Signing of the Association Agreement with the EU and agreement with the IMF to serve as the signal to invest in Ukraine – V.Klimenko
The current events in the political arena of Ukraine continue developing in very rapid way, and their impact on the economy is becoming ever more remarkable. Therefore, we talked with Vladimir Klimenko, President of Ukrainian Grain Association, on impact of the present situation in the country at the agricultural sector.
- Vladimir Georgievich, how do you estimate the current political and economic situation in the country and its influence on the agro-industrial complex of Ukraine? What challenges and risks do agrarians face to date?
You have asked rather interesting question. To answer the question, we need to analyze the role of Ukraine on the world grain market. In the current season our country has a chance to occupy the second position in the rating of world grain exporters, and supply nearly 33 mln tonnes of grains on foreign markets according to the plans. Although, it can make a bit more – even 35 mln tonnes. To date, the country already managed to ship over 25 mln tonnes of grains. There were some months when we shipped nearly 5 mln tonnes per month. Our infrastructure allows shipping 5 mln tonnes of grains per month, if we continue working consistently. Thus, annually Ukraine can export nearly 50 mln tonnes of grains. In the season-2013/14 the Ukrainian infrastructure showed that we have some reserve in terms of grain shipment for exports, and the level of 35 mln tonnes is not the limit for us. Annually the world produces nearly 300 kg of grains per capita. If we export 33 mln tonnes, Ukraine will feed 110 mln people with grains. I.e. producing and exporting grains, Ukraine completely supply with grains the country's population (46 mln people) and 110 mln people worldwide.
It should be noted to whom Ukraine supplies the grain volumes. We know that China, South Korea, Japan and Indonesia are the largest importers of grains in the world. So, they are the developed countries, with high purchasing power. In addition, Ukrainian grains are shipped on the markets of the Middle East countries (Egypt, Algeria) and the EU. Thus, I am trying to explain that the complicated situation in the Crimea before beginning of the planting campaign, actually destabilized the situation in our country. And it hit not only Ukraine, because we can provide ourselves with grains under any circumstances, the condition of winter crops areas is good, which allows expecting for rather good harvest. But if the political situation in the country gets worse, it can lead to the fact that the world will not receive large-scale grain volumes. And first of all, the countries that are highly dependent on imports, such as Egypt, will get hurt. Secondarily, the countries of South-East Asia will face the deficit. If one imagines that the world market suddenly loses 33-35 mln tonnes of grains, supplied by Ukraine, it may lead to a rise of the global grain prices. It means that the state budgets of the reporting countries-importers will need to use more funds for grain purchasing. Besides, the question arises where to get the required grain volumes, and what the price will be?
- How the current economic situation, in particular fluctuations and depreciation of UAH/USD rates, will affect the profitability of agricultural crops production, in your opinion?
Of course, the reporting processes directly affect the profitability of agricultural crops production. Primarily, it is caused by rising of prices for imported commodities and resources. I am talking about energy resources (petroleum, natural gas, etc.) and of course, various kinds of plant protecting agents, which are not produced in Ukraine, and some fertilizers. Of course, we should also mention machinery and spare parts.
- Vladimir Georgievich, how the Government can assist to domestic agricultural producers in the present situation?
I think to date the Government can not assist at all. You know that they should do budget cutting at the sum of nearly 50 bln UAH. For example, there was a statement of Oleksandr Shlapak, Minister of Finance, that the government debt on the VAT refund totals 17 bln UAH. Then there was held some additional analysis, which turned out that in fact the index is much higher. In addition, there are many other debts. So, I think that we should put high hopes for signing of the Agreement with the EU, which took place on March 21. If the duties on Ukrainian products are cancelled until November 1, it will already assist to decrease some losses that we will not ship some commodities to the Russian Federation. Also, I think that the EU will study how Ukraine will fill the European market. So, that is why it is such a careful solution. Also, the Government continues negotiating with the IMF.
In my opinion, Europe and the USA can help not only with credits. I can remind you that when Poland entered the EU, it wrote off 50% of Polish debts. Therefore, our partners, the EU and the USA can do a lot, if they really want to help us. Besides, I want to remind that during 5 years Poland, which is already the EU member, received 30 bln USD for development of agriculture and its modernization only.
I believe in development of the positive scenario for Ukraine, especially in the sphere of agriculture. I have repeatedly noted that our main task in the agro-industrial complex is increasing of grain production volumes, since in terms of such maize yield as in the USA, such wheat and barley yields as in France, Ukraine can harvest 120 mln tonnes of grains throughout the same areas. But I informed you about three main crops only. Therefore, I believe that 120 mln tonnes - is one of the steps, to which we should aspire. The strong grain base will not only allow Ukraine to keep one of the first positions in the rating of grain exports in the world, but also to rapidly develop crop processing enterprises. We should take the strong position in the world in the exports of meat and dairy products. We need to create a new industry - the production of bio-ethanol, etc.
- What impact will intensification of the political situation in the Crimea make on grain exports?
The fact is that the terminals of Crimea ship no more than 10% of the general grain exports from Ukraine. In principle, it is unprofitable to deliver grains to the region, due to some logistical problems.
Therefore, a temporary loss of the terminals in the Crimea will not significantly hit the Ukrainian grain exports, because we can distribute the export volumes to other sea ports. While talking about the logistics, then we should note that to date some companies want to build new shipment terminals. In addition, to date it is very important to increase simultaneous storing capacities of own enterprises. One of the major problems we are facing during several recent years, is that terminals use too much time for unloading of rail cars in the ports, because the terminals are often plugged. I.e. grain storage capacities of the existing port elevators total nearly 100 thsd tonnes, but should be increased to at least 200-300 thsd tonnes. Therefore, the companies need to increase their simultaneous storage volumes. And I know some companies which will build their new port elevators.
- Due to the positive dynamics of development, the agricultural sector is highly attractive for investors. How did the events in Ukraine affect to investment attractiveness of the domestic agro-industrial complex, in your opinion?
I think that signing of the Association Agreement with the EU and agreement with the IMF will be some kind of signal for most countries to invest in Ukraine. Therefore, we can receive completely different budget and completely different working conditions. The business from Europe and the USA will come to us. Ukraine will become the breadbasket of the world, and the Ukrainians will make it!
Interviewed by Alina Styozhka
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