The New Wheat Exporters of Eurasia and Volatility

Abstract

The rise of the Russian Federation, Kazakhstan and Ukraine as world wheat exporters has been accompanied by uncommonly volatile international commodity prices. This chapter will explore the role of the wheat-producing Commonwealth of Independent States (CIS) countries in the volatility of international wheat prices. Studies of the connection between CIS wheat trade and international price volatility have predominantly focused on export restraints imposed by these countries between 2006 and 2011. We explore the literature on export restraints and price volatility, noting the short- and long-run effects of restraints. We also go beyond export restraints as a source of international price instability, pointing to two further potential sources of price volatility: production volatility and growing state intervention in grain markets in the wheat-producing CIS countries. Production volatility is caused mostly by weather variation and other agronomic factors. Such volatility has an understandable scientific basis, and can be controlled by the use of more inputs and better agronomic practices. Political border interventions aimed at limiting grain exports are of a different nature, since they are highly unpredictable. In this respect they are akin to the increased state measures, aimed at ‘stabilising’ and exerting state control over grain markets observed in the CIS wheat sector since 2001. Taken together, these policies do not bode well for the stability of grain prices in the future.