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WRAPUP 1-Russia plans leading food role, no grain OPEC

Published 06/07/2009, 11:03 AM
Updated 06/07/2009, 11:16 AM
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* Russia, Ukraine, Kazakhstan plan Black Sea trading bloc

* Grain OPEC finds little support

* U.S. says cartel idea could damage Russia's WTO bid

* Grain prices likely to be volatile

By Dmitry Zhdannikov and Aleksandras Budrys

ST PETERSBURG, Russia, June 7 (Reuters) - The United States warned aspiring WTO member Russia against a global grain cartel on Sunday as ex-Soviet states instead proposed a Black Sea trade bloc that could overtake Washington as the world's top exporter.

Russia, the world's No. 3 wheat exporter, could play a major role in alleviating global hunger by cultivating vast areas of land, but a U.S. official said Moscow should abandon support for a "grain OPEC" that runs against World Trade Organisation rules.

"This Russian idea does look like a cartel," said Michael Michener, administrator of the U.S. Department of Agriculture's foreign agricultural service.

"We would even say to Russia: be cautious about it. If it is done in a way that is trade distortive and trade prohibitive, I think it would affect Russia's application to the WTO."

Russia, home to almost a tenth of the world's arable land, was showcasing its role in global food security by hosting the inaugural World Grain Forum, an idea tabled by President Dmitry Medvedev at a summit of Group of Eight leaders last July.

Russia says it can add 50 percent to its current grain crop and double exports over the next 10 to 15 years, thus boosting Kremlin influence in delivering food to a world where every sixth person is going hungry.

The growing world population is placing a strain on food resources. When this combined with drought and a fund-backed run on commodity markets in 2008, grain prices spiked to record highs -- a scenario that some fear could soon be repeated.

"It's necessary to eliminate unnecessary barriers in world grain trade and create the conditions to increase supply in the world market," said Viktor Zubkov, Russia's foremost agriculture official and a first deputy to Prime Minister Vladimir Putin. As a start, Russia proposed joining forces with ex-Soviet neighbours Ukraine and Kazakhstan to manage grain reserves and develop rail and port capacity, Agriculture Minister Yelena Skrynnik said.

"The creation of such a pool of Black Sea grain exporters will permit us to lower the volatility of the world grain market and its dependence on speculative factors," said Skrynnik, a 47-year-old economist who became minister in March.

Under long-serving predecessor Alexei Gordeyev, the world's largest oil producer outside the Organisation of the Petroleum Exporting Countries (OPEC) had periodically lobbied for the creation of a grain-based equivalent.

But officials at the forum said little to suggest the idea had gained momentum. Moscow is pushing to join the WTO after a decade of trying, while international officials in St Petersburg offered little support for a grain OPEC.

"Market reactions, in a way, are a much more efficient way to price things and adjust demand," Klaus Rohland, the World Bank's country director for Russia, told Reuters.

VOLATILE PRICES

Grain prices, which retreated from last year's peak when the global economic slowdown started to bite, have begun to rebound and market observers forecast a possible return to 2008 levels.

"We see prices on average for the next 10 years at or above the levels they were at before the 2006-8 higher prices," said Wayne Jones, head of the Agro-food Trade and Markets Division at the Organisation for Economic Cooperation and Development.

John Atkin, chief operating officer at leading agrochemicals company Syngenta AG, said the world would need 50 percent more food by 2030 and double today's output by 2050.

"The challenge is still there. Although the economic crisis has affected a lot of things, it hasn't had much effect on demand," Atkin told Reuters in an interview.

In rare public comments, international commodities trader Glencore forecast tight supply of corn and soybeans this year due to drought in Argentina and increased demand from China and the U.S. ethanol industry.

Wheat, however, would be more plentiful after good harvests in the former Soviet Union and the European Union, Christopher Mahoney, director of Rotterdam-based Glencore Grain BV, said.

"Russia, Ukraine and Kazakhstan all have tremendous production potential, with room to expand both plants area and yields," he said. (Additional reporting by Amie Ferris-Rotman, Michael Stott and Denis Pinchuk; Writing by Robin Paxton; Editing by David Holmes)

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