The Truth about Trade
Dean is Chairman Emeritus of 'Truth About Trade & Technology, a nonprofit advocacy group led by a volunteer board of American farmers.
Currency of Currencies
Aug 18, 2010
By Dean Kleckner (www.truthabouttrade.org)
When the Communists came to power during the Russian Revolution, one of their first actions was to seize the wheat. They wanted to control food prices--and they understood, in the words of Lenin, that wheat was the "currency of currencies."
In the wake of Russia’s recent decision to ban wheat exports through the end of this year, several editorialists have mentioned Lenin’s phrase. It reminds us that Moscow’s rulers never have shied away from interfering with the production and distribution of food.
The present situation in Russia is certainly harrowing. Wheat farmers are struggling through their nation’s worst drought in generations. Raging forest fires have added to the problem. There’s even talk that next year’s harvest may be in jeopardy as well. The purpose of the export ban on wheat is to ensure that staple food prices remain affordable for ordinary Russians.
But export bans don’t work. They try to fight short-term problems, but they almost always wind up creating long-term troubles.
A case can be made that we shouldn’t care about Russia’s bad policies. After all, one of its effects is to improve prices for American farmers. "This is an opportunity for us and we’re going to take advantage of it," said Secretary of Agriculture Tom Vilsack.
Last month, USDA officials predicted that wheat would sell for about $4.60 per bushel. This month, prices have risen to more than $7 per bushel. Prices of other farm commodities have risen as well.
Here’s the problem: By distorting the international market, Russia’s export ban now will force farmers in the United States and elsewhere to base their planting decisions on politics rather than on economics. For farmers, the weather is unpredictable enough. Trying to guess the Kremlin’s behavior--will they or won’t they allow Russians to sell wheat on the international market?--adds a new degree of uncertainty to the challenging business of agriculture.
It’s entirely possible that farmers in other countries now will plant too much wheat and endure a season of disappointing prices in which they give back the gains they’re hoping to make right now.
We’re already seeing evidence that Moscow may want to manipulate markets even more than it already has. Some experts think the Russians will shift gears again and try to exploit the high prices that their policies have helped to create.
At first, Russian leaders contemplated an export ban that would last only a few weeks. Then they announced a moratorium that would run until the end of this year. Now, several officials have hinted that perhaps they’ll lift the export ban ahead of schedule because prices have risen so high that Russia should try to take advantage of them.
This is old-fashioned market manipulation. If Russia ever hopes to join the World Trade Organization--an initiative that I’ve publicly supported--then it will have to show more respect for the exchange of goods and services across borders. Attempts to game the system must not be tolerated.
Ultimately, Russians themselves will pay a heavy price. Four years ago, Argentina imposed a 23-percent tax on wheat exports--a tax so high that it was tantamount to a ban. The tax remains in place today and Argentine farmers plant fewer acres of wheat than they have at any time in the last century.
In the future, Russian farmers also may decide to move away from wheat simply because they can’t trust their own government to give them the freedom to sell what they grow. That’s what the Argentines did, and now they can’t participate in wheat’s boom market. Politics have kept them out.
The good news is that industry leaders around the world say that no matter what Moscow decides, the world has an adequate supply of wheat. We aren’t on the verge of another food crisis, at least not on the scale of the one that erupted two years ago. But we may be closer to one than we’d like to think.
Natural disasters such as droughts are bad enough. Must we compound them with manmade disasters like export bans?
Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology. www.truthabouttrade.org