On February 19 a government delegation led by Minister of Finance Ihor Mitiukov, returned from Georgia where it held talks on a loan being given this country of 45,000 tons of grain.
Perhaps this trip will provide new impetus to the grain-related dialogue now underway in Ukraine. Last Thursday Minister for Agrarian Policies Ivan Kyrylenko commenting on the claims of traders and grain market players that there is an acute shortage of grain in Ukraine which can only be made up for by urgent imports on favorable conditions, said that Ukraine’s domestic market has an adequate quantity of grain. According to the minister, farming producers now possess 1.5 million tons of grain unsold last fall due to the expected price rise. Meanwhile, as traders and grain market players claim, the food grain shortage in Ukraine is becoming more acute, provoking price rises. According to the analysis of the Ukrainian Grain Association (UGA), the domestic market lacks cash food grain supplies, while grain from Kazakhstan and Russia are unacceptable because of prices. To offset rising prices, the government must make a decision to import grain as early as March.
The Agrarian Policy Ministry forecasts the import of grain will reach 1.5 million tons in the 2000- 2001 fiscal year, Interfax-Ukraine reports, because Ukraine harvested 24,439,000 tons of grain in 2000, down 0.6% from 1999, including 10,158,000 tons of wheat, a 25% drop. Once renowned as the breadbasket of Europe, Ukraine is increasing its import of grain. Grain companies redoubled their efforts in February to sign grain import contracts with Europe, Turkey, and the US, blaming this on the insufficient supply of and unsatisfied demand for food grain, Korrespondent.net quotes the Ukrayinski Novyny Agency as saying.
“The domestic market for third and fourth grade wheat is paralyzed,” one of the leading traders thinks. In his words, they find it unprofitable to buy small lots of wheat directly from farmers and peasants, so they prefer to import. “It pays for me to buy crops in Russia rather than glean them grain by grain from peasants,” a grain operator said. Now the companies mainly import grain from Kazakhstan and Russia to avoid paying the import duty. Traders expect the government to introduce grain import privileges for Ukraine, which will enable them to import grain not only from Russia and Kazakhstan. Ukraine could find promising markets in the Czech Republic, Slovakia, the US, Canada, and Turkey. It will be recalled that in 2000 Ukraine registered a 779% increase (to 800,000 tons) in grain imports against 1999. The companies imported grain taking advantage of privileges.
The state still remains the main grain operator, and it is no hurry to part with its grain storage and processing facilities. The government made some changes recently in the mechanism of grain collateral purchases. Under a resolution, the cabinet, as requested by the Ministry of Agrarian Policy, Ministry of Finance, and Khlib Ukrayiny (Bread of Ukraine) state-run enterprise, is to set annually the tentative level of a collateral price and the amount of collateral purchases. There were practically no collateral purchases last year, for domestic market demand for grain far outran supply. As Interfax-Ukraine reports, Khlib Ukrayiny managers do not think the company will be able to effect collateral purchases because the government-proposed funding pattern will only lose money.
Yet, Minister Kyrylenko is confident that there will be collateral purchases this year: “It is beyond doubt that agrarians will be selling grain at a collateral price as soon as they see the price (after the new harvest — Ed.) falling.” His ministry appears likely to play on bread price reduction, one of the main indicators of support for the poorest strata in this country. So far, the food grain balance does not worry many. As a ministry expert told The Day, this country lacks a million tons of food grain today, but the government tries to hush this up.
Asked by The Day, President of the Grain Association of Ukraine Mykola Kompanets gave a very succinct assessment of the grain market situation in Ukraine: “There is no cash food grain as such.” In his words, wheat was shared out, and the peasants are now feeding it to cattle instead of selling. It is commercially unviable to import grain because of tariffs, Mr. Kompanets said, but there is no duty on the import of flour. So now Russia brings its flour duty-free to the former breadbasket of the USSR, creating jobs and incomes not only for its own peasants but also for its processing industry. Moreover, the price per ton of the highest-grade Russian flour is 200 hryvnias lower than that of our enterprises, which are about to stop working because of the import duties. Grain traders hope the government will at last set a quota for duty-free import of food wheat. But this would mean admitting a poor harvest in 2000, and the government is stalling. Mr. Kompanets said that word has it the government has already begun to give quotas to some select people’s deputies.
Meanwhile, it was forecast that the market would register rising food grain sales in late January and early February so that funds could be raised for the spring sowing campaign. But this fizzled. Olimpeks Ltd. analyst Mykola Vernytsky notes that the shortage of wheat is becoming more acute and domestic prices are rising, while the market for domestic third-grade wheat has in fact come to a standstill until the new grain harvest grain comes in. Still, the government has been forced to grudgingly admit the existence “of some shortage of high-quality grain on the domestic market” (“On the Grain Market Situation,” Uriadovy kuryer, No. 241). However, Mr. Vernytsky added, the Ministry for Agrarian Policy, which classifies all harvested wheat as food grain, believes that Ukraine is well-stocked with this product. This policy is one of the main reasons why, as a US embassy representative said on January 23, the US government had denied this country humanitarian grain aid, Intelnews reports. Mr. Vernytsky thinks another reason for this might be the optimistic forecast of Ukrainian authorities about harvesting 35 million tons of grain in 2001.
The Day’s experts believe fixing an import quota for wheat is only a matter of time. They think the grain price rise, which allowed many farms to pay off their debts, was caused by poor harvests in 1999 and 2000, not by government regulation of the market. It should be also borne in mind that the rise in domestic grain prices, something of a boon for agricultural producers, was a bane for consumers because it triggered a chain of price rises for not only grain processing products but also meat, milk, and other foodstuffs. Hence the official inflation rate of 25.8% in 2000, while an unofficial expert assessment by the Institute of Societal Transformation puts it at 40%.
The current grain policy also plants a dangerous mine under this year’s macro-indices, including the government-planned maximum inflation rate of 13.9%. The experts think the situation could also deteriorate because Russia, until recently the supplier of relatively cheap wheat flour to Ukraine, is itself experiencing a domestic shortage of wheat and a need to increase its own imports. As a result, the import of flour will no longer be able to assuage the critical situation on Ukraine’s food wheat market.
Specialists think further delay on a food grain import quota (last year it was opened in December) could lead to a steep rise in food wheat prices in Ukraine. Meanwhile, world market prices will also rise, so we will have to import grain at higher prices. Large industrial regions, such as Kyiv, Dnipropetrovsk, and Donetsk oblasts, might be able to purchase grain at UAH 1050-1100 a ton, but what about other regions?
