Back on April 22, Russia’s minister of agriculture, Nikolai Fyodorov, was put out to pasture in an advisory role to the presidential administration. Despite only being in office for a month, his successor, Alexander Tkyachyov, has already given us a taste of things to come.
Over the past six weeks Russia abolished a wheat export duty that had been in place since February and replaced it with an even more burdensome tax.
The old system set a payment of 15% of the wheat’s value per mt plus a payment of Eur7.50 with a minimum charge of Eur35/mt. Under the new system, wheat exports are to be subject to a duty of 50% of the value of the wheat, minus Rb5,500/mt with a minimum cost of Rb50/mt to be applied.
So, for example, if wheat costs $200/mt and the $/Rb rate is at 50, then a tax of Rb50 is paid. If the wheat price shoots up to $220/mt and the $/Rb rate stays at 50, then a tax of Rb50 is still paid. If the $/Rb rate starts to move, however, things get interesting. With wheat at $200/mt and a $/Rb rate at 60- then the export duty goes up to Rb500, while wheat at $220/mt will command an additional Rb1,100 payment.
If the old system was not difficult enough for Russian wheat exporters, the new one certainly is. Not only does the duty provide traders with an additional cost burden that eats into margins, it also exposes them to – and amplifies the impact of – currency fluctuations. Furthermore, there is still no clarification from the government or the ministry of agriculture as to the exact workings in the physical market.
It has already taken its toll on the market, which has hardly moved since it was announced last week, despite a new crop coming to market in July. Only the big, multinational trading houses seem to be in a position to limit their risk in this brave new world.
Will that be all we see from Tkachyov? Successive ministers have been able to stamp their mark on the office. Fyodorov had his export duty, which outlasted him and saw monthly wheat exports from Russia fall by about 75%. Yelena Skrynnik, meanwhile, presided over a wholesale wheat export ban back in 2010 which more than doubled the global price. Tkachyov is off to a good start with his new export controls, but he has a lot of work to do if he is going to go down in the history books.
Deputy Prime Minister Arkady Dvorkovich has seemed to call the shots on any major policy issues for a while now and this should continue to be the case with Tkachyov in charge. Ultimately, new ministerial appointments in Russia have not typically precluded seismic shifts in government policy, and this latest change is unlikely to break the habit.
Though on the surface he may appear to be more assertive than his predecessor, and is personally closer to Putin, has a strong background in agriculture, and is well tied to one of the major grain producing regions in Russia, Tkachyov is not going to change the realities of Russian politics. A hierarchy exists and the ministry of agriculture sits under Dvorkovich, who, in turn, sits under the Kremlin.