Five countries - Iran, Iraq, Kuwait, Saudi Arabia and Venezuela - set up the Organization of Petroleum Exporting Countries (OPEC) in 1960 to keep global oil prices at a proper level. They were later joined by another nine nations. The OPEC economies are based on oil and their prosperity directly depends on its global prices. The cartel controls about two thirds of the world's oil reserves and more than half of its exports. Its task is to prevent oil prices from falling. If a drop in prices occurs, OPEC governments reduce oil production accordingly.

Gordeyev voiced the idea of a grain cartel at a session of the Russian-Ukrainian commission on the agro-industrial sector in June this year. It was enthusiastically backed by Ukrainian Agrarian Policy Minister Yury Melnik, who said that Russia, Ukraine and Kazakhstan should by all means coordinate their efforts on the grain market. Now Gordeyev is thinking of how to tempt the United States and Australia with his proposal. It seems sensible. In the estimate of the Institute of the Agrarian Market Situation (ICAR), Russia, Ukraine and Kazakhstan only account for about 20% of the world's grain exports and will not be able to control the market. If Australia and the United States join the suggested cartel, this figure will increase to almost 62%.

But this is easier said than done. ICAR experts note that eight leading grain exporters (in addition to the afore-mentioned countries, these are Argentina, Canada and the European Union), accounting for 90% of the world exports are locked in tough competition. "It will be very difficult to agree on joint actions," said leading ICAR analyst Igor Pavensky. "Russia, Ukraine and Kazakhstan are competing with each other; Australia and Canada are also rivals."

But let's assume that the permanent rivals come to terms. How will they control the scale of grain production and influence pricing? The OPEC countries each have a state monopoly on oil production and exports, and any government can easily 'close the tap' to push up oil prices. At the same time, the state monopoly keeps oil prices low at home.

Grain is quite different. Its production and export are in the hands of private companies, which will not change their prices at the first call of their government. The Russian government has two effective instruments for price regulation - tariff policies and grain interventions. Thus, it can raise grain prices by buying part of the harvest, or it can cause a drop in prices at home by raising export duties and thus limiting grain exports. But these are extreme measures. Restrictive tariffs may deal a heavy blow to grain producers and deprive them of an incentive to produce more grain. The knock on effect is a shortage of grain the following year, and consequently bread and live stock products would become more expensive.

But why do we need a grain OPEC at all? World grain prices are going up and are not likely to fall down in the next two or three years. The high demand rests on two factors. The world's population is growing by about 80 million people a year, predominantly in grain-short Asia and Africa; and demand for bio-fuels, which require grain, is also on the increase.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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