate sum of the transferred shares may reach $300 million to $400 million.
The West has perceived the potential appearance of a new player in Russia as a threat. The Financial Times has accused Russia of an attempt to gain an instrument to pressure the world market. Analysts believe that in four to five years, the new company will establish control over up to half of Russia's grain exports, and will become similar to Gazprom in its influence of the market.
The U.S. Department of Agriculture (USDA) has also voiced its concern over the appearance of a major Russian grain trader but it is not clear whether U.S. officials are worried about the world grain market, or about Russian private companies. The USDA complains that the AFM will prejudice the operation of these companies, and described the plan as a giant step back into the Soviet era.
Russian experts believe that the West's concern is exaggerated. It is not clear what the new agency will be like, and who will take part in it. Dmitry Rylko, director of the Institute for Agricultural Market Studies (IAMS), told RIA Novosti: "The importance of this agency is overrated. Even if it accumulates all the state-owned shares in the grain companies, it will not be the biggest player in the market. It will dominate the market only if it is joined by some private players. Nobody knows whether this is going to happen."
In the IAMS's estimate, more than 60% of the market belongs to six private players: the International Grain Company Agrika, Rosinteragroservis, Yugtranzitservis, Yug Rusi, and Aston.
The apprehensions that Moscow may turn food into a diplomatic weapon and use it as Gazprom is using gas may sound flattering, since the Russian government does not conceal its desire to turn Russia into the leading player in the food market, but they are certainly premature. It would be inappropriate to compare the AFM with Gazprom which is the world's largest gas exporter, and the owner of the world's richest gas deposits. In the grain market, Russia ranks fifth after the United States, Canada, the EU and Australia. This does not mean that its role is small. Russia has the lead in a number of regional exports, for instance, in Egypt and in India.
Russian officials would like to enhance Moscow's influence on the world food market, primarily the grain market. However, their previous initiatives did not cause such a dramatic response in the West. For example, the Russian agricultural minister has more than once voiced his idea of setting up a grain "OPEC" to coordinate world trade in grain. But Russian experts are not very enthusiastic about this prospect largely because the various grain-producing countries aren't likely to coordinate their actions as OPEC does with oil. The OPEC members have state monopoly on oil production and exports, whereas grain trade remains in private hands in the majority of grain-exporting countries.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
