Grain exports to be banned?

Fears that Ukrainian grain exports might  go the way of Russia, which has banned exports following poor harvests, have now subsided with Ukraine's Agriculture Ministry and grain traders agreeing to implement a grain export quota of 5 m tonnes.

Ukrainian farmers had expected grain exports to  fall by 10 to 11% this year compared to earlier forecasts - and 10 to 15% falls now look likely. This set back is on top of the problem faced by the local agricultural sector from the failure of government to repay Value-added tax (VAT) which has so far cost grain producers about Hvr 12 bn (US$1.5 bn). In addition, the most alarming statement has been made by the head of the Communist Party of Ukraine (part of the coalition) who has proposed banning of grain exports this year. Ukraine is a major international exporter of corn, wheat, barley and rye.

The Ukrainian Grain Association has reduced its forecasts for exports of cereals and legumes in the 2010-2011 agricultural marketing year (July 2010-June 2011) by 10 to 11% or by 2 m tonnes to 16 to 18 m tonnes.

Experts from the Association predict that the total crop will be about 42 m tonnes compared to last year’s 35 m tonnes). Ukraine’s well known and accepted potential as a major world producer of grain will need to wait until the country has reduced its cost base for production and improved its distribution logistics. rnIn Association says that the hrivna’s exchange rate stimulates export as the majority of its members’ contracts are agreed in US dollars. But if the national currency were to be reevalued at 7 hrivna to the US$ as some commentators predict, producers could lose as much as Hvr 7 bn (US$0.89 bn).

The head of the Association, Vladimir Klimenko, said that if the problem of reimbursing VAT payments is not resolved producer would lose about 12 bn hr (US$1.5). “In view of the complications entailed in completing the Ukrainian Grain Association’s budget in April 2010, forecasts were made on the basis of the government’s agreement to resolve exporters issues regarding the VAT-bonds. But as of today no one has received their capital payment. Moreover the algorithm used for issue of bonds is total unintelligible. As we know the volumes of grain and processed products from exporters reported in their application to get the VAT-bonds, we can calculate the value at more than Hvr 5 bn (US$0.6 m),” said Klimenko.

To resolve these problems, the Cabinet of Ministers of Ukraine has proposed a seven-day period to report to the grain companies the schedule of VAT payment. The Communist Party of Ukraine’s view was expressed by the head of the Party Petro Symonenko who said: “Ukraine must forbid the export of bread and feed grain from the harvest of 2010. That is the strategic reserve, the golden supply of the nation which should belong exclusively to the state.” He also added that in his view grain traders had entered into collusion with farmers and bought their grain at below the minimum prices and then sold it abroad at maximum prices. The question of potential export prohibition may be discussed during the next parliamentary session this autumn.

Moves already proposed are likely to create a 5 m tonne domestic surplus over requirements - but producers will not be able to take advantage of high international prices.