MOSCOW: Russian wheat exporters are bidding aggressively for new business, even though they don’t know how much tax they will need to pay to ship the grain as Moscow steps up its fight to curb domestic food inflation.
Russia, one of the world’s leading wheat exporters, will launch a formula-based wheat export tax from June 2 aimed at cooling domestic grain prices. It will be set weekly and will replace the current fixed tax of 50 euros ($60) a tonne.
The state buyer of giant wheat importer Egypt bought 290,000 tonnes of Russian wheat in its tender on April 6 seeking new crop shipment in August, with Russian wheat offered cheaper than rivals such as the European Union.
“It’s a casino,” said a Russia-focused trader that took part in the tender. “We do not know how it’s going to work out (with the Russian tax). But it is the risk we are ready to accept.”
Russia has been taking steps to reduce food inflation which stood at 7.6% in March at a time when many consumers have seen their incomes hit by the COVID-19 pandemic.
The rise in food prices is a global problem with a benchmark index produced by the United Nations Food and Agriculture Organization (FAO) climbing for the 10th consecutive month in March to the highest level since June 2014.
Egypt is the second largest buyer of Russian wheat after Turkey.
“Russian exporters are certainty throwing the gauntlet down and showing they will be in the new crop market for world sales despite all the Russian government efforts to put a brake on exports,” said one of traders.
“It is a pure gamble, no one knows what the tax will be but big companies are willing to stick their necks out and take the risk,” he added.
Traders signing export contracts for summer delivery assume that the current export tax of 50 euros will not rise in the new season, said Eduard Zernin, who heads the Russian union of grain exporters.
The tax will rise if global prices go up but Russia’s 2021 wheat crop prospects are good so far with the first part of the new harvest usually arriving in late June.
Analysts at IKAR consultancy also said the exporters currently selling wheat had already guaranteed some supplies either through pre-harvest loans offered to farmers or in-house crop production.
Egypt’s state buyer usually purchases grain for closer delivery dates at this time of the year.
But by pushing shipment dates further back, it aimed to allow suppliers to potentially source non-Black Sea wheat, including US and Australian grain, at prices that could allow them to be competitive during tenders despite shipping costs, a senior Egyptian government source with knowledge of the matter told Reuters.
The plan didn’t achieve that goal with wheat from Black Sea rivals Ukraine and Romania providing the only competition at the tender.
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