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When will Russia lift its grain export ban?

July 2011 - Projects, Energy & Natural Resources. Legal Developments by Astapov Lawyers International Law Group .

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On 25 March, Interfax informed that Russia’s Agriculture Minister Elena Skrynnik had announced the government’s plans with respect to lifting the ban on grain exports from Russia.

A careful thought that the ban may be lifted only after making sure of the 2011 yield adequately covering the domestic consumption is expectedly carrying the day. Historically, the first fairly reliable grain balance sheets are not available until October. This is when the ban-lifting decision is going to be made according to the Minister.

The Russian Grain Union (RGU) has been standing on the same well-balanced position. It is a reminder that the RGU unites more than 1000 agribusiness companies including producers, processors, exporters, logistic firms, and service providers engaged by agricultural sector.

However, the voices of those speaking in favour of setting aside the ban immediately in view of the 2011 yield indices expected to be rather good are heard more often now.

The reasons for such position are clear. The export ban has been a heavy shock for a large number of export-oriented companies operating in the grain industry. National grain exporters are suffering more than others due to their dependence on trade financing from Western banks. Such financing requires continuous commodity turnover and contract performance. If the process is stopped, this leads to a collapse involving credit facility withdrawals and resulting insolvencies.

The market is facing a wave of dangerous liquidity situations that have ended in several bankruptcies already.

The radical approach that suggests either cancelling the ban or replacing it with other measures is maintained by, among others, the newly created National Association of Agricultural Exporters (NAAE) who is actively standing for repealing the ban as soon as possible.

According to the market, the Association has been established as a project of the leader of one of the major agricultural holdings in Russia.

However, the yield expectations for the area of so called “risky farming” might turn out misleading. Let’s recall spring 2010. All agricultural sector conferences were then declaring ambitious plans for the yield and expansion of CIS grain into the world markets.

Even the author of these lines was dead serious at the RGU conference in Singapore while speaking about the expansion of Russian grain into the Pacific Rim which seemed inevitable at that time.

Everyone knows what eventually happened. Drought – export ban – market panic.

By Andrey Astapov, AstapovLawyers’ Managing Partner and Head of Dispute Resolution Practice


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