| VLADIVOSTOK, Russia
VLADIVOSTOK, Russia President Vladimir Putin said Russia was sticking to its plan to boost grain output, expanding its role on world markets even as it struggled with its second severe drought in two years that has revived memories of a 2010 grain export ban.
Grain markets have been supported by persistent suspicions that the current Russian drought, which has slashed grain yields by more than a quarter, could prompt a snap decision by Putin to restrict grain exports.
The 2010 ban led major consumers to question the reliability of Russian supply, and producers fear new restrictions would do irreparable damage to its reputation on world markets.
In a signal that the Kremlin is, on the contrary, seeking a bigger role on world markets, Putin said Russia was sticking to ambitious plans to increase grain production, giving exporters a larger potential surplus for delivery to major consumers such as Egypt and Turkey.
Setting a target of 120-125 million tonnes of grain output by 2020, an increase of about a quarter from last year's 94 million tonne harvest, which was slightly above multi-year averages, Putin said Russia should be able to export 35-40 million tonnes.
"Russia will make its contribution to stable food supply," Putin said in a speech to businessmen on the eve of a summit of the 21-nation Asia-Pacific Cooperation (APEC) that will, among other issues, discuss food security.
They were Putin's first comments on agriculture since the scale of Russia's drought damage became clear at the end of July.
He said nothing about Russia's weak crop prospects for the current year on Friday.
Combined with the worst U.S. drought in more than half a century, poor export prospects from the Black Sea breadbasket pushed grain prices to record levels this summer, raising the chance of a repeat of the crisis four years ago that provoked riots around the world.
Putin said the current surplus was 15-20 million tonnes, potentially far more than the official forecast of 10-14 million tonnes. Analysts believe it could be 10 million or less.
Meanwhile Asia-Pacific leaders were poised to reject limitations on food exports, saying open markets helped secure food supplies, a draft of the leaders' statement to be issued at the end of an APEC summit in Russia showed.
"Recognizing that bans and other restrictions on the export of food may cause price volatility, especially for economies that rely on imports of staple products, we reiterate our pledge against protectionism," the draft communiqué, obtained by Reuters, said.
"We are determined to ensure fair and open markets, reduce price volatility, and establish greater regional and global food security and confirm our commitment to develop food markets infrastructure, reduce post-harvest losses along the entire food supply chain."
European wheat futures rose on Friday on spill over support from a day-earlier rally in U.S. prices as operators anticipated importers would increasingly turn to the United States and western Europe once supplies from the drought-hit Black Sea region run low.
COSTS OF GRAIN OUTPUT BOOST
Russia's banning of grain exports for almost a year after a severe drought two years ago was a catalyst for a surge in grain prices that was partly blamed for political instability in the import-dependent Middle East and North Africa regions.
Since then the scale of Russia's exportable surplus is still limited by the fact that only two ports - Novorossiisk and Tuapse on the Black Sea - are capable of loading large vessels. A substantial part of its grain is exported by small vessels via river ports in southern Russia.
Putin's project to boost the country's power on grain markets is likely to require hundreds of millions dollars in investments.
As of now the country plans to finance a grain terminal project in Russia's Far East, which will unlock Siberian grain for Asian markets, a Russian state bank said on Friday. The project will cost about $250 million (156 million pounds) and aims to bring a capacity of up to 10 million tonnes of grain by 2016.
(Reporting by Gleb Bryanski and Douglas Busvine; Writing by Polina Devitt; editing by Jason Neely and Keiron Henderson)