Publication: Eurasia Daily Monitor Volume: 4 Issue: 128

Russia has proposed launching a dialogue with major grain producers and exporters about creating an organization to coordinate global grain production and trade, a sort of “grain OPEC.” The international response has been mixed.

“Ukraine supported us, and we will hold similar talks with Kazakhstan,” Agriculture Minister Alexei Gordeyev announced on June 23. He also voiced hope that other countries such as the United States, Canada, Australia, Argentina, and the EU could back the idea eventually. Meanwhile, Gordeyev argued that the world’s grain sector faces a number of challenges, including U.S. plans to use up to 100 million tons of grain to produce diesel and ethanol fuel.

Despite drought in Russia and Ukraine this year, Gordeyev insisted that grain reserves in both countries were sufficient to meet domestic demand and export contract commitments. Ukrainian Agriculture Minister Yuriy Melnik reportedly backed the proposal, saying Russia, Ukraine, and Kazakhstan could coordinate operations of their respective agricultural sectors (Interfax, RIA-Novosti, June 20-23).

Russian executives voiced support for the idea, while their Ukrainian counterparts sounded less optimistic. Russia’s Union of Grain Producers deputy head Andrei Slavutin said a “grain OPEC” could allow common pricing policies. But Vladimir Klimenko, head of the Ukrainian Exporters Association, said that he had signed a memorandum of understanding with his Russian counterpart earlier this year, but they did not discuss this idea (Kommersant, June 21).

Although Moscow’s initiative somewhat contradicts the country’s ongoing World Trade Organization (WTO) bid, the government backed it up with a program to increase Russian wheat exports. Earlier in June, the Russian Agriculture Ministry disclosed plans to raise the country’s grain exports. The country’s overseas sales of grain are estimated to reach 13 million tons this year, and 15 million tons in 2012, according to the ministry’s statement on June 13. Russia exported some 11 million tons of grain in 2006.

The Kremlin has been sounding critical of what it views as unfair competitive practices in the international agricultural market. On May 21, Russian President Vladimir Putin ordered Gordeyev to rely on the principle of “reciprocity” in relations with the EU. He said the EU agricultural sector remains heavily subsidized, and when these subsidized products are exported to Russia they undermine the country’s agricultural market. Some 40 million people in Russia are connected with the agriculture sector, Putin said.

Russia also may try to use its upcoming accession to the WTO as a means to counter unfair competition. Upon Russia’s WTO accession, Moscow would demand the EU to cut subsidies given to producers of agricultural products, Economic Development and Trade Minister German Gref told a conference in Kazan on May 19-20. The EU should either reduce subsidies, at least for export-oriented products, or face import duties designed “to create equal opportunities” for domestic producers and European exporters, Gref said. Gref argued that the EU agricultural subsidies should be cut at least by 70%. Such a reduction could allow the Russian agriculture sector to become “one of the most competitive in Europe” following the country’s WTO accession, he told the conference.

Meanwhile, Russian negotiators have struggled to finalize bilateral WTO talks. Last April, Gref said he anticipated Russia’s WTO accession late this year, or in early at 2008 the latest, but warned against rushing bilateral WTO negotiations.

Russia’s WTO entry is expected by the end of this year, according to Maxim Medvedkov, head of the trade talks department of the Russian Economic Development and Trade Ministry. Multilateral negotiations would resume in Geneva in July, while bilateral talks with Vietnam and Cambodia were due in coming weeks, he said. Medvedkov also claimed that Georgia remains unable to block Russia’s WTO accession (Interfax, Itar-Tass, June 22).

Russia has finalized bilateral WTO talks with 58 countries, Medvedkov announced on May 31, conceding that Russia and Georgia were yet to finalize bilateral WTO negotiations. Georgian negotiators reportedly urged Russia allow Tbilisi to control customs checkpoints on the border between Russia and Georgia’s breakaway regions of Abkhazia and South Ossetia. In response, Medvedkov argued it was not an issue regulated by the WTO, but he pledged to resume negotiations with Georgia by mid-July.

There were concerns in Russia that joining the WTO would hurt many domestic industries. However, the Russian Economic Development and Trade Ministry insisted that Russia would reduce none of its tariffs on the date of the WTO entry, while the subsequent reduction would be distributed over one to seven years. Following Russia’s WTO accession, the country will reduce its import tariffs on agricultural products by an average of three percentage points, but will keep its current meat import quotas until 2009, according to the ministry.

Yet despite these arguments, the Russian Agriculture Ministry has been wary of the country’s upcoming WTO membership and advocated increased agricultural subsidies. Therefore, the “grain OPEC” initiative appears to be an indication of Moscow’s second thoughts about free trade and the WTO.