Russia roils markets on Putin’s push to curb food prices

Russia is rattling agriculture markets once again with the threat of government intervention as President Vladimir Putin and his prime minister rail about food-price inflation in one of the world’s biggest exporters of wheat and sunflower oil.

This week, Putin expressed surprise at sharp price increases for staples like bread and sunflower oil, and told the government to develop a plan for curbing them. Prime Minister Mikhail Mishustin jumped in Thursday, saying food producers, exporters and retailers should stop taking advantage of consumers. Officials are already considering a wheat export tax in addition to the earlier proposal to set a grain shipment quota for a few months next year, according to an export lobby group.

“Don’t profit off of the people,” Mishustin said during televised comments at a cabinet meeting. “It’s unacceptable in this difficult situation. It’s necessary to take drastic measures and set straight the way prices are formed.”

He didn’t elaborate, but Russia has a history of disrupting the wheat market by implementing restrictions or duties. The country imposed an export tax in 2007 to combat rising food costs—helping push global wheat prices to a record—and a ban in 2010 after a poor crop, curbing supplies and helping propel prices to two-year highs.

It wasn’t clear immediately how the wheat export tax would affect shipments. The earlier proposal for a grain quota this season was loose enough for normal trade. Russia already is stepping in on oilseed markets, with the prime minister setting export taxes from January on commodities including sunflower seeds, used to make sunflower oil. Draft regulations to contain food prices are due for submission Monday.

Supply Tightening

Food inflation in Russia accelerated to 5.8% in November, the highest year-over-year gain since mid-2019. A United Nations global price gauge is at a six-year high as robust grain demand in China and tightening supply stoke prices.

Benchmark futures for wheat—where Russia leads global exports—rallied in the wake of Putin’s comments, although the government hasn’t indicated any sales limits. Domestic prices are near a record high, and local bakers and meat producers asked the government for an export tax last month.

The agriculture ministry has proposed a quota from mid-February, with volumes high enough to keep trade flowing. A weak ruble helped accelerate wheat exports this year, making Russian supplies more competitive.

“The comments from Putin create a bit of uncertainty around the subject,” Matt Ammermann, a commodity risk manager at StoneX, said by email. “The market is sensitive to the potential ‘what ifs’ right now.”

Russia reaped a near-record wheat harvest, and the proposed quota is relatively relaxed, giving little immediate concern for supply, said Carlos Mera, a senior analyst at Rabobank International. Still, the fact that Putin and Mishustin are talking about this means the potential for intervention can’t be discounted.

“The situation seems quite fluid,” he said. “It’s all speculation at the moment.”