Regional price effects of export restrictions in Russia,

Ukraine and Kazakhstan

FAO Conference: “Integration processes in the CIS region and their implications for agricultural trade”

Linde Götz, Ivan Djuric, Oleg Nivievskyi, Dmytro Serebrennikov, Thomas Glauben and Ulrich Koester

26-27 March 2015, Kaliningrad, Russian Federation

Types of export restrictions:

Export tax

Export quota

Export ban

Indirect restrictions

Aim:

Reduce exports induced by high world market prices

Increase domestic supply

Dampen domestic food price inflation

0

200

400

600

Jan

05

Sep

05

May

06

Jan

07

Sep

07

May

08

Jan

09

Sep

09

May

10

EU fob Rouen US HRW fob Gulf

Export restrictions and food security

31/03/2015 2

In U

S$

Implementing export barriers

Worldwide: 37 countries

For example, Belarus (export tax wheat), Egypt (export tax and export ban rice), Jordan (export ban vegetables and eggs), Lebanon, Ukraine (export quota wheat, maize, barley, rye) Tajikistan (export ban grains) Uzbekistan (flour and wheat export tax)

Abolishing import barriers

Worldwide 59 countries

For example, Algeria, Azerbaijan (import tariff on grain and rice eliminated), EU (import tariff removal wheat), Jordan, Lebanon, Morocco (import tariff on wheat, animal compound foodstuffs, milk powder suspended)

Source: FAO 2008

Trade-oriented policy measures food crisis 2007/08

31/03/2015 3

Article XI of the GATT 1994 requires Members to eliminate all prohibitions

and quantitative restrictions on exports:

Exceptions : „the prohibition on export restrictions does not extend to

restrictions temporarily applied to prevent or relieve critical shortages of

foodstuffs or other products essential to the exporting contracting party“

export tax export quota export ban

X X

Export restrictions & WTO

31/03/2015 4

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

2

4

6

8

10

12

Export quantity World market priceProducer price

Export tax Export ban

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

500

1000

1500

2000

2500

3000

3500

Export quantity World market priceProducer price export quota

Exp. quota Exp. quota

0

200

400

600

800

1,000

1,200

0

10

20

30

40

50

60

Export quantity (wheat) World market priceProducer price

Export ban

Kazakhstan Russia Ukraine

Export ban 2008

Indirect controls

10/11

Export tax 2007-08

Export ban 2010-11

Export tax 2015

Export quota 2006-07

Export quota 2007-08

Export quota 2010-11

Indirect controls 12/13

Export controls in the KRU

31/03/2015 5

Research questions:

How did export controls effect domestic wheat prices in the KRU?

Do regional price effects of export controls within a country differ?

Are there differences in those effects between the KRU countries and how

can they be explained?

Model approach:

Price transmission model approach: domestic price – world market price

Develop indicators for the effectivenenss of export controls

Research questions & approach

31/03/2015 6

Export restrictions & (regional) domestic price effects

Baylis et al. 2014; Diao et al. 2014, Djuric et al. 2014,

Götz et al. 2013, 2012

Weather shocks, export restrictions & domestic price effects

Baffes et al. 2015

Fellmann et al. 2014

Literature

31/03/2015 7

q

p D

Economics of export controls

Domestic price effects of export controls:

1. Price damping effect

2. Price insulating effect

31/03/2015 8

Regime switching long-run equilibrium model

,

= domestic price

= world market price

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

500

1000

1500

2000

2500

3000

3500

Export quantity World market priceProducer price export quota

Exp. quota Exp. quota

f f wm f

d t t

t r r wm r

t t

regime „free tra

regime „restricted tr

*p up

*p ade ”

e

u

d ”

Model framework 1

Ukraine

31/03/2015 9

in 1

00

0 t

in G

rivn

a

Regime switching long-run equilibrium model

= domestic price

= world market price

fs fs wm fs

d t t

t rs rs wm rs

t t regim

reg

e „

ime „f

restri

ree trade du

cted trade d

ring production shortage

uring production shortag

*p u p

”

e”

*p u

30,000

40,000

50,000

60,000

20

05

20

07

20

09

20

11

20

13

Total grain production

Model framework 2

10

Harvest shortfall -30%

31/03/2015

Russia

Export ban Export tax

Russia - Regional wheat prices

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Mar

-05

Jul-

05

No

v-0

5

Mar

-06

Jul-

06

No

v-0

6

Mar

-07

Jul-

07

No

v-0

7

Mar

-08

Jul-

08

No

v-0

8

Mar

-09

Jul-

09

No

v-0

9

Mar

-10

Jul-

10

No

v-1

0

Mar

-11

Jul-

11

No

v-1

1

Mar

-12

Jul-

12

No

v-1

2

Mar

-13

Jul-

13

No

v-1

3

Mar

-14

Jul-

14

No

v-1

4

in 1

000 t

in R

UB

/t

Wheat export World market Central Black Earth

North Caucasus Volga Ural West Siberia31/03/2015 11

Grain production regions Russia

• Strong variation in distance to the world market

• Some regions only trade regionally

Russia - grain production regions

31/03/2015 12

Russia – regional variation in production shortfall

20,000

30,000

40,000

50,000

60,000

0

5,000

10,000

15,000

20,000

25,000

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

North Caucasus West Siberia

Volga Black Earth

Ural Central

in 1

,00

0 t

in 1

,00

0 t

31/03/2015 13

1

2 3

4

North Caucasus - regional grain trade during export ban 2010/11

North Caucasus: 2.5 million grain exports 31/03/2015 14

1 2

3 West Siberia: 1.2 million grain exports

West Siberia - regional grain trade during export ban 2010/11

31/03/2015 15

North

Caucasus Central

Black

Earth Volga

West

Siberia Ural

1. Price insulating effect

-76% -44% -46% -31% -2% -35%

2. Price damping effect

-67% -50% -50% -44% -53% -32%

Strong variation in

regional price effects: Large distance between

regions

Some regions export

only regionally others

only to the world market

Differing grain

production development

between regions

Export ban Russia: Indicators effectiveness

31/03/2015 16

Spatial price equilibria during export ban 2010/11

31/03/2015 17

2 spatial price equilibria: 1. North Caucasus, Black

Earth, Central and Volga

2. West Siberia and Ural

700

1200

1700

2200

2700

3200

3700

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

World KhmelnytskyiVinnytsia DnipropetrovskDonetsk KievKirovohrad Odessa

ex. quota 10/11 ex. tax 11 ex. quota 07/08 Regional effects are

small: Price insulating effect

-13% to -32%

Price damping effect

0% to -4%

Distance between different

regions is small

Grain producing regions are

affected by similar weather

conditions

Regional price effects export controls Ukraine

31/03/2015 18

in U

AH

Most regional prices

further increasing during

export ban: Market intransparency:

Wrong inform. on harvest

size 2007/8

Scarcity of wheat on the

domestic market

Increased domestic demand

for wheat to export flour

Regional wheat prices Kazakhstan

0

200

400

600

800

1,000

1,200

1,400

0

10

20

30

40

50

60

Jan

-05

Ju

n-0

5

No

v-0

5

Ap

r-06

Se

p-0

6

Fe

b-0

7

Ju

l-0

7

Dec

-07

Ma

y-0

8

Oc

t-0

8

Ma

r-0

9

Au

g-0

9

Jan

-10

Ju

n-1

0

No

v-1

0

Ap

r-11

Se

p-1

1

Fe

b-1

2

Ju

l-1

2

Dec

-12

Ma

y-1

3

Oc

t-1

3

in 1

,000 t

in 1

,000 K

ZT

/t

Flour export Wheat export World market price

South Kazakhstan North Kazakhstan East Kazakhstan

Pavlodar Almaty Akmola

Kostanay Aktobe

Export ban Export ban indirect

restr. Export ban Export ban indirect

restr.

indirect

restr.

31/03/2015 19

Large price damping effects only for a few weeks

Price damping effects are counteracted by storage

Damping effects on domestic end consumer food prices questionable

Often supplementary means required to bring bread prices down

Mills, bakeries and retailers may increase their profits, nonetheless

consumers have to pay higher bread prices

Überschrift Effectiveness of export controls (1)

31/03/2015 20

Costs for wheat have a minor share on bread production costs which reduces the transmission of price damping effects to the bread price

North

Caucasus Central

Black

Earth Volga

West

Siberia Ural

1. Price insulating effect

-76% -44% -46% -31% -2% -35%

2. Price damping effect

-67% -50% -50% -44% -53% -32%

Bread price is damped by 5% in Moscow

Überschrift Effectiveness of export controls (2)

31/03/2015 21

In the short-run:

Economic losses for farmers & traders

Increased market and price risk

Impossible to engage in futures markets

Wheat storage increases

Reliability of contracts decreases

Risk premium on wheat export prices

Wheat production costs increase

Further increasing the world market price level

In the medium-run & long-run:

Profitability of grain production decreases

Disincentives for investments in the grain sector

Grain production decreases

Grain exports decrease

Grain production potential is not mobilized

Negatively affects domestic and global food security

High economic costs of export restrictions

31/03/2015 22

Avoid trade-oriented measures

Let domestic food prices go up

Help poor consumers to cope with high food prices

Consumer-oriented measures have less negative market distorting effects, can better be targeted and are more effective, e.g.

Food vouchers

Food subsidies

Direct income transfers

Introduction

Trade Policies & Effects

Export quota Ukraine

Conclusions

Policy alternatives: What should be done?

31/03/2015 23

Revaluation Rouble against US$ since February 1, 2015 by 7.4% →reinforcing price damping effects of the tax

Export activity continues on a high level (ca. 30% higher compared to previous season) → price increasing effects

Large amounts of wheat stored

→ price increasing effects

Strict monitoring of food prices

Introduction

Trade Policies & Effects

Export quota Ukraine

Conclusions

Russia wheat export tax of 15% since Feb 2015

31/03/2015 24

30

40

50

60

70

80

90

100

110

120

130

6000

7000

8000

9000

10000

11000

12000

13000

30

/5/1

4

30

/6/1

4

31

/7/1

4

31

/8/1

4

30

/9/1

4

31

/10

/14

30

/11

/14

31

/12

/14

31

/1/1

5

28

/2/1

5

Central Black Earth North Cauc.

Volga Urals West Siberia

RUB/$

Ro

ub

les

Ro

ub

le/U

S$

Price wheat

Source: Grain Union Russia

This work was financially supported by the German Federal Ministry of Food and Agriculture through the Federal Office for Agriculture and Food.

Thank you very much

for your attention!

31/03/2015 25

Transport costs & prices

Exports from North

Caucasus to ... 626 780 688 982

Exports from West

Siberia to ... (1355) 1311 1228 1073

Avg. wheat

producer price 5,951 6,358 6,698 6,711 6,802 7,306

Export ban Russia: Transport costs & prices

3 31/03/2015 26

0

200

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1,000

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1,800

2,000

0

500

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2500

3000

3500

Jan

-05

Ma

y-0

5

Se

p-0

5

Jan

-06

Ma

y-0

6

Se

p-0

6

Jan

-07

Ma

y-0

7

Se

p-0

7

Jan

-08

Ma

y-0

8

Se

p-0

8

Jan

-09

Ma

y-0

9

Se

p-0

9

Jan

-10

Ma

y-1

0

Se

p-1

0

Jan

-11

Ma

y-1

1

Se

p-1

1

Jan

-12

Ma

y-1

2

Se

p-1

2

in 1

,000 t

in 1

00 U

AH

/t

Export quantity World market price

Producer price export quota

Export quota system

Export tax

Export quota system Export quota system

Export tax

Export quota system Effeciveness export

quota 2006/7, 2007/8

and 2010/11: No unambigious

difference in

effectiveness

Probably export control

regimes need to be

further split up

Aggregated price effects export controls Ukraine

3 31/03/2015 27