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Opinion: Russia's grain ambitions look serious

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Russia looks deadly serious about getting big in grain.

The country isn't just talking about raising its harvests. It is also attempting to seize control of the global grain agenda with its quest for a global pool.

That has knock-on effects for farmers and traders, whether or not its idea succeeds.

Limited pool

In fact, Russia's plans for a global grain manager look likely to fall flat.

Kazakhstan and Ukraine - which have backed a trial run, the so-called Black Sea pool – have extra incentives for doing so. Kazakhstan, which is land-locked, relies on Russia for shipping its grain. Ukraine depends for gas on Russia, whose threats to cut off Kiev have become a winter ritual.

Other countries look unlikely to side with Moscow even if they believed that the cartel, rather than the free market, was the best format for managing grain markets.

Joining would mean irking the US, now that Washington has set itself against the pool.

And for what? Other countries shouldn't count on getting too much influence in Russia's cartel. The three former Soviet countries count some 30m tonnes of wheat shipments between them, enough to trump handsomely any other major exporter.

Oil factor

But even assuming Russia's cartel plans falter, that doesn't mean its ambitions for grain will as well.

Moscow has a big incentive to champion agriculture. Its existing instrument of foreign leverage – oil - is past its best. While Russia has historically been the world's second largest oil producer it sits on only about 5% of global reserves, meaning it should pump itself dry long before other oil states.

Getting even bigger in grain exports, at a time when the world is scrabbling for food, would give the Kremlin a fresh way to show who's boss.

Foreign investors

Moscow has some means too. Its farming nous has moved on since the 1950s, when Nikita Khrushchev's attempt to turn arid Central Asia into an extension of the fertile Ukraine ended in ecological disaster.

Russia's wheat production soared by 84% between 2000-01 and 2008-09 – and is poised to overtake America's - thanks, in part, to getting clapped out former Soviet facilities back on the road.

And this time, the country and its satellites can rely on foreign talent to help secure further growth if local knowledge fails. Daewoo, the Korean industrial giant, is throwing money into eastern Russia just as companies such as Black Earth Farming and Landkom are approaching from the west and Ukraine.

Ambitious target

That doesn't guarantee that Russia will hit its target of raising annual grain production to 135m tonnes within 10-15 years, roughly 50% more than this year's output.

Reviving output to Soviet volumes was the easy bit. Squeezing out more may require reforms to Russia's muddled land ownership rules, infrastructure improvements and reversing rural depopulation.

But traders may need to get used to tapping into the Kremlin's political climate, just as they are to watching the weather on the US plains

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