This report, written for Oxfam Moscow, looks at the short- and long-term impact of the grain export ban issued by the Russian government during 2010-11. It shows that the ban did not bring food prices down in Russia, that it increased the price of grain internationally, and helped create an enviroment where price spikes and general instability are far more likely in the future. The report concludes with recommendations for alternative policies to increase food security in the future.
One of the key factors in global food price volatility is the way that states react to disruptions in supply. There is a strong inclination for exporters to impose export bans in reaction to potential food price increases in their own country. This reaction, however, is a poor strategy for managing food prices at home and has a range of unintended consequences for the domestic and international economy. In general, export bans exacerbate problems created by interruptions in food production and may damage incentives to increase production at home long-term.
This research project looks at how these issues played out in the case of the Russian grain export ban that was imposed in August 2010. In the summer of 2010 Russia experienced a heat wave that included the highest temperatures recorded in 130 years. As news of this disaster, and the resulting drop in Russia’s grain crop became known, international grain prices increased dramatically. In response to this increase, and in an effort to protect local consumers and local meat producers, the Russian government instituted a grain export ban that pushed grain prices higher in the international markets.
The export ban is set to end on 1 July 2011. Now, therefore, seems a good time to reflect on its effectiveness. The report looks at the short-term and long-term impact of the ban. In the short-term, it focuses on the impact of the ban on food prices inside Russia and consequently looks to see if the ban helped vulnerable Russian families. It also looks at the short-term impact of the policy on the countries that buy Russian grain. In the long-term, it looks at the impact of the ban on global food price instability and on investment in the Russian agricultural sector.
Short-term domestic impact
1. The ban did not bring down food prices inside Russia. Food prices generally continued to rise after the ban was imposed. Flour prices went up by 18 per cent from July to December and bread went up by ten per cent.
2. The impact of this price rise clearly hit Russia’s poorest hardest. The average price of the official subsistence basket of food rose even more than bread prices. In most of Russia’s regions, particularly those directly affected by the drought, the subsistence basket went up by 20-30 per cent between July 2010 and March 2011.
3. As the cost of the subsistence basket provides a bench-mark for poverty in Russia, and as incomes have remained flat during this period, we can say that poverty will almost certainly have gone up as a result.
4. Since poverty is usually most concentrated in young people, they were probably the hardest hit. Women were also probably worse hit than men. According to official statistics, this gendered variation was small, but it may be worse when one takes into account the greater role played by Russian women in providing food for their families.
Short-term impact internationally
1. The ban did increase prices outside Russia. In countries that imported Russian grain, the most immediate impact of the import ban was to require countries to pay the new and higher international rates for grain that was contracted at lower rates.
2. The export ban set prices higher still across the world. The immediate impact of the ban was certainly a further rise in prices, as we saw in the reaction of commodity markets immediately following the announcement of the ban. This impact was felt by everyone and not just Russia’s customers.
3. Inside importing countries, the negative impact of the rise in prices depended on the way governments responded.
The Impact of Russia’s 2010 Grain Export 4 Ban, Oxfam Research Report, June 2011
a. Egypt was Russia’s biggest customer and the Egyptian government committed to maintaining the price of the cheapest bread. This was enormously expensive for the government and ultimately the population as a whole, but will have minimised the impact of the price-rise on the poorest households.
b. In contrast, Pakistan - Russia’s fourth biggest customer and also one of its poorest - saw a 16 per cent increase in the price of wheat, just as the government was reducing food price protections. As a result, according to the World Bank, Pakistan saw a 1.6 per cent increase in poverty over this period.
1. By instituting a ban, Russia and other exporters helped create an environment where price spikes and general instability are far more likely in the future. If grain importers expect small interruptions in supply to be met with protectionism on the part of exporters, they will be more likely to increase demand whenever they are presented with supply problems, thus exacerbating those problems.
2. The export ban will probably lower investment in grain production. One of the ironies of the export ban is that it simultaneously increased prices worldwide and yet made it impossible for Russian farmers to profit from them. Export bans aim to send prices lower. To the extent that they succeed, they create lower incentives to increase investment in grain production and less cash with which to do it.
3. Protectionism in the meat sector, which is prevalent in Russia, keeps both meat and grain prices higher as it does not allow international competition for meat, and increases the demand for domestically-produced grain.
4. Export bans damage Russia’s reputation as a good supplier. This may negatively affect overall demand for Russian grain in the future and, at the least, will damage the ability of Russian traders to engage in forward-pricing. This will increase the unpredictability facing Russian farmers and traders.
5. Reduced investment in agriculture will lead Russia to under-use a key resource. Russia clearly has massive untapped opportunities in grain production. Even if some of the agricultural land that was farmed under the Soviet system was fairly marginal, as grain prices continue to rise, increasingly large section of Russia’s territory will become viable for cultivation in the future.
1. Export bans should be avoided. While they may be politically necessary in extreme circumstances, they are always unreliable economic management tools.
2. If the aspiration is to keep domestic food prices low then subsidies to the final producer of the food (like a bread or flour producer) are more likely to be effective than bans on export.
3. Policies aimed at alleviating the difficulties faced by vulnerable groups need to target those groups. Export bans, even if they were to work as planned, are universal and so have very small impact on anyone in particular.
4. Russia should try to balance its support for the meat industry with greater support for investment in grain as this would help both industries long-term.
5. Russia should try to avoid the use of import quotas to support the meat industry as these push up meat prices and increase pressure on grain production. They are also less effective than market solutions for forcing efficiency gains.
The Russian government should engage with other exporting countries to try and agree principles to manage supply interruptions without the use of export bans. This could help Russia gain even wider support for its WTO membership.