Stat
e Food and Grain Corporation of Ukraine PJSC is one of the leading corn export companies of Ukraine, carrying out the deliveries in the direction of such great markets as China, Egypt, Iran, countries of Africa and the EU. Among main advantages of corporation it should be marked the partnership with the Chinese party, and the presence of considerable elevator capacities that is very important in terms of the specifics of storage and additional treatment of corn.
Hereinafter, the Chairman of SFGCU PJSC, Vitaliy Shulezhko tald us about the features of Ukrainian corn export potential, the changes of it’s export geography, and also about the perspective sales and key factors influencing the competitiveness of the export potential of Ukraine.
- In the beginning of our conversation it would be desirable to hear several words about the main achievements of the company in 2016/17 MY. What difficulties you were to face in? What features can You note?
In 2016/17 MY, we managed to ship a little more than 2.2 mln tonnes of grains and oilseeds to the foreign markets. From the total amount of export 41% have fallen for corn – about 900 thsd tonnes and 38% – for wheat (about 830 thsd tonnes). The export of barley totaled 400 thsd tonnes, or 18% of total amount. Besides, the corporation also exported soybeans, rapeseeds and yellow peas.
While speaking about the difficulties we faced last season, certainly, it is worth to mark the deficit of the carriage park – from the total quantity of the stated coaches we were provided with the grain carriers for 50% at best. And this problem remains relevant to the present day and can be aggravated even more.
Besides, there were certain difficulties with the quality of 2016 corn harvest, namely with the existence in the market a large volume of so-called frost-resistant corn. But thanks to scrupulous operation of the technical laboratories on our linear elevators and in ports the problem with quality was solved. Also among main features of the last season it is worth to highlight that while exporting grains and oilseeds the corporation primarily used it’s own transshipment capacities. The involvement of the third parties capacities consistent only about 14% of the total amount of our export shipments.
- For a long period of time Your company has been staying in the top-exporters of corn from Ukraine. What countries are the main destinations of the export deliveries? How has the geography of Ukrainian corn export changed in recent years?
First of all, the priority sales market for us is China thanks to our Chinese partner – the corporation China National Complete Engineering Corporation (CCEC). For the last years, (and last year didn't become an exception), China occupies the greatest share in our structure of grain export. Nevertheless, in 2016/17 MY we also shipped corn on such traditional markets as Egypt, the Netherlands, Lebanon, Tunisia, Portugal, Spain, Italy, etc.
As for Ukrainian corn export geography in general, it practically doesn't change during last years. The European countries (Spain, the Netherlands, Italy, Portugal) remain the main buyers of grain, the second and third places are shared among Egypt and China. However, it should be noted that in 2016/17 MY the export volumes of corn increased to Iran which has even outstripped China by the results of the season. Also, the demand for the Ukrainian corn from South Korea has also increased in the past season.
- In 2016/17 MY, the interest of China for the purchases of Ukrainian corn considerably decreased. How much successful it is possible to call the cooperation between SFGCU and the Chinese party?
To start with, it should be noted that the interest of China has decreased not only to the Ukrainian corn, but in general to the import of feed cultures regardless of the country’s origin. First of all, is is connected with the huge stocks of corn in China and those measures the government of China undertakes for the solution of this problem.
As for our cooperation with CCEC corporation, last season we have considerably activated our trade relations. Of course, the declining interest of China for feed grains import has affected the volumes of Ukrainian grain export in general, and our shipments in particular. But, despite of it, in 2016/17 MY we sold more than 700 thsd tonnes of corn to China (what is 11% more than the same period of previous season) from which about 430 thsd tonnes have been shipped directly on the Chinese market, and the rest was exported on behalf of CCEC company to the European countries.
- Considering the growth of the competition among the Ukrainian export companies on the market of China, and the decrease of the premium price, will China stay among the most interesting export directions to the Ukrainian traders?
Since the moment when China has approved only several Ukrainian companies for export of corn for the first time and considerable extension of the list of exporters today the market of China, of course, has changed also from the point of price award. But it doesn't mean that it’s not interesting to trade with China. But in face of global corn production increase it is necessary to fight for any sales market, and China, even without special award, but with a quota of 3 mln tonnes of annual import is a significant consumer of the Ukrainian corn.
- What are the main prerequisites prompted the increase of interest in the Ukrainian corn from Iran and the EU countries? How perspective do You consider this export markets to be?
The price. It is hardly difficult to find something more attractive for the importer than the price. Certainly, there are some historical sales markets where the preference is given to the goods of certain origin. Thus, Algeria as the former French colony prefers barley of the French origin and even ready to pay for it higher price, or, for example, Japan that would rather buy American corn at the equal price. But for the most importers the price is the key factor. Last year the Ukrainian corn was cheap for a long time therefore some part of domestic consumption in Iran has been covered with Ukrainian grain. This year, however, there is something another situation and it shouldn’t be expected a special revival from Iran. As for EU countries, here is a controversial issue. On the one hand, the increase of total corn import is expected with Ukraine covering more than a half of their demand, but, on the other hand, cheaper corn from the USA, Argentina and Brazil can take away some part of our market. Besides, return of the import duty for corn at 10.9 EUR/t in EU with the purpose to support the domestic market doesn't promote active import.
- How would You comment on the current policy of Egypt for quarantine requirements to the imported grain in general, and corn in particular which has been even more unpredictable recently and involves the international bust-ups?
I think that everyone does understand that such a policy is just the lever by means of which Egypt controls a flow import to the country. At the moment of need the "doors are opened" and when it is necessary to support domestic market or "unload" ports, the requirements for the maintenance of fusariosis, increase in protein level or quality check in the port of loading return again. For this purpose many countries most often use the import duty. For example, by the end of last season Morocco increased the import duty for wheat to 135%, and India started talking about the increase of import duty and brought up the question of fumigation in connection of market oversupplying.
Returning to Egypt, such a policy leads to nothing else but the price premiums for the risk factor, and automatically overstates the cost of goods for Egypt, even at the moment when they wish "to open doors" and remove all requirements. But it would be desirable to note that along with often discussed scandals we see full-time internal employment of Egypt over the standardization of requirements and the establishment of open quarantine policy. Thus, Egypt is most likely to be one of the main sales markets of Ukrainian grains and oilseeds.
- What countries do You consider to be the main competitors of Ukraine on the global market of corn? What, in Your opinion, is the decisive factor, defining competitiveness of goods and thus, the export potential of the country, – the price or the quality of grain?
For instance, let us see on Japan, which historically prefers the American corn and is ready to look at side of Ukrainian one only on the condition of a considerable price discount. Such a situation is quite often on the global market, but over time the tendencies change. We believe that it should pass 5-7 years the sales market with historical preferences “to get a test” of the other country’s good after that we will return back to our initially decisive factor – the price. Still, we live in the world of "an invisible hand", and optimization of expenses – is very important factor.
Concerning the rivals of Ukraine, thus, it is the USA, as traditionally, Argentina and Brazil. At the same time, the price will be the crucial factor for importers because global trading is realized in a freight difference and compares the price to the goods delivery by the border.
- Taking into account an environment of the global market how would You estimate the potential of this segment in Ukraine? Whether it is necessary to significantly increase the volumes of corn production in Ukraine?
Despite possible short-term difficulties due to ample global corn stocks, the potential is enormous as we observe the constant growth of consumption in many new variants of raw material uses. Increasing the total production, Ukraine will be able to strengthen it’s positions on the global market, respectively restoring trade balance and strengthening national currency, but at the same time it is important not to forget about creation of additional cost. Exporting raw materials, we receive it back in the finished products though we could promote the increase of domestic processing and export the finished goods. Thus, having introduced restrictions for export of sunflower-seeds, Ukraine became the global leader of sunflower oil export. Stimulating the wheat crushing, we could compete with Turkey on flour export market. The same situation - concerning corn which can be processed within the country, creating bioproducts. Especially, recently as the Ukrainian agrarians began to study the production process culture on world examples, using advanced technologies and trying to obtain the yield of 10 t/ha, respectively improving the quality of grain. Of course, besides the culture of production, we still need to work much over the creation of qualitative infrastructure. All these measures in complex will help to improve the quality of our raw materials in general.
- Now the export potential of Ukrainian corn market in 2017/18 MY is estimated by APK-Inform analysts at the level of 19 mln tonnes that is 10.4% lower than the previous year. What are Your expectations and forecasts of this segment of the market for 2017/18 MY?
We suppose the export of Ukrainian corn in the current season to reach the level close to 20 mln tonnes. The sowing area under the corn is higher than the previous year. However, due to poor weather conditions (a lack of moisture, high temperature during pollination, early maturing, etc.) the experts expect the decrease of yield. Besides, higher values of export will lead to the reduction of ending stocks. Thus, considering these factors, the supply of Ukrainian corn will decrease in comparison with last season, and, as a result, its export potential will be lower then the indicator of previous year.
- Ukrainian farmers in many oblasts have already started the 2017 corn harvesting campaign. How could You characterize the quality of grain?
Hot weather with insignificant rainfall was observed in the majority of Ukrainian regions, especially in the southern and east oblasts that caused the increase of crops risks for corn and premature vegetation.
The average yield of corn in southern oblasts of Ukraine presumably will decrease to 4 t/ha, while in central oblasts it may reach the level of 5 t/ha (what is 37% lower than the same period of 2016/17 MY) due to dry weather. In other oblasts, the situation is more or less favorable, and the essential changes of yield aren't expected. As for the quality indicators, it is impossible to confirm something as there were no preliminary threshes of fields and the analysis of grain in heads of cabbage. Proceeding from the developed climatic conditions at the moment, it is possible to assume that grain and weed impurity will meet characteristics and the average standards for this type of grain.
- SFGCU is the leader among the Ukrainian market operators of grain and oilseeds storage with the elevator capacities of 3.75 mln tonnes. How do You estimate the infrastructure of Ukraine in a segment of agrarian and industrial complex? How much does the system of grain storage developed today?
Last year the total capacity of granaries and largest elevator companies in Ukraine was estimated at 16 mln tonnes. There are approximately 730 elevators in Ukraine but 80% of them required modernization as they have been constructed last century. In general, taking into account the predicted growth export the deficiency of elevator capacities in Ukraine is estimated at 15 mln tonnes for the moment.
While talking about the infrastructure of SFGCU elevators, thus our granaries occupy 24% in a total amount of elevator capacities in Ukraine. SFGCU includes 55 elevators located in 20 oblasts of the country, including two port elevators – in Odessa and Nikolaev. Most our enterprises are also constructed in the Soviet period therefore we pay considerable attention to their modernization and technical re-equipment to sustain competition: we change vehicle unloaders, vehicle scales, convert technological laboratories and implement new projects on energy efficiency. All this promotes increase of the elevator’s capacities (from 100 to 250 t/h), optimization of expenses and, as a result, positively influences overall work of the enterprises.
Nevertheless, despite branched infrastructure, we may see a certain deficiency of elevator capacities in the Vinnytsia, Dnipropetrovsk, Kyiv and Zaporizhia oblasts. While speaking in general, then the deficiency of granaries is observed in the western and east regions covered 30% of total requirements for services in grain storages.
- What features of the storage and additional treatment of corn You could mark out? What problems did You face in the practice?
Early harvested corn usually contains the high amount of moisture, organic and mineral impurity therefore it is considered an unstable object in storage process and demands immediate completion – cleaning and drying.
The amount of hurt grains, first of all, depends on the existence of the damaged grains in original batch, and it’s quantity while drying practically doesn't increase. The main thing is to maintain the correct mode of cleaning and drying, to consider the structure of a granary and feature of it’s moisture-yielding ability, to control temperature, etc.
During the processing of already dry grain it is necessary to minimize the number of it’s mixing, especially high-performance elevators, screw conveyors, etc. Also, it is obligatory to control temperature, humidity, prevalence of wreckers and diseases, color, smell and purity of grain.
Interviewed by Anna Tanskaya, APK-Inform Agency
