Grain export restrictions ease, benefiting mystery firm most

2011-10-14 15:24:54

Export curbs cost farmers an estimated $1 billion.

Ukrainian farmers and grain traders are celebrating because the government has relaxed export restrictions that threatened to cripple the country’s promising agriculture sector.

After weeks of wrangling, parliament passed a law on Oct. 7 removing export tariffs on wheat and corn exports.

Despite predictions of a bumper harvest of more than 50 million metric tons this year, the government had kept export restrictions in place. Farmers, who are among Ukraine’s poorest citizens, protested on Oct. 4 in Kyiv against the duties, saying they were damaging their livelihoods as they kept grain prices low and buyers in short supply.

Experts say the cancelling of export taxes – apart from a 14 percent duty on barley, which remains in place – is a boost for farmers and traders.

“The approved bill is highly positive for domestic agricultural producers and exporters,” said Tamara Levchenko, an analyst at Dragon Capital investment bank.

The new law is expected to be signed by the president in the coming days and will lead to the rise of domestic wheat prices by 5-10 percent and the rise of domestic corn prices by 10-15 percent, investment bank Renaissance Capital said in a report.

“Farmers have lost about Hr 7 billion (nearly $1 billion) so far,” said Leonid Kozachenko, president of the Ukrainian Agrarian Confederation. “If the duties had remained, the total losses of the farmers would have exceeded Hr 20 billion.”

Analysts said the damage has largely been done, and Ukraine will now have to fight to win back its positions on the export market. Ukraine has only exported 3 million tons of grain from July to September, ceding its traditional trade partners to Russia, which exported over 9 million tons.

“In the best case, if the world market is favorable, Ukraine could win its export positions back only in January-February,” he said.

Kozachenko said farmers will lose a further Hr 5 billion because it will take some time for exports to pick up again.

The decision to leave export duties on barley until the end of 2011 raised eyebrows among analysts, who said it was a result of pressure from pork producers who want to keep feed prices low.

“The farmers know very well that this happened not because we have no barley in the country, but as there are some political forces that want farmers to subsidize pig farming in this way,” Kozachenko said. He added that the owners of pig farms would now enjoy buying barley 40 percent cheaper than on the international market.

Ukrainian media has connected a number of the country’s leading pro-government oligarchs to the pig-breeding business.
Others said the lifting of export duties would benefit one company more than most – Khlib Investbud.

The controversial grain trader, partly owned by the state and partly by unnamed investors, became a major player on the grain market last year when it, according to traders and experts, received a disproportionately large share of export quotas.

News website Ukrainska Pravda quoted a source in the government saying that grain export taxes were cancelled as Khlib Investbud was otherwise threatened with huge losses after buying large quantities of grain. Kozachenko said this company suffered from the grain export duties more than its competitors.

“This company bought about half of all grain that was purchased by the grain traders,” he said. “They [Khlib Investbud] bought the grain and wanted to export it. But the markets collapsed, plus the duties. As a result they purchased grain at a higher price than they can now sell.”

At the same time Kozachenko said the new law was “maybe only partly” in favor of Khlib Investbud, as both farmers and state would benefit from it.