Sep 5, 2008
World - Russia looks to grain as new strategic investment
The results are predictable. Export controls are making global food inflation and shortages worse, while acting as a self-imposed penalty on grain-producing nations that could be capitalizing on high prices. And since history shows that price controls tend to backfire—recall that inflation helped topple the Soviet Union—it's odd to see Moscow leading the move backward. Some Western agribusiness investors fear that if the Russian state redefines grain as a strategic sector, like oils or aerospace, restrictions on prices, trading activity and foreign investment could follow. Clearly, "a number of countries," from Brazil and Egypt, to major rice exporters like Thailand and India, are rethinking the whole idea that market liberalization is "the wave of the future," says Peter Timmer of Stanford University's Program on Food Security and Environment. "I would not be surprised to see government-controlled grain logistics firms play a much bigger role over the next decade."
The Kremlin move comes at an inopportune time. Russia has the world's largest expanse of good farmland—127 million hectares—but most of it is underused for lack of money. Michel Orlov, president of Black Earth Farming, Russia's largest agribusiness, figures that with investment and know-how, the grain harvest could rise from 90 million metric tons last year to more than 250 million tons. With the world's population rising fast, that would make grain a "massive strategic instrument in the hands of Russia." But shares of Black Earth sank 20 percent in July after the Russian Agriculture minister threatened to "look into foreign capital buying up farmland." Orlov welcomes some regulation, but insists Russian farms "need all the money they can get, regardless of what passport it has." That means more free markets, not more state companies.