Tariffs on grains, oilseeds, and products of their processing will increase to the extent that their import will become unprofitable. The measures will also extend to the import of peas and pellets from sugar beet pulp. However, according to experts in the grain market, the tariff increase will not have a significant impact on Russian grain exports.
The EU Council approved prohibitive tariffs on grain imports from Russia and Belarus starting July 1. The decision notes that tariffs on grains, oilseeds, and products of their processing will increase to a level where the import of these products will practically cease. The measures will also affect the import of peas and pellets from sugar beet pulp.
All this produce will also not have access to EU tariff quotas. However, the EU Council stated that transit of grain through European ports to third countries will not be subject to tariffs.
According to experts in the grain market, the tariff increase will not significantly impact Russian grain exports but may complicate the situation for livestock farmers and processors in Europe. This opinion is shared by Alexey Zubets, Director of the Institute for Socio-Economic Studies at the Financial University under the Government of the Russian Federation:
Alexey Zubets, Director of the Institute for Socio-Economic Studies at the Financial University under the Government of the Russian Federation, Doctor of Economics
Meanwhile, export prices for grain on global markets are rising. In just a week, Russian grain prices have risen by almost 4%, and prices for the new harvest exceed those of the old harvest. As reported by “Kommersant”, prices are being driven by hedge funds, while many actual buyers are currently holding off. The market has overcome the traditional discount on new harvest: contracts are now being concluded at a higher price of over $250 per ton.
Russia is one of the largest wheat suppliers, accounting for a quarter of global export volume. The main factor driving up export prices is the reduction of the Russian wheat crop forecast from 90 million to 86 million tons due to frosts. Wheat production in the European Union in the new season may also decrease by 4%, to 120 million tons, due to rains in France and Germany.
— The EU has large volumes of Ukrainian grain, Ukraine is ready to increase its supplies to the EU market, and Ukrainian grain is cheaper than Russian grain, so Europe will only benefit from the ban, and Ukraine will benefit, while Russia will not lose anything. It’s simply a political decision, which has zero impact on our markets and the overall global grain trade market.
— Where will we redirect the surplus?
— The volumes are so small that they can be redirected anywhere. Traders in ports on their large ships form impersonal export batches, which will be sent to Egypt, Bangladesh, anywhere. If we export more than 65 million tons of grain a year, talking about these 1.5 million tons doesn’t even make sense, we will consume them ourselves, eventually.
— How will grain prices behave, are they rising now?
— This will not affect prices, prices are influenced by other factors. Currently, the overall increase in the number of hungry people in the world, crop failures in major producers such as Russia, the USA, the EU, and Australia, are driving the formation of new balances. Despite the fact that the situation is good everywhere, the same crop failure in Russia has boosted grain prices by 15-20% in May, which will impact prices since Russia has over 145 countries consuming wheat.
As stated by the general director of the Institute for Agricultural Market Conjuncture (IKAR) Dmitry Rylko, grain exports—excluding legumes—to EU countries this season will amount to around 1.5 million tons. The main supplies are to Italy, Spain, and Greece.
“We will have to find new markets,” he said. According to the IKAR forecast, grain exports from Russia in the current season could reach a record 70 million tons.