‘It is the risk we are ready to accept’
Russian grain sellers are signing contracts for summer deliveries despite tax uncertainty
Russia, one of the world’s leading grain exporters, will impose a “floating tax” on its wheat supplies starting from June. Nonetheless, the country’s exporters have already started the sales of new crop hoping that the tax in the new season won’t exceed the current rate.
Russian wheat exporters are bidding aggressively for new business even though they don’t know how much tax they will need to pay to ship the grain, says Hellenic Shipping News Worldwide citing Reuters. From 2 June, the current fixed tax on wheat exports of 50 euros per tonne will be replaced by a formula-based rate, which will be set weekly. In March, food inflation in Russia amounted to 7,6%, and the change in taxation is part of the government’s plan to curb rapid price growth.
Egypt, the world’s key wheat importer and Russia’s second-largest buyer after Turkey, purchased 290,000 tonnes of Russian wheat in its tender on 6 April with shipment from the new crop in August. At this time of the year, Egypt’s state buyer usually purchases grain for closer delivery dates, but it pushed shipment dates further back to allow potential suppliers to source non-Black Sea wheat, such as US and Australian grain, said a senior Egyptian government source with knowledge of the matter. However, the plan didn’t work, as wheat from Black Sea rivals provided the only competition at the tender.
Russia has offered Egypt its grain cheaper than competitors. “Russian exporters are certainty throwing the gauntlet down and showing they will be in the new crop market for world sales despite all the Russian government efforts to put a brake on exports,” commented one of traders. He compared such trading to gambling, as “no one knows what the tax will be”, but stated that big companies were “willing to stick their necks out and take the risk”. “It’s a casino,” agreed another Russia-focused trader that took part in the tender. “We do not know how it’s going to work out [with the tax]. But it is the risk we are ready to accept,” he said.
According to head of the Russian Union of Grain Exporters Eduard Zernin, traders that sign export contracts for summer delivery assume that the tax in the new season won’t exceed the current rate. If global wheat prices go up, the tax will also rise, but Russia’s wheat crop prospects for 2021 are good so far. The first part of the new harvest usually arrives at the end of June. Russian exporters that are currently selling wheat had already guaranteed some supplies via pre-harvest loans offered to farmers or through in-house crop production, say analysts of IKAR agricultural consultancy.