Russia weighs need for grain export curbs

By Robin Paxton

MOSCOW (Reuters) - Russia's proposal to limit grain exports and sell from government intervention stocks is designed to help the economy by soothing inflation fears caused by fast-growing food prices.

Farmers and grain exporters have a different view.

"I'm not sure countries should be trying to manage agflation rather than taking the positive outcomes of the current prices," Dmitry Rylko, general director of the Institute for Agricultural Market Studies, told Reuters.

"This will discourage producers and all participants in the chain from taking advantage of new price developments, which is negative for the economy in the long run."

Wheat is trading at record highs on world markets as global stockpiles fall to their lowest in 25 years.

Russia, where food comprises 40 percent of the consumer price index compared with nearer 15 percent in the West, is more vulnerable than most to "agflation" -- the phenomenon of food prices driving up broader consumer prices.

Wimm-Bill-Dann (WBD.N: Quote, Profile, Research, Stock Buzz), Russia's largest dairy produce firm, said raw milk purchase prices rose 15 percent in the first half of 2007. The company made price rises in August and plans more in September and October. Consumers are still buying.

"Our price increase in August hasn't slowed down our volume growth, which is important," Chief Executive Tony Maher said.

INFLATION RISK

The Kremlin's top economic aide, Arkady Dvorkovich, told Reuters Russia Investment Summit that consumer price growth could slightly exceed the government's 8 percent target for 2007.

President Vladimir Putin in July asked the government to assess whether intervention sales were necessary. Government ministries, wary of December parliamentary elections and the election of a new president in March, have been unable to agree.

Dvorkovich, who heads the Presidential Experts' Department, said consensus would only be reached when a clear picture of the harvest size emerged:

"You must always look at the pluses and minuses. In battling inflation, it's possible to stifle economic growth."

To help curb inflation, the Economy Ministry has proposed selling 1.5 million tonnes of grain, mainly wheat, from government stocks. This would be accompanied by export limits to prevent opportunistic traders from selling this grain abroad.

Agricultural experts say the argument for intervention is based on an official forecast that Russia's harvest will fall below last year's 78.6 million tonnes due to a spring drought.  Continued...