Wheat export restrictions and domestic market effects in Russia and Ukraine during the food crisis

Studies investigating the effects of wheat export controls on the domestic market in the exporting country itself are scarce. This paper analyses the domestic market impact of wheat export controls in Russia and Ukraine during the 2007/2008 global food crisis within a spatial price transmission approach. Using a Markov-switching vector error-correction model, we contrast our estimation for Russia and Ukraine with Germany and the USA, two countries that did not intervene in their wheat export markets. An explicit "crisis" regime during times of export controls is exclusively identified for Russia and Ukraine. We find that export restrictions temporarily reduced the degree of integration of Russian and Ukrainian domestic markets in world wheat markets, which pushed the growers prices below their long-run equilibrium level. Further, domestic markets were disconnected from their equilibrium and market instability increased. These effects were even more pronounced and long lasting in Ukraine (export quota) than in Russia (export tax). The negative market effects discouraged private investors, thereby preventing Russia and Ukraine from maximizing their grain potential and contributing to global food security. (C) 2012 Elsevier Ltd. All rights reserved.