The European Union has agreed to grant Ukraine a significant quota of duty-free agricultural imports. Taras Kachka, director, Department of Foreign Economic Relations, Ministry of Agrarian Policy of Ukraine, recently told journalists that this arrangement with the EU envisages a gradual quota increase during the first five years of the Free Trade Area, adding that this will allow Ukraine to export 1.6 million tons of grain to Europe, duty-free, in 2013, but five years later it will be two million tons. Whereas in 2013 Ukraine will be able to sell only 950,000 tons of wheat, in 2018 it will be one million tons. Kachka says corn supplies will increase from 250,000 to 350,000 tons; those of rye, from 400,000 to 650,000 tons.
Expert estimates show the true worth of these arrangements. Volodymyr Lapa, director general, Ukrainian Agribusiness Club, says this is a real breakthrough; considering that Ukrainian grain will be mostly sold in the Middle East, the EU-proposed quota is absolutely acceptable. Lapa says Ukrainian exporters may, if need be, use the three-million-ton grain export quota to purchase grain at a customs duty discount (e.g., €12 rather than €95 euro per ton). In other words, Ukraine previously exported up to one million tons of grain; now it will export two million tons.
While the grain exporters are figuring out revenues from grain sales abroad, active exports remain the only haven for the Ukrainian vegetable producers faced with a domestic market price downfall. Local farmers complain that the prices for major kinds of produce can’t even recompense the net cost. Potatoes are bought at an average of 70 kopiikas per kilo; onions, at 1.5 hryvnias per kilo. Experts say the reason behind this market cost dive is the irrational expanding of vegetable plantations. The government encouraged the farmers to produce bumper crops, remembering the record costs in the spring of 2011, when a kilo of cabbage sold at 20 hryvnias on the market. The farmers were promised support in building wholesale markets, storage facilities, and other infrastructural components. Maria Kolesnyk, head of the data analysis department, AAA Consulting Agency, says that what actually happened was the exact opposite, that the government hasn’t set foot on this market. Also, neither the government, nor trade networks, let alone exporters, will buy such small shipments of produce. Meanwhile, small producers will be unable to make long-term large-supply contracts.
In other words, ranking bureaucrats and rank-and-file farmers found themselves unable to stop the vegetable market cost dive (minus 22.4 percent, a record drop according to the Derzhkomstat, State Commission on Statistics of Ukraine).
Potato prices proved the main catalyst of the market dive. Considering this year’s bumper crop yields — some 20 million tons — recently, the price went down first by almost one-third (minus 27.8 percent), then by another 7.7 percent. Carrots went down by 9 percent during the week; onions, by 4 to 5 percent. The situation is aggravated by the lack of adequate storage facilities.
COMMENTARIES
Alex LISSITSA, president, Ukrainian Agribusiness Club Association:
“Ukraine’s small farming businesses are barely meeting their production costs. Quite a few of them are on the brink of bankruptcy. We warned against this scenario in spring. The government acted on the agrarian market in a strange way, instructing what should be planted and where, leaving our farmers to face the sad consequences — precisely what they are doing today. Keeping this strategy means that they will be destroyed as a social class or will sell themselves to larger farming businesses. Their biggest problem now is where to get the money to do the autumnal field works. The government isn’t buying their produce, considering that there is excessive market supply. Moreover, the government plans to enforce additional customs duties on certain agricultural products. The question is: How will the farmers survive under the circumstances? Some 15 percent of Ukraine’s small farming businesses are barely on the subsistence level. Such farming businesses total about 40,000, compared to some 8,000 collective farms.”
Mykola PRYSIAZHNIUK, Minister of Agrarian Policy and Foodstuffs of Ukraine:
“Fruit and vegetables are commodities that are not regulated by the state. In other words, the state did not, and nor will it provide for budget appropriations to form a food reserve made up of this commodity group. Local authorities should form reserves to supply their regions with these products and to facilitate preservation of these fruit and vegetables using storage facilities. This year the number of such facilities has increased by 50 percent. However, this country doesn’t have as many such storage facilities as it should. We assessed the capacity of our storage facilities and discovered that they are filled by only 40 percent. In other words, our farmers and other fruit-and-vegetable suppliers lack the culture of storing fruit and vegetables. This culture must be instilled in the producers, retail outlets, and wholesale markets. The farmer or producer must be explained the benefit of selling products (kept in such storage facilities) between the seasons when the prices are rather high.”
Aleksandr PETRIKOV, State Secretary, Deputy Minister of Agriculture of the Russian Federation:
“Our government doesn’t purchase vegetables. We have a network of wholesale markets and co-op distributors. We also encourage transfers of such markets to such cooperatives because having an agrarian market run by producers is considerably more effective. I can’t say that this practice is widespread, but such projects have proved very effective in some regions. For example, there is a cooperative in Astrakhan oblast that buys vegetables from local farmers. It has a facility where these vegetables are washed clean, sorted out, packaged, and sold on the market (at retail outlets, bazaars, you name it). In other words, such distribution cooperatives serve to increase the producer’s share in the product’s final cost. The state supports such cooperatives by granting investment loans to purchase equipment and build market [infrastructures].”
Mikhail RUSY, Minister of Agriculture and Foodstuffs, Republic of Belarus:
“Our government takes part in the purchasing of vegetables grown by agrarian enterprises. Two methods are applied: (a) raising stabilization funds for schools, hospitals, children’s daycare centers, and military units in Minsk and other big district centers. Such purchases are made by local authorities and then the commodities thus acquired are sold. In other words, the state guarantees the minimum that must be supplied to the social projects of big cities; (b) the government-run potato storage facility construction program.”
