REUTERS: 02/03/2011

TAMBOV, Russia, worried by soaring food prices and a shortage of grain to feed its livestock, may extend its ban on grain exports until the end of the year, Deputy Prime Minister Viktor Zubkov said.

"We are working on potential forecasts that involve keeping the ban in place until the end of the year," Zubkov told reporters on Wednesday. "We see what is happening on the food markets, and we don't see any improvement."

In a bid to ward off imports and restrain food inflation after a catastrophic drought last year, Russia banned exports until July 1, and government officials have said they decide whether to extend the ban when prospects for the new harvest are clear.

In the meantime, food prices are driving rapid consumer price growth, which slowed in February only with an intervention from Prime Minister Vladimir Putin on fuel prices. Overall prices have grown 3.2 percent already this year. [ID:nLDE7211RL]

"It's not just the volume (of the harvest) that will determine whether to lift the ban or not. There are a lot of factors, like which cereals we'll have and how much," said Zubkov, Russia's top agriculture official.

"Second, our livestock industry is developing quickly and we need to look carefully at consumption (of feed grain)," he added.

Last year's drought slashed the harvest by more than a third from the previous year to 60.9 million tonnes. The worst shortages due to that are being felt by meat and dairy producers whose feed costs are spiralling, where feed can be bought at all.

Russia has all but abandoned efforts to cool prices for feed grains, such as barley, through intervention tenders and is moving on to direct relief sales of feed grain to drought-hit producers at a tiny markup to cost.

The government forecast grain imports of 3 million tonnes to cover the gap, mostly of Ukrainian corn, but analysts believe imports will amount to no more than 1 million tonnes.

"We see what is going on on world markets," Zubkov said. "You can't buy it. It is not to be had. If you can find it, it is very expensive."

NEW AID

Russian Prime Minister Vladimir Putin announced fresh aid to Russia's drought stricken farmers whose straitened finances have placed spring sowing for the upcoming harvest at risk.

Just under half of the coming year's total harvest, forecast by the government at 85 million tonnes, is now dormant, protected by thick snows, though evidence has emerged of patchy snow cover which could have exposed the shoots to the icy air.

In addition to the ground lost to poor weather, Russia's farmers face other obstacles to spring planting: access to loans is tight after several years of financial difficulty culminating in the drought of last year, and irregular fertiliser supplies.

The state agricultural bank, Rosselkhozbank, which has already pledged half of the $7.7 billion needed this year and slashed collateral requirements [ID:nLDE71L2DK], will launch a new lending programme for small farmers.

Farmers say they have little left to pledge after last year's drought and farm lobbies have said the harvest depends on access to funds. [ID:nLDE71E0JP]

Russia will also spend an extra 4 billion roubles from this year's budget to subsidise farm equipment leasing and may look into a "cash for clunkers" scheme to boost tractor purchases, its prime minister said.

"I hope it will help reap a good harvest and stabilise the situation with food prices," Putin said.

Writing by Melissa Akin