Floating tax making wheat exports ‘huge gamble’ for Russian grain traders

Russia’s complicated wheat export taxes could disrupt trade from the world’s top shipper, considers Bloomberg adding that a flat tax launched by Moscow last month has already led to a slowdown in flows. In June, this tax will switch to floating duties, which are expected to help safeguard domestic supply and cool food inflation. However, the way the duties have been designed means exporters won’t know the exact amount of the tax until cargoes are actually shipped, which often happens weeks or months after the deal. Such an approach makes it riskier to book advance sales of the coming crop and may sway some business in favour of rival sellers.

Head of the Russian Union of Grain Exporters Eduard Zernin believes that the new system “was not developed to make it all convenient for traders”. “On the contrary, its aim is to create inconveniences to them,” he says. The floating tax regime will require traders to register export volumes and values with a unit of the Moscow Exchange. The data will be used to calculate duties. According to Zernin, Russia’s Federal Anti-Monopoly Service will fine traders who breach reporting rules, while those who do not disclose their sales correctly may be subject to stricter measures like cancelling export quota volumes.

Managing Director of SovEcon Andrey Sizov stated that the tax set-up could prompt higher risk premiums and make it harder to compete at large tenders. “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 President of AgResource consultancy Dan Basse. “No one’s willing to take that risk.”

For now, forward sales seem “a huge gamble”, agreed Matt Ammermann, a risk management consultant of StoneX financial services company. However, he considers that there is “some time for kinks to be resolved”, as the Moscow Exchange will publish its grain price index from April. It’s still early for new crop trade, which references the season that starts in July.

Low costs and bumper crops have helped Russia to become a wheat export heavyweight in recent years. However, one of the world’s key buyers Egypt favoured European Union and Ukraine grain in its latest tenders. As for Russia, it is currently ensuring that all grain isn’t exported but may consider lifting the shipment measures once the domestic market stabilises, said the country’s Minister of Agriculture Dmitry Patrushev at a meeting of the State Duma last week.