Ukraine: decree on cancellation of quotas for wheat and barley exports came on force since June 4

On June 4, 2011, the decree of the Government of Ukraine #566 dd. May 25 on cancellation of the export quotas for wheat and barley entered into force. The text of the document was published in the state newspaper Uryadoviy Courier №101 dd. June 4, 2011.

According to the document, changes are made to the addendum to the decree of the Cabinet of Ministers #938 dd. October 4, 2010.

In particular, the Cabinet of Ministers excluded such positions as wheat, mixture of wheat and rye (meslin), emmer and barley from the decree on imposition of the export quotas.

We should mark that the export quotas for rye, buckwheat and by-products at the level of 1 thsd tonnes each are still active.

As a reminder, in early October 2010 the Ukrainian Government imposed quotas for grain exports. On May 5 the quotas for maize exports were canceled due to sufficient reserves of the grain.

Simultaneously, the Verkhovna Rada adopted the law on imposition of the export duties for wheat (9% but not lower 17 EUR/t), maize (12%, but not lower 20 EUR/t) and barley (14% but not lower 23 EUR/t) to the period till January 1, 2012. The President has not yet signed it, but in the case of signature and publication of the law in June, it will enter into force on July 1.

  

Ukrainian sunflower seed processors to decrease oil prices after the required laws come into force

Large-scale Ukrainian companies-processors of sunflower seed are ready to realize reduction of prices for sunflower oil, supplied on the domestic market, despite the unprofitableness of such operations compared to the export market, which in its turn provides rather essential influence at price position of the raw material for processing on the domestic market, according to the recent announcement of the Association “Ukroliyaprom".

The announcement informs that oilseed processors worked out the project of the corresponding mechanism for providing the domestic market with sufficient volumes of sunflower oil at acceptable price level, and are ready to realize the project.

The main companies are ready to guarantee monthly supplying of 20 thsd tonnes of packaged sunflower oil on the domestic market. The retail price will not exceed the level of 13 UAH/l.

However despite readiness of the industry for such actions, to date oilseed processors do not have the juridical right to realize such coordinated measures, which the Government requires.

Thus, the major oilseed processors sent the corresponding request to the Antimonopoly committee of Ukraine for securing of the legal environment for such coordinated actions.

At the same time, the processors again underlined that any possible export limitations for sunflower oil are groundless. In the current year Ukraine received the record sunflower harvest. Sunflower oil production exceeds the domestic consumption level by 6 times, and any possible export limitations will cause stoppage of enterprises and colossal losses, marked market participants.

In case of maize quotas cancellation, Ukraine to face the grain deficit in May 2011

In the case of cancellation of maize export quotas to date, in May 2011 Ukraine will possibly face the deficit of the grain, declared Sergey Trigubenko, Deputy Minister of Agrarian Policy and Food of Ukraine.

According to S.Trigubenko, the Verkhovna Rada of Ukraine has the reporting draft law on cancellation of maize quotas, but the Ministry is against, due to rather small volumes of maize for exports in the country.

The project of the Decree of the Cabinet of Ministers “On imposition of alternations to supplement of the Decree of the Cabinet of Minister of Ukraine #938 dd. October 4, 2010” contains the offer to cancel maize from the list of agricultural products, which export trading is subject to licensing.

Ukraine: state regulation caused problems with flour on the domestic market

Recent problems with flour selling on the domestic market of Ukraine were caused by price regulation activity of the State, declared Leonid Kozachenko, president of Ukrainian Agrarian Confederation, on February 17.

According to him, the Government requires that flour millers sell the product at below-cost price.

According to the expert data, as of February 1, 2011, wheat carry-over stocks in Ukraine totaled 5.8 mln tonnes with the monthly consumption level of 0.6 mln tonnes.

President of Ukrainian Agrarian Confederation summed that in such way the country does not have any background for flour deficit.

Previously, Vadim Kopylov, First Deputy Minister of Economic Development and Trade, informed that Ukraine has artificial agiotage connected with flour selling.

Ukraine: Agrarian Committee did not support the draft law on monopolization of grain exports

On February 15, 2011, the Agrarian Committee of the Verkhovna Rada of Ukraine directed project of the law #8053 on making of amendments to the Law of Ukraine “On State support of the agriculture in Ukraine” (concerning peculiarities of realizing exports of the commodities subject to the state price regulation) to the further updating.

As a reminder, previously the Main scientific-and-expert department of the Verkhovna Rada recommended to decline the draft law in accordance with findings in the first parliament reading.

According to the department, imposition of the offered limitations on agricultural products exports will not meet regulations of the current Grains Trade Convention (1995), and several other Laws of Ukraine.

The majority of exporters and market participants, including the Grain and Feed Trade Association (GAFTA), also became opposed to acceptance of the draft law.

GAFTA is against adoption of the draft law on monopolization of agricultural products exports from Ukraine

The Grain and Feed Trade Association (GAFTA) is very concerned with the recent developments in Ukraine, in particular the draft law #8053 on making of amendments to the Law of Ukraine “On State support of the agriculture in Ukraine” (concerning peculiarities of realizing exports of the commodities subject to the state price regulation), informs the letter of the association dd. February 15, sent to the Chairman of the Verkhovna Rada of Ukraine.

According to the letter, it is hard to believe that the document can be approved, as it is in contradiction to all known standards of free trade and market, giving the priority to the State agent to export agricultural products, thus introducing pure monopoly on the market. GAFTA underlines that the draft law contradicts to international standards and many domestic legislative acts.

If trade partners of Ukraine have no possibility to perform own contract obligations, they will decide to withdraw own investments in the grain industry.

In 2010, CIS countries produced 134 mln tonnes of grains

According to preliminary estimations, in 2010, grain production in clean weight in countries of the Commonwealth of Independent States totaled 134 mln tonnes, down 28.8% compared to 2009 results, informed the Intergovernmental Committee of Statistics of the CIS.

The largest grain volumes among the countries were produced in Russia – 60.9 mln tonnes (down 37.3%), Ukraine – 39.2 mln tonnes (down 14.8%) and Kazakhstan – 12.2 mln tonnes (down 41.5%).

The following countries increased grain production volumes compared to the previous year: Moldova – 2.4 mln tonnes (up 11.5%), Uzbekistan – 7.4 mln tonnes (up 0.5%).

In 2010, Belarus produced 7 mln tonnes of grains, Azerbaijan – 1.9 mln tonnes, Kyrgyzstan – 1.6 mln tonnes.

Russia to possibly prolong grain export ban

Russia will possibly prolong the current grain export ban after July 1, 2011, - till the autumn (October 2011), informed Elena Skrynnik, Minister of Agriculture of the Russian Federation, adding that the Government will take decision concerning grain exports future, after receiving of the resulting data of the harvest-2011.

According to her, in 2011 grain production will possibly total 85 mln tonnes, which will be sufficient to cover all demands of Russia in grains.

As a reminder, on August 15, 2010, Russia imposed the ban for grain exports, in October 2010 the Government prolonged the limiting measures till July 1, 2011, or the beginning of the new grain season.

Ukraine: Government passed-on 13 enterprises to State Food-Grain Corporation

The Government of Ukraine passed-on 13 additional enterprises, which previously were in the structure of the state stock company “Khleb Ukrainy”, to the state company “State Food-Grain Corporation of Ukraine”. The corresponding decision is attached in the Cabinet of Ministers Decree #85 dd. February 9, 2011.

As it was announced in August 2010, the Government accepted the decision to found the state company “State Food-Grain Corporation of Ukraine”. The State Operator gets elevators, cereal products plants and grain depots. Also according to the document, previously the Government provided 36 subsidiary enterprises of the state stock company “Khleb Ukrainy” to the new company structure.

IMPORTANT PROJECT OF THE LAW!!!

Ukraine: only agricultural producers and state operator to export agricultural commodities?

On February 2, 2011, the people's deputy of the Verkhovna Rada of Ukraine originated project of the law* on realization of food commodities exports of the state price regulation exclusively by agricultural commodity producers of the reporting products in the volumes of own production, and the State agent for providing of exports of the state price regulation objects.

According to authors of the project of the law, acceptance of the law will allow to protect interests of the domestic producers of agricultural commodities, covered by the state price regulation, and interests of the Government in the process of foundation of the civilized agrarian market of the country.

In order to realize the aims, the authors plan to impose new export rules for the agricultural commodities, which are the objects of the state price regulation.

* Project of the law (№8053) on imposition of changes to the Law of Ukraine “On the Governmental support of agriculture of Ukraine” (concerning peculiarities of realizing exports of the objects of the state price regulation).

Fitting of grain monopoly in Ukraine?

On February 2, 2011, the Parliament registered new project of the law, unprecedented by the legislative innovation for all the time of independence of Ukraine, noted the Ukrainian Agrarian Confederation. The project on realization of food commodities exports of the state price regulation exclusively by agricultural commodity producers of the reporting products in the volumes of own production, and the State agent for providing of exports of the state price regulation objects will completely monopolize the market in the case of complete acceptance. Meanwhile, export trading forms 50% of grains demand, and 80% of sunflower oil demand.

Market participants – representatives of trading companies, producers, experts, estimated and faced disbelief in the bill adoption, despite the fact it is the result of work of the people's deputies of the parliamentary majority. It is due to its obvious non-compliance with the Constitution of Ukraine, antimonopoly legislative, the Commercial Codex and to the range of other Laws of Ukraine.

The major of agricultural producers of grains first of all, will depend on the State agent, which provides exports of the objects of the Government price regulation, its trade plans, financial condition, market behavior, and agrarians will loose the chance to choose the buyer. Only grain processors with annual demand at the level of 8 mln tonnes, which are not able to support prices on the market by their measured purchasing activity, will be the “competitor” of the agent.

Ukraine: Land market, formation, development trends

Farmland now remains almost the only big asset that is not actually privatized yet.

The position of both executive and legislative authorities of Ukraine on a land sale moratorium cancellation is vague for now. 

For 2-3 months after coming to the power, the Yanukovych team vividly declared their intent to lift the moratorium in the near future. However, these statements suddenly ceased from summer 2010. This may suggest that serious decisions and a breakthrough are being prepared in the field of land relations, or that it has been decided to delay the start of farmland sales and purchases for uncertain time because this is an issue of extreme social sensitivity.

Nonetheless, the statements made by Ukraine’s top officials in early 2011 give the ground to predict a possible soon lifting of the land sale moratorium.

In the period from July till December 2011, Ukrainian Parliament will very likely pass three laws needed to lift the land sale moratorium. The laws adoption will be accompanied by a sharp political struggle on tactical matters (obviously, a strategic decision to open the land market as soon as possible has been already made) of various financial and industrial groups. However, even if these laws are not adopted for political reasons, the opposition will be unable to gather 226 votes needed to pass a law on extending the moratorium into 2012. In fact, this will mean the beginning of land sales and purchases.

According to quite reliable sources, a decree on farmland relations regulation is being drafted in the Presidential Administration. Simultaneously, rumors persist about possible dissolution of Ukraine’s Parliament and holding a new parliamentary election in summer of 2011. 

Reasons for accelerated solution of the land issue

In early January, Ukraine’s President made a series of resolute statements suggesting a possible cancellation of the land sale moratorium in 2011. Opening the land market is considered here as a means of attracting foreign investment and technology. Another mentioned goal is combating corruption. It seems to us that the declared goals have little to do with the real motives. 

An important factor that contributes to making this decision can be the extremely poor condition of Ukraine’s economy, whose recovery from the crisis increasingly protracted.

Another probable reason for a possible acceleration of the land issue solution may be falling margins in Ukraine’s industrial sector along with a slow pace of this sector’s recovery in the conditions of declining global demand (including that for Ukrainian goods). Under these conditions, the owners of industrial assets quite reasonably try to raise the average return on capital through acquiring lands and expanding agricultural production. Widely spread forecasts about steadily strong demand for agricultural produce and high farming margins over the next decade also prompt the owners to make this decision.

It seems that Ukrainian financial and industrial groups presently consider agricultural production (crop production and livestock raising) as a main tool for reducing own investment risks. Under the conditions of the existing threat of global (hyper)inflation, land also becomes a reliable means of insurance and “escape” from money.  

The possibility of land speculation can also be attractive, but UkrAgroConsult forecasts that the comparatively low volume of such operations will limit their appeal in the long term.

Land market: behavior after lifting the moratorium  

The prospect for lifting the land sale moratorium still remains uncertain.

The forecasts for the Ukrainian farmland market development are very closely interrelated with the world food market. If food demand continues increasing as we see it now, this will consequently strengthen the factors contributing to the land market development to raise farming performance and meet this global demand. UkrAgroConsult estimates that demand for comparatively cheap Black Sea grain will steadily increase as the pattern of global demand will shift towards cheaper commodities and suppliers of expensive cereals and oilseeds will be washed out.

Either step (extension or cancellation of the moratorium) will provoke a rush in the land market. First of all, this will manifest itself as difficulty in establishing the market itself. At the first stage we predict a strong disbalance with an enormous predominance of sellers and a shortage of buyers. As a rule, potential buyers will not have financial resources to purchase offered thousands of hectares. Therefore the minimum number of buyers will considerably complicate land pricing.

The start of land sales and purchases will actually lead to property redistribution. This is exactly what in many respects explains the difficulty of making a moratorium lifting decision in the conditions when agroholdings have already accumulated quite vast land expanses in their hands. 

The market will most likely see massive dissolution of lease agreements. Such a course of events will immediately affect, first of all, small lessees (leasing 200-2000 ha of land) because they have no money to buy out the land they lease.

The market will be flooded with small middlemen who will seek margins and thereby distort pricing and complicate the arrangement of large land areas. There is a threat that this will give a rise to so-called “chessboard” fields, i.e. fields comprised of plots belonging to different owners. 

Large enterprises (40-200 Th ha) will also be forced to take special measures for keeping owners of land shares. Anyway, in short-term prospect, the land market vagueness will imply higher costs and lower performance of farming.

A trend towards splitting of agricultural enterprises will possibly manifest itself. Nevertheless, the so-called “European” scenario (farms with 200-300 ha of land) is unlikely to develop as there are no conditions for a sharp increase in the capitalization of agricultural enterprises.

Most agroholdings will no doubt suspend the expansion of their land banks in the conditions of a vague land market. Nevertheless, further development will be given exactly to agroholdings having better access to finance or able to lobby their interests at corresponding levels. Most likely, the splitting and consolidation of agricultural enterprises will be simultaneous processes.

We estimate that solely “pearls” – land plots with the best natural and climatic conditions – will be purchased first. This concerns land within the so-called black belt of Ukraine – from Khmelnytsky and Vinnytsya regions to some districts of Kharkiv region. Lands of poorer quality will gradually come into the turnover, too.

Any significant inflow of foreign investment in land is unlikely in short-term prospect, although many hopes are now pinned on this. The reverse side of high profitability of agriculture in Ukraine (40-60% against 10-15% in South America and Africa) is high risks. UkrAgroConsult experts suppose that, at the time of land market uncertainty, foreign investors will prefer working on international exchange floors with those agricultural companies that will place their shares via the IPO mechanisms.

The government may apply some measures to alleviate the market shock after the start of land operations. The opening of the land market will probably be gradual. Ukraine’s top officials, up to the Vice Prime Minister in charge of agriculture, have said this not once before. In particular, 10-15% of land may come on sale within the first year after a moratorium cancellation and nearly as much during the second and third years. The desired goal of such an approach may be limiting land supply under the conditions of a money shortage.

Land market: pricing trends

The statements about a land demand decline after the 2008 crisis are not always grounded. UkrAgroConsult believes that in reality the market became more stable, grounded during 2009 and 2010 following its overheat in 2006-2007. The land market is stable and well-balanced now. The interest in land is only seen from companies using this key resource as a means of production.

Land price varied considerably in 2010 depending on the plot quality and region. The strongest demand is for lands of the so-called black belt. Their prices ranged from $150 to $450/ha (excluding the cost of equipment and production assets). This price level is real in the sense that it reflects prices buyers are ready to pay. Seller price limits are not reflected in this range.

Sergey Feofilov, PhD in Economics

Ukraine to possibly increase grain export quotas

The Government of Ukraine will possibly increase quotas for grain exports by 1 mln tonnes – for wheat, and by 1.7 mln tonnes – for maize, and then cancel the quotas imposition after March 2011, declared Nikholay Prysiazhnyuk, the Minister of Agrarian Policy and Food of Ukraine, on January 26.

To date, the Ministry of Economy works out the project of the future Decree, which will be completely formed in February or till the end of March 2011. The Minister of Agrarian Policy added that his department will try to cancel quotas, due to approaching of the new harvesting campaign beginning and coming of new grains on the market.

Ukraine imposed grains export quotas till March 31, 2011. The Russian Federation has existing grain export ban from August 15, 2010, till July 1, 2011.

Grains export quotas, imposed by the Government of Ukraine in the beginning of October 2010 till December 31, 2010, were prolonged till March 31, 2011. At the same time, the total volume was increased by 1.5 mln tonnes – till the level of 4.2 mln tonnes. Maize export quota was increased from 2 to 3 mln tonnes, wheat – from 0.5 till 1 mln tonnes.

Ukraine: Ministry of Agrarian Policy forecasts grain exports at the level of 13 mln tonnes

On January 27, Nikholay Prysiazhnyuk, the Minister of Agrarian Policy and Food of Ukraine, declared that in the current marketing year Ukraine will supply nearly 13 mln tonnes of grains on foreign markets.

According to him, Ukraine will export directly the same volume of grains, which is expected by the world organizations, and domestic statistic estimations.

Vladimir Klimenko, the President of the Ukrainian Grain Association, informed that from the beginning of the current MY Ukraine exported nearly 7 mln tonnes of grains, including 0.3 mln tonnes in 2011 only. According to him, the low export indices in the beginning of 2011 are caused by the fact that the Government started issuing export licenses for additional quota volumes, given for the period of January 1 – March 31, just recently.

Russia, Ukraine and Kazakhstan to come back to grain pool creation idea

The Russian Federation, Ukraine and Kazakhstan may come back to the idea of creation of the grain pool, in order to cheapen grain delivery to the countries-buyers.

At first, the idea was announced on the World Grain Forum in St.Petersburg in June 2009. However, the reporting countries did not arrange real actions after that.

Nikholay Prysiazhnyuk, the Head of the Ministry of Agrarian Policy of Ukraine, returned to the idea, while answering the presentation of Saktash Hasenov, the Deputy Ministry of Agriculture of Kazakhstan, during the Forum “Agriculture and Food industry development in the East Europe and Central Asia”, which was within the International exhibition “Green week 2011” on January 21, in Berlin.

S.Hasenov complained that Kazakhstan, being one of the largest grains suppliers, wheat first of all, feels dependence upon Ukraine and Russia, due to the necessity to use their ports for grain supplies.

Due to the fact, exporters had to expand own export geography and start to supply grains to other directions, in particular to the South-East Asia and Iran. In order to realize the project, the country started building new railway through Uzbekistan, at the border with China the country will build large grains terminal, and started also realization of other projects. According to him, China, the Republic of Korea face the interest in Kazakh grains.

N.Prysiazhnyuk noted that due to the fact, it is reasonably for three countries – Russia, Ukraine, and Kazakhstan – to found the grain pool, in order to decrease logistics costs. Then there will be the opportunity to make replacement within the country and have cheap logistics, in order to sell cheap grains to countries-buyers.

While talking about the prospects of participating of Ukraine in the Customs Union, N.Prysiazhnyuk noted that the Government does not consider the issue at all.

As it was previously announced, to date there is active grain export ban in Russia (till July 1, 2011), and Ukraine imposed grain export quotas till March 31, 2011.

Ukraine. Food grains corporation to plan to cultivate over 100 thsd ha of land areas

The State enterprise “State Food Grains Corporation of Ukraine ” plans to form land bank at the volume of over 100 thsd ha, stated Alexander Lavrinchuk, the General Director of the State enterprise “State Food Grains Corporation of Ukraine ”.

The Director noted that 5 enterprises, which are in the process of entering the corporation, treat about 10 thsd of ploughing lands. At the same time, there is an active work for agricultural lands widening.

A.Lavrinchuk specified that to date there is the process of the corporation foundation, filling by the assets. According to him, on January 20-21, the first 36 enterprises will enter the corporation as the branches, which previously were under the sphere of control of the Government Stocks Company “Khleb Ukrainy”.

The Head of the Government enterprise “State Food Grains Corporation of Ukraine ” noted that the capacities of assigning of enterprises to the authorized capital of the Corporation are estimated at the level of 3 mln tonnes of simultaneous grains and oilseeds stocking, of grains shipment – about 2.5 mln tonnes annually. At the same time, the Corporation plans to increase shipment capacities of port elevators till the level of 5 mln tonnes, to increase the capacities of linear elevators for grains stocking till the level of 4.5 mln tonnes.

He also announced that there is the Project of the Decree of the Cabinet of Ministers about assigning for managing by the corporation of additionally 13 enterprises of the Government Stocks Company “Khleb Ukrainy”.

As it was previously announced, in August 2010 the Government of Ukraine accepted the decision to found the Government Enterprise “State Food Grains Corporation of Ukraine ”. According to it, the Government Stock Company “Khleb Ukrainy” should assign 36 elevators, centers of grain production and grain stores, including Odessa and Nikolayev port elevators, to the founding enterprise.