Ukraine has reaped the first million tons of the new harvest grain. Although the harvesting campaign has just begun, Minister of Agrarian Policies Yurii Melnyk is already reporting: “We are gathering 32 centners per hectare and expect a harvest of almost 40 million tons.” But will the statesmen be able to make proper use of the “golden bounty?”
The No.1 problem is a large grain stock of the last year’s harvest. The agrarian ministry estimates it at 5.7 million tons. This figure worries Leonid Kozachenko, president of the Ukrainian Agrarian Confederation, because Ukraine has grain storage facilities for 30 million tons only, while the last year’s and this year’s grain amount to a total 50 million tons. There is a danger that it will be technically impossible to immediately place the grain in storehouses, which will result in new losses for the agrarian sector, the expert believes.
Excess grain is the result of export quotas imposed last year by the government. The export taboo was insurance of sorts against shortages of flour on the domestic market and, hence, against bread price hikes. Meanwhile, grain traders were assessing losses. However, it turned out, after the ban was lifted, that the Ukrainian produce was not so much needed abroad because the world had begun to reap new harvests.
The No.2 problem is: what will happen to the grain price? In Kozachenko’s opinion, it will be going down on the domestic market. While the price of bread wheat is at least $320 a ton in the outside world, it is 800 hryvnias in this country despite the fact that it takes more than 1,000 hryvnias to grow a ton of it because of the growing world prices for fuel, mineral fertilizers, and machinery. This may lead to a reduced output of grain and, as a result, to higher food prices for the Ukrainian consumer.
While the first two problems can be tackled gradually, it will be impossible this time to brush aside the third one - bread price rise, - producers say. According to Oleksandr Vasylchenko, president of the Ukrkhlibprom association, 45 percent of Ukraine’s bakeries are working at a loss, while the average cost-effectiveness of baked bread is one percent. The cost of low-price varieties of bread, a considerable part of baking products, is regulated by cabinet resolutions. The cabinet has set their cost-effectiveness at not more than 10 percent. But bakers claim that even this is not exactly true because the right to adjust cost-effectiveness has been delegated to the local authorities which in turn do what they please. Vasylchenko adds that the problem is also in there being no clear definition of “low-price bread.” To produce the latter without making a loss, one should set a cost-effectiveness level of at least 15 percent. “It is common knowledge that the price is formed on the basis of cost- effectiveness, sales surcharge, and VAT. The current situation is that the government controls other entities’ profits, adjusts cost-effectiveness and the sales surcharge, but it won’t give up its value-added tax, now 20 percent of the product cost,” Vasylchenko explains.
It would be a bit wrong to say that bakers are making well-grounded complaints about the entire country. A loaf of the Ukrainsky rye bread costs an average 2.80 hryvnias in almost all the regions. The only city, where the price of this item, 1.82 hryvnias, has remained unchanged since 2006, is Kyiv. Still, last Wednesday Kyiv’s bakers picketed the Cabinet of Ministers, demanding that the government intervene - otherwise, bread may disappear from shop shelves in the nearest future.
It is not just a complaint, Ihor Mazuryka, general manager of Kyiv Bread Plc., says, but harsh reality. What else should be done when inflation has brought the price of all the baking components 1,5-3 times up but bread is still sold in the capital at prices that have not been revised since 2006? “The prices of flour, the main component, are constantly growing, the cost of wheat, rye and oil has jumped by 90, 140 and 200 percent, respectively. Bread transportation costs have also gone up by 61 percent, as have the prices of gas,” he says. Meanwhile, the Kyiv authorities, which were supposed to compensate the producers for the difference between the baking expenses and the market cost of bread, owe them 75 million hryvnias for the first six months of this year. For this reason enterprises cannot modernize themselves and broaden the range of their products. Moreover, banks are reluctant to give them loans.
But this reasoning will be hardly convincing for the ordinary people who will have, in case the strikers’ demands are met, to leave twice as much money in the tills of bakeries.
