Everyone in the grain trade expects Russian and Ukrainian exports to come to a halt quite soon and that world prices will have to rise to draw supplies out of Europe and North America (see Wheat Letter, Sept. 13, 2012) Russia and Ukraine's approach has served to push their grain sales at post-harvest lows and to be out of the market if and when prices are higher later. That is not a strategy designed to maximize returns to the Black Sea wheat supply chain. If, however, Black Sea area farmers and exporters could have been certain that no export restraints would be imposed, they could have held some grain back from the market in the hope of higher prices, and their cadence of export would have more efficiently spread their grain movement out through the rest of the year.
Every time governments meddle in the marketplace, or even if the trade just thinks that such meddling is likely, the wrong price signals go to every player in that market. Trade flows differently than it would have – a clear trade distortion – and even worse, faulty investments are made. The promise of open trade is to maximize resources for everyone, but when governments interfere, some part of those resources is inevitably wasted. This is as true of import curbs and trade distorting domestic support as it is of export restraints. Perhaps if the World Trade Organization (WTO) members ever get serious about concluding the Doha round, proposed measures in the latest negotiating text to discipline export restrictions and prohibitions will result in a better trade environment. In the meantime, the uncertainty created by the potential of further Russian and Ukrainian meddling in the grain market is distorting those markets and adding volatility to world prices.
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