Russian authorities have started full scale intervention in the domestic grain market to curb prices and control exports after a severe drought, reports TV-Novosti today on its website.

The Ministry of Agriculture will contribute up to 130,000 tonnes of grain per week to market intervention, Kommersant daily reported. Meanwhile, 60,000 tons have already been sold during the first days of the week. The 4th grade grain was sold at 7,850 roubles ($250) per tonne and the 3rd grade at 7,720 roubles ($246).

"The state intervention is already having an impact on the market," Aleksandr Korbut, Vice-president of Russian grain union told RT.com. "Grain is traded successfully; with intervention prices close to the market, but still lower".

At the beginning of the session there were 71 participants in the trades, now there're 124, according to Korbut. "It’s a positive effect as processors are interested in buying grain for lower prices and delivering production at lower costs. That boosts competition in the market", he explained.

The state intervention fund currently holds about 4.8mln tonnes of grain. With selling up to 130,000 tons of grain per week, the fund will keep 75% of its reserves by 2013. However, Russian flour millers’ union said the country could face a grain deficit by early 2013 as the authorities have started intervention too early. If so, Russia would have to import grain from Kazakhstan and Germany, the said. But experts argue the state has enough reserves to avoid a deficit.

"The average consumption of grain in Russia is about 71mln tonnes. This year's harvest is 70mln tonnes," said Irina Vorobyeva from 2K Audit. "With exports totaling 10-14mln tonnes it could lead to a deficit in the domestic market. But the country has reserves of 20mln tonnes, that is enough to compensate for the exports"

In October Minister of Economy Development Andrey Belousov said that “"it's quite possible the government will decide to restrict grain exports," if the prices on the domestic market continue soaring. But Deputy PM Arkady Dvorkovich stressed that Russia doesn't plan to impose any export limitations at the moment.

Source rt.com