Source: The Financial Times                            Date: 10 August, 2010

The prices of everyday staples such as bread, flour and beer are set to rise sharply after Russian Prime Minister Vladimir Putin last week imposed a ban on grain exports, triggering panic in commodities markets and sending wheat prices to their highest since the 2007-08 global food crisis. The ban would take effect from August 15 and last until December 31, a spokesman for Mr. Putin said. A severe drought has devastated crops and wildfires have spread across Russia in the past weeks.

The move, which caught traders and food producers by surprise, pushed the price of wheat to its highest in two years and evoked memories of the last time the then Soviet Union suffered a catastrophic crop failure in 1972. And Moscow introduced export restrictions during the 2007-08 global food crisis, triggering a wave of panic buying from North Africa and Middle East importers.

European wheat prices rose more than 12 per cent following the announcement. US wheat futures also jumped and are up more than 80 per cent since mid-June, the fastest rally in nearly 40 years. There were fears that food price inflation could take off and that the world could even suffer a repeat of the 2008 food crisis should the big shortfall in wheat output persist. Prices of other crops including barley, corn and rapeseed also jumped sharply.

The worst drought in more than a century in the Black Sea region has led to widespread alarm. Forecasts for the Russian grain crop have been falling daily. The UN has attempted to quell growing panic in the markets, saying that fears of a repetition of the 2007-08 food crisis were unjustified. But it also cut its forecast for global wheat production by 25 million tons to 651million tons, the biggest revision in 20 years, and warned that a continuation of the current weather conditions could affect planting of the next Russian crop, with “potentially serious implications” for global wheat supplies in the 2011-12 season.

Russia provided 14.5% of global exports from the 2009-10 crop, according to the Food and Agriculture Organization of the UN. Moreover, it has played a key role in meeting rising import demand, exporting 17.5 million metric tons of wheat, up from less than one million in 2000-01. Mongolia imports a large quantity of flour from Russia to meet domestic demands.