Ukraine has witnessed a rise in bread grain prices, owing to low market demand, sluggish grain imports, and foreign market cost ratios. The government is struggling to solve the problem. The cabinet held an extended meeting on Saturday, discussing the formation of a food market. Those present voiced polarized opinions. Premier Viktor Yanukovych admitted that the government, operating in that market, “has become carried away with its administrative measures.”
Premier Yanukovych also came out with quite strong arguments to justify such measures: “We could sense that we had to step in with this problem immediately. The main task is to harmonize the national price-setting policy with the social system of Ukraine. Pay rises are followed by price increases; that’s only natural. Yet having European prices, combined with Ukrainian wages and salaries, leaves one wondering.” With his inherent straightforwardness, the Ukrainian Premier drove every opponent to the wall. “All right, then would you please suggest what should the Ukrainian man in the street do, denied European-level pay but having to pay European-level prices?” Simultaneously, Mr. Yanukovych demonstrated his centrist stance, measuring swords with his opponents: “There are those supporting the idea of a liberal policy, of letting the prices loose. But we will have European prices after we get European pay. For this reason liberalizing market conditions should be a step-by-step process.” He further opposed those championing rigid administrative regulation: “We can’t do this now. We have to regulate the prices, but we must adopt an approach with consideration,” adding that bread prices were climbing on the world market. “And so these prices are increasing in Ukraine,” he noted. At the same time, such pessimistic price-keeping moods in government, according to several sources, are caused primarily by failing to receive Russia’s million tons of cash grain credit. After weighing the pros and cons, the Russian side refused to keep its rash promises... In other words, Russian and Kazakh grain will be sold in Ukraine at prices close to the European standard. Was this why the Ukrainian Premier said the Ukrainian agricultural producers should be duly protected? In his words, “Our domestic prices should not be lower than those elsewhere in the world, but we must allow for the absence of transportation and import costs, meaning that the costs should be lower than those of the grain imports.”
Premier Yanukovych referred to Prosecutor General Sviatoslav Piskun’s report, delivered at that cabinet meeting, saying that all those present were unanimous about the crisis in the Ukrainian food market being a manmade one. This allowed him to defend the executive, noting that they “had to timely respond to the situation” so as to protect the population against the crisis, “acting in accordance with the current legislation.”
In the end, the Ukrainian cabinet decided that the only way out of the situation was a state contract, to prevent “destabilization of the food market,” and must have further decided to resume the practice of such state contracts, with regard to “strategic” types of food supplies (a practice discarded during the early years of independence). Vice Premier Ivan Kyrylenko noted it was necessary to introduce grain state contracts (1.5 million tons) and also for meat, certain kinds of dairy products, sugar, grouts, and sunflower oil. Mr. Kyrylenko promised that such government procurements would be carried out under transparent market conditions. “This wouldn’t be anything like state contracts dating from the 1980s. The state would emerge in the market as an effective customer and effective seller,” stressed Ukraine’s number one agrarian. Simultaneously, the effective Ukrainian food market operator believes that this country should keep its door open for bread grain imports not only to December 31, but until next year’s harvest, that is, to June 1, 2004. Otherwise the state will not have time to supply enough bread to cover the shortages of 3 million tons and protect this country against food market malfunctions.
Meanwhile, the cabinet’s liberal wing apparently regards this issue as still open. A recent meeting between President Kuchma and former Premier Anatoly Kinakh currently president of the Ukrainian Association of Entrepreneurs and Industrialists, among other things, dealt with problems relating to the formation of modern market relationships in the agrarian sector, particularly in the grain market. Leonid Kuchma stressed the priority of market vehicles and their supremacy over administrative-command methods. Volodymyr Hranovsky, head of a ministerial consulting task force, took a characteristic stand, saying that the simplest and least expensive solution to the problem would be for the cabinet to allow the grain companies to do their business on their own terms, providing special subsidies to the least socially protected families, as compensation for higher bread prices. Mr. Hranovsky believed that government procurements were an inadmissible luxury, leading to a considerable loss of budget funds, considering that the state is a less effective buyer of grain than other market grain operators. He further said that interference by the state would always provoke abuses on the part of unfair bureaucrats. The ministerial consultant said he was sure that, should the government subsidize grain or flour prices, the said prices would inevitably rise. Still, he was confident that the government had no means of controlling the kind of grain supplied to the mills or the kind of flour supplied to the bakeries. The official expert further believed that food wholesalers and retailers would invariably increase prices, given constant food crisis statements; that banning all grain exports was out of the question (referring to the cabinet’s intended sharp reduction in fodder exports), because the consumer would regard such acts of the government as a sure sign and bread grain shortages would be inevitable, meaning the consumer would have to buy bread made from corn or fodder barley.
