What is Russia's largest export
Comment: Russia's grain embargo is a warning sign
Russia, the world's largest wheat exporter for several years, has temporarily stopped supplying the world market with grain. The export ban was announced: at the end of March, Moscow had already decided to limit sales of wheat, rye, barley and maize to countries outside the Eurasian Economic Union, to which a total of five post-Soviet countries belong, to just seven million tons from April to the end of June.
This quota was already exhausted at the end of April. In view of rising grain prices on the world market and a weak ruble, selling outside the country is currently particularly attractive for Russian agricultural companies. This is precisely why exports were restricted as a precaution: The Russian government wants to protect the domestic market from rising bread prices and possible shortages.
Russia's foreign exchange earnings are falling rapidly
Such state interference in the market is understandable in times of greatest uncertainty due to the corona pandemic and from a domestic political point of view well-founded. A few weeks ago, Asian countries such as Vietnam and China also acted in a similar way, restricting the export of rice.
Andrey Gurkov is the business editor in the Russian program
For the Russian economy and the national budget, however, this export freeze means a further loss of urgently needed foreign exchange income, which is now rapidly declining anyway. Russia's companies and consumers are very dependent on the import of a wide variety of goods. In contrast, exports are based on only three pillars: raw materials, weapons; Grain. But the oil price has crashed catastrophically. So is the gas price. New tanks and missiles are not necessarily a big hit in times of COVID-19 either. And now Russia also has to forego foreign exchange from the sale of wheat.
The Russian central bank estimates that the country's export earnings will decline by 40 percent from 419 billion US dollars in the previous year to 250 billion in 2020 and will remain below the 2019 level even in 2022. It would be even worse for the country if oil prices remained lower than forecast and Moscow had to extend the grain export ban for many more months.
Climate change could cause a drought in 2020
But that is quite possible, because meteorologists are already warning that 2020 could be one of the five warmest years since weather records began, or even the hottest. In countries that grow a lot of grain, including Germany, the soils are already too dry. Russia's granary, its European south, also complains of far too little rainfall.
So if climate change leads to a drought and poor grain harvests in the year of the Corona crisis of all times, Moscow would (have to) stick to its export ban with a high degree of probability. The last major Russian export ban on wheat lasted a full ten and a half months: from August 15, 2010 to June 30, 2011. Should something similar happen now, it would by far not only affect the Russian currency budget.
Famine due to rising food prices
Because if the largest wheat supplier were to stay away for a longer period of time, this would undoubtedly lead to a shortage of food on the world market. Especially if other producers of agricultural products would also have to resort to the instrument of an export freeze. For the richer countries hit by the Corona recession, this would mean an increase in the cost of living. For the poorer and poorest countries, on the other hand, the consequence would be sheer hunger. That hunger, which, as the UN warns more and more urgently, could assume "biblical proportions" under the circumstances of a pandemic.
And hunger is always a social explosive. In the opinion of the vast majority of experts, the Russian wheat embargo of 2010 was one of those drops that finally broke the barrel of hardship and discontent in the countries of the East and brought about all the uprisings and revolutions that were later called the "Arab Spring" Those tremors had numerous serious consequences: for Europe, among other things, an unprecedented refugee crisis, for Russia participation in two wars - officially in Syria and unofficially in Libya.
Hope for a good harvest
The current, initially temporary Russian wheat embargo should therefore be understood as a warning signal. Unfortunately, nothing can be changed, but one should at least be aware of the possible consequences. And of course one should hope that Russia will have a splendid harvest this year and that it will soon return to the world market as a major supplier of grain. That would be the best scenario for everyone.
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