Cancellation of duties on wheat: advantages and disadvantages

Cancellation of duties on wheat: advantages and disadvantages

The Ministry of Agriculture has asked the government to abolish export duties on wheat in the new 2016/17 crop year (from July to June), the letter by Minister of Agriculture Aleksander Tkachev to supervisor of the AIC Deputy Prime Minister Arkady Dvorkovich informs, Vedomosti reports.

Such a request was due to the fact that this year the agency expects a crop at the level of 106 million tons, and even up to a record – 109-110 million tons under favorable weather conditions, while domestic consumption is 72-74 million tons, the letter informs. The massive arrival of new crop grain led to lower prices, the Minister noted.

Wheat of 3rd and 4th class fell by 13% to 10100 and 9500 RUR / t, 5th grade - by 17% to 8,600 rubles / t in June - July 2016 in the European part of Russia. As a result, prices have fallen below the threshold level and the state should begin to conduct purchase interventions at that low prices of in order to prevent a collapse in the market, the document says.

However, export decreases. On July 20th deliveries abroad fell below last year's level by 7.4%, and it prevents the growth of exports duty, the letter informed. Grain exporters abandoned the practice of long-term supply, and such a change of strategy led to a reduction in purchases in the domestic market. It contributes to the further drop in domestic prices.

Chief Researcher of the Center for agricultural and food policy at IPEA RANHiGS, Vasili Uzun, told Vestnik Kavkaza that the export duty was introduced in late 2014 due to concern of the high prices in the world market. All Russian grain will be exported and there will be a deficit in the domestic market. 

"The world price is much more than the price inside the country. It was 7,800 rubles / t, and the world price was  significantly higher, about 12,000-13,000 roubles. There was an idea against this background, and it is necessary to introduce export duties, select, align the benefits from selling of wheat in domestic and foreign markets,’’ the expert said.

Academician of Russian Academy of Sciences, member of the Academic Council RANHiGS, Doctor Elmira Krylatyh  was more cautious in the estimates in an interview with a ‘VK’ correspondent. 

"Certainly, it is clear that the abolition of this tax will contribute to the increase in exports. It is necessary to think whether we need such an increase in exports now when we cannot be absolutely sure that the harvest will be the same as this year. Maybe we’d better have a reserved position and consider that the export must be at a certain level, with elements of extension, but without taking wrong measures," she said.