Moscow acts to control grain

By Javier Blas, Commodities Correspondent

Financial Times

August 1 2008

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 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 cereal exports is the latest sign of how soaring food prices are reshaping agriculture. The recreation of Soviet-style state trading will aggravate anxieties of food-importing countries about their dependence on the international market, which has been disrupted this year after exporters, 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 40-50 per cent of its cereal exports within three years.

The company would take over government interests in 28 important storage depots and export terminals. 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.

The plans resemble action by Russia to form national champions in energy, aircraft, weapons and metals.

"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".

Additional reporting by Catherine Belton in Moscow

ft.com