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State Aid Pledged as Heat Hits Farmers

MTConstruction workers in Moscow may be roasting, but farmers in Russia's regions are drying out. As of Monday, 14 regions had declared states of emergency.

The government will support drought-stricken parts of the country with loans and subsidies, Prime Minister Vladimir Putin said Monday, as farmers struggled through a sweltering heat wave that has led 14 regions to declare states of emergency.

Putin also ordered the Agriculture and Economic Development ministries to make sure that no one was trying to cash in on the drought, which has already destroyed 9.3 million hectares of crops.

"We must nip in the bud any attempts to make quick cash on this misfortune, the drought," he said at a government meeting.

Officials were forced to contend with speculation that Russia — the world's fourth-largest grain exporter — could be forced to import this year to meet domestic needs following a number of reports in the media.

Analysts cautioned that the effects of the drought have been blown out of proportion.

The widely read Izvestia daily wrote Friday that falling grain yields had caused "panic" in regional newspapers, where "you will feel the breath of medieval horror in pages turned yellow from the heat."

Agriculture Minister Yelena Skrynnik confirmed to Putin that her ministry's grain forecast was cut to 85 million metric tons this year, from the previous 90 million tons, but she assured him that Russia would have enough supplies to satisfy its annual demand of 77 million tons.

"Yes, absolutely, this is enough. We have 24 million tons stockpiled, which is 20 percent more than last year. … So we'll manage," she said, adding that exports could be reduced as a result.

The country produced 97 million tons last year, just shy of its 15-year record in 2008 of 108 million tons, leaving it with substantial stockpiles and plenty of grain for export.

The unusually hot weather, some of the worst in a decade, has spread across the country, and the Federal Meteorological Service forecast Monday that temperatures would stay unusually high until at least Saturday.

The Zabaikalsky region became the latest victim as local agriculture officials declared a state of emergency in 11 districts, Interfax reported.

Air temperatures reached 40 degrees Celsius in the Siberian region located alongside Lake Baikal, sending soil temperatures as high as 61 degrees in some areas, the local agriculture ministry said.

Putin encouraged regional governments to do what they could to help, but he said the federal government was also ready to assist, particularly for insurers struggling to cover farmers' losses.

The Agriculture Ministry should also tap its special grain intervention fund of 9.5 million tons to help drought-stricken regions recover, he said.

First Deputy Prime Minister Viktor Zubkov directed the Agriculture and Finance ministries to oversee the distribution of funds to struggling regional governments.

"We need to provide direct financial support on the basis of co-financing with the regions to agricultural producers who had all of their crops destroyed," he said.

Farmers also won a 10 percent discount on oil lubricants from Deputy Prime Minister Igor Sechin, who suggested that Russian oil companies cut their prices starting this month.

Arkady Zlochevsky, head of the Russian Grain Union, was quick on Monday to dispel rumors of possible grain shortages, despite what he said was some of the hottest weather in 130 years.

"All the rumors and agitation over there not being enough grain are groundless. There is zero basis to those and other fears," he told reporters, adding that bread prices would not be affected.  

But the dry weather is driving up wheat prices, Zlochevsky said, which, combined with a strengthening ruble, will make exports less appealing.

Global wheat prices have risen 26 percent in the past month, in part over indications that demand will outstrip production, Bloomberg reported.

Russia exports about 20 million tons of wheat annually, placing it fourth globally. The United States, the largest wheat exporter, has estimated that Russia could surpass it by 2019.

But gaining a larger share of the export market might still be a stretch for Russia, and not because of the drought, said Maxim Klyagin, a consumer analyst at Finam.

"There are many problems: Russian Railroads' high tariffs and the absence of proper infrastructure are just some of them," Klyagin said.

Russia could expand into Asia and the Pacific, but getting product there now is highly problematic, he told The Moscow Times.

Analysts also said that the drought's effect on grain prices might not be as profound as first thought.

"Don't count your chickens before they're hatched. It's a bit too early to be predicting total grain yields and making forecasts about the prices," said Igor Vasilyev, head of the Zerno Online news agency.

While Russia began reaping its harvest a month ago, Western Europe is only now joining in.

"A speculative mood is in the air, and media hype over the drought is heating it up," Vasilyev said. "In late July to August, and definitely by the fall, it will be possible to make definite predictions about the trends. Right now, it's mostly fears."

The government is doing the best it can to level out the effect of "propaganda on the part of agricultural producers," he added.

See also:

No Grain Import Increase

Medvedev Forecasts Early Grain Ban Removal

Winter Grain Sowing Drags On

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