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Russia grain export ban benefits US farmers, sparks talk on climate change

The International Grains Council cut its projected world grain output Thursday. Drought in eastern Europe has sparked a Russia grain export ban.

By Staff Writer / August 27, 2010

A man shovels grain at a farm in Vasyurinskoe, Russia. The country has seen 25 million acres, a quarter of its arable land, destroyed in its worst drought on record.

Mikhail Mordasov/AFP/Newcom

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The International Grains Council on Thursday cut its forecast for global wheat output by 1.1 percent, primarily on the news that major grain exporter Russia has seen one-third of its crop wiped out by the worst drought in a century.

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To prevent inflation and ensure supplies for Russian tables and livestock, the Russian government banned all grain exports from Aug. 15 to Dec. 31. The news has sent crop prices soaring. It's bad news for grain importers, but increased demand may boost profits for other grain exporters such as the US.

Is there a grain crisis?

While the International Grains Council cut its 2010-11 forecast by seven million metric tons to 644 million metric tons, that's still the third highest wheat crop on record.

But it doesn't mean the situation in Russia is insignificant. It was the world's fifth-largest wheat grower and fourth-biggest wheat exporter in 2009, after the European Union, the United States, and Canada. In 2009-10, Russia harvested 94 million metric tons of grain, including 62 million metric tons of wheat – 18 million metric tons of which was exported. In 2010-11, Russia is expected to harvest about 67 million metric tons of grain and to export 3 million metric tons of wheat, according to the US Department of Agriculture.

Along with drought, Moscow hit a new high of 102 degrees F. on July 30, according to the National Climatic Data Center. Temperatures continued to hover 27 degrees F. above average during the first half of August. The heat wave helped spark more than 600 wildfires in July over 494,200 acres of land. The fires crept within 50 miles of Moscow, pushing carbon monoxide levels to 6.5 times the allowable level.

What is the fallout in Russia?

By mid-August, wildfires were contained to 56,000 acres. But the damage was done – physically and politically.

The fires destroyed more than 2,000 homes and killed more than 50 people; the indirect toll of the heat and smog is estimated to have contributed to the deaths of thousands more. Analysts at HSBC Holdings said the drought could reduce 2010 economic growth by a full percentage point – or $15 billion.

Amid the crisis, Prime Minister Vladimir Putin stepped out front, personally flying a firefighting plane over the blaze. President Dmitry Medvedev said that "what is happening now in our central regions is evidence of this global climate change," a shift for a government that has resisted action on climate change out of fear it could slow economic growth.

"It's hard to tell whether or not Russia will use this as a wake-up call," says Jake Schmidt, international climate policy director for the Natural Resources Defense Council. "Policy change doesn't happen in one day."

How does this affect US farmers?

The ban, and also the drought in neighboring Black Sea region countries Ukraine and Kazakhstan, sent wheat prices to a two-year high of nearly $8 a bushel, from just about $4.50 in early June. That's bad news for grain importers but good news for grain exporters.

Egypt, the world's largest wheat importer, has said the rise could cost it an additional $705 million. Egypt is already buying more grain from the US.

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