Russia's tacit grain export curbs cause market confusion

Russia's measures to curb grain exports are causing confusion in international markets as the absence of clear government instructions creates loopholes and potential friction with key buyers, traders said.

Russia, the world's largest wheat exporter, has attempted to limit grain supplies to global markets to prevent a price spike at home, as President Vladimir Putin seeks to combat inflation partly fuelled by military spending.

The government has not commented officially after meeting with grain exporters earlier this month to discuss export restrictions.

The only statement so far has come from Russia's Grain Exporters and Producers Union, or Rusgrain, which claims to represent firms exporting up to 80% of Russian grain.

The union stated that from now on, only Russian grain companies will be able to sell directly to sovereign buyers. The new rules exclude international dealers unless they have long-term off-take agreements with Russian companies.

A source in the Russian government told Reuters that it was fully aware of Rusgrain's actions and that the union was relaying the official message.

"They are an association with which the ministry of agriculture has an agreement. They inform the market but do not regulate it. That is, they convey certain decisions made to the market participants," the source said.

This measure would exclude some major international traders from offering Russian wheat although it is not publicly known who can no longer do so as the list of approved foreign firms with off-take agreements has never been made public.

The government has not officially backed the union's announcements and actions so far and the agriculture ministry did not immediately respond to a Reuters request for comment.

"The market has been confused by the many semi-official announcements about export restrictions from Russia, without detailed regulations being published by the authorities," one European trader said.

The Union's head Eduard Zernin told Reuters that Russian grain exporters were private companies that "conduct their business in accordance with legal requirements and established business practices".

"We do not plan to disclose any information regarding our business practices, considering ongoing attempts to hinder the supply of Russian grain to countries in need," Zernin added, referring to Western sanctions over Russia's military action in Ukraine that complicate cross-border payments with Russia and hinder Russian companies' access to international markets.

POTENTIAL FRICTION

The confusion about the grain export curbs became evident on Oct. 22 when Bangladesh, an emerging major buyer of Russian wheat, held its first international tender since the restrictions were announced.

At the tender, two international dealers, Agrocorp and SMC Food DMCC, were among three participants. They offered grain on an optional origin basis that could have included Russian wheat.

Some 24 hours after the tender, Russia's Grain Exporters Union sent a letter to Russian traders urging them to adhere to the new rules.

In its message, the union stated that two out of three companies in the Bangladesh tender were not on its list of foreign dealers with off-take agreements with Russian companies.

"Our list of offtakers does not include Agrocorp and SMC Food DMCC," said traders citing the letter.

Reuters could not obtain the letter.

The Union confirmed to Reuters that the letter has been sent and that it mentioned Agrocorp and SMC Food DMCC.

"The fact that this warning about the Bangladesh tender was sent out so quickly and specifically seems to show Russia is serious about imposing the new system quickly despite the lack of official regulations," another international trader said.

Besides export restrictions, the Russian government has already officially increased export taxes on grain and introduced an unofficial minimum selling export price, according to Reuters sources.

New export restrictions could cause frictions with importers, including political allies like Egypt, which would face higher bills for food imports, traders said.

"The Arab and African buyers have to pay more for their critical food wheat imports (when shipments are restricted)," a German trader said.