Wheat Market Unfazed by Export-Tax Removal in Top Shipper Russiaby
Russia decides to cancel tax on exports for almost two years
Traders say levy had done little to slow exports from nation
The global wheat market may hardly notice the removal of an export tax in Russia, the largest shipper of the grain.
The government’s decision to cancel the levy for almost two years won’t significantly boost expectations for shipments, said Daniil Tikhonov, a grain trader at St. Petersburg-based Artis-Agro Export. Because the tax is linked to exchange rates, the ruble’s rebound left companies paying a negligible rate that barely affected exports, according to trader OOO Mirogroup Resources.
“It means nothing,” said Dmitry Rylko, director general of the Institute for Agriculture Market Studies, a Moscow-based consultant. “With the current market conditions, there are only little benefits that won’t have a decisive influence on any parameter of our export or grain-industry economics.”
Russia introduced the tax a year ago to keep prices from rising for livestock farmers and bakers after the ruble’s collapse made it attractive to ship out grain in exchange for dollars. Now, with the ruble 32 percent above a record low set in January and the country’s wheat harvest set to jump to an all-time high, the risk of higher prices has receded.
Prime Minister Dmitry Medvedev said Friday that the cabinet decided to set the export duty at zero for two years, though a decree still needs to be signed. The Agriculture Ministry last week proposed scrapping the tax from Sept. 15 until July 2018. The rate is currently half a shipment’s dollar-denominated customs value minus 6,500 rubles a ton. Because of the ruble’s gain this year, traders have mostly been paying the minimum duty of 10 rubles a ton, according to Andrey Doluda, director general of Mirogroup.
Still, exporters have opposed the tax because it’s paid in rubles but based on the grain’s dollar value when shipped. That meant trading firms who agreed deals for later shipments risked paying a higher tax if the ruble declined during the time.
Removing the levy would cut the risk of exporters failing to fulfill contracts, Artem Surov, director general of another Russian trader, OOO Yuzhny Tsentr, said by e-mail. The number of contracts to ship out wheat should increase after the tax is removed, according to a copy of Medvedev’s comments Friday posted on the cabinet’s website.
Tax-free shipments may reduce other costs for some exporters, Doluda said. At the moment, shippers are charged a deposit on cargoes to ensure they can pay the tax, a process that Mirogroup has been paying a bank to deal with. Lower costs may also prompt some firms to offer farmers more for grain, Surov said.
With or without the tax, Russia will have a lot to send abroad. Its crop is set to jump by almost a fifth and shipments will reach 30 million tons this season, accounting for 18 percent of the global total, U.S. Department of Agriculture data show. The nation’s export prices reached the lowest in at least six years in July amid expectations that the bumper harvest would add to a global glut.
“Because of a supply glut, we aren’t expecting high prices on the domestic market this season,” Doluda said.