Russia faces wheat trade disruption caused by complex export tax

Russia’s complicated wheat export taxes could disrupt trade from the world’s top shipper just as the next crop begins filling silos.

The Russian government launched a flat tax on exports last month, which has already helped slow flows. The measures will switch to floating duties weeks before the next harvest, a mechanism announced as part of a series of efforts to safeguard domestic supply and cool food inflation.

But the way they’ve been designed means exporters won’t know how much they’ll pay until cargoes actually sail, which is often weeks or months after a deal is struck. That makes it riskier to book advance sales of the coming crop and means some business may fall to rival sellers.

“The system itself was not developed to make it all convenient for traders,” said Eduard Zernin, head of the Russian grain exporters union. “On the contrary, its aim is to create inconveniences for them.”

Russia is a wheat export heavyweight, aided by low costs and bumper crops in recent years. Top buyer Egypt favored European Union and Ukraine grain in its latest tenders, including rare Romanian cargoes from trader Grain Export, owned by a state-backed Russian company.

It’s still early for new-crop trade that references the season that starts in July. And export potential hinges on spring weather and the size of the next harvest.

Added to those usual unknowns is the floating duty regime, which requires traders to register export volumes and values with a unit of the Moscow Exchange. The bourse plans to start publishing a price index from the data next month, used to calculate the duties that begin from early June.

The tax setup could prompt higher risk premiums and make it harder to compete at large tenders, said Andrey Sizov, managing director at analyst SovEcon.

“Everybody’s going to be able to sell spot, but how could you sell wheat forward a month from now not knowing where the tax will be?” said Dan Basse, president of consultant AgResource. “No one’s willing to take that risk.”

The Federal Anti-Monopoly Service will fine traders who breach reporting rules. And the government may opt for stricter measures like canceling export-quota volumes for those who fail to disclose sales correctly, Zernin said.

The agriculture ministry’s press service didn’t respond to a request for comment. No quotas are set past the current season, although officials have signaled they may become annual.

The publication of the price index from April offers some time for kinks to be resolved, said Matt Ammermann, commodity risk manager at StoneX. Grain groups have also appealed to ease some limits.

For now, forward sales seem “a huge gamble,” he said.