THE PRICES of many staples such as bread, flour and beer are set to rise sharply as Russia imposed a ban on grain exports, triggering panic in commodities markets and sending wheat prices to their highest since the 2008 food crisis.
Vladimir Putin, Russian prime minister, announced the ban, starting next week, on all the country’s grain exports after a severe drought devastated crops and wildfires spread across the country.
The move, which caught traders and food producers by surprise, pushed the price of wheat to its highest point in two years and evoked memories of the last time the then Soviet Union suffered a catastrophic crop failure in 1972.
European wheat prices rose more than 12 per cent to hit a peak of €236 a tonne on record trading volumes. US wheat futures also jumped and are up more than 80 per cent since mid-June, the fastest rally in nearly 40 years.
There were fears food price inflation could take off and the world could suffer a repeat of the 2008 food crisis. “Soaring grain prices have brought food inflation back to centre stage,” said Joachim Fels of Morgan Stanley in London. Prices of other crops including barley, corn and rapeseed, also jumped sharply.
Shares in some of the world’s largest food companies tumbled on fears they would struggle to pass on all the increased costs of buying wheat to millions of households already suffering the financial crisis. However, several companies have already said they plan immediate price hikes on goods such as bread and biscuits.
Unilever, the British consumer goods group, dropped 5.2 per cent, while General Mills, one of the world’s largest food companies, was 2.5 per cent lower. Nestlé fell 2.1 per cent.
“I think it would be expedient to introduce a temporary ban on export grains and other agricultural goods,” Mr Putin told a cabinet meeting. The ban would take effect from August 15th and last until December 31th.
The worst drought in over a century in the Black Sea region has led to widespread alarm. Forecasts for the Russian grain crop have been falling daily, with the agriculture ministry’s most recent projection at 70-75 million tonnes, down from 85 million tonnes a fortnight ago. Last year, the harvest was 100 million tonnes.
Traders at Glencore, the world’s largest commodity trading company warned the crop could fall to 65 million tonnes.Arkady Zlochevsky, president of the Grain Union lobby group, said the swift imposition of the ban risked undermining Russia’s reputation as a reliable supplier.
