Each new season brings not only new plans and prospects, but also new difficulties. The latter include the regular ones, as well as new problems faced by participants of the grain market during last marketing year. The first part of the agro-logistics forum "Dnieper-Danube-Black Sea", held on August 22-23, 2018, in Mykolaiv (Ukraine), focused on discussion of the obstacles for development of the grain market of Ukraine, as well as finding solutions to optimize the grain logistics, and new prospects of the market. The International Finance Corporation (IFC), a member of the World Bank Group, Swiss Confederation, Nibulon Ltd., Ukrainian Grain Association and the State Enterprise Ukrainian Sea Ports Authority (USPA) became the Partners of the event. The Association "For development of the Dnieper river as the main traffic artery of Ukraine", the inter-fractional deputy association "For development of the Ukrainian rivers", the Association of Shipbuilders of Ukraine (Ukrsudprom), and the Association of Ukrainian Cities provided its support to the Forum. The transport-forwarding company Vertical became the sponsor.
Traditionally, the conference started with presentations of the leading experts — they provided their reviews of the results of the previous season and prospects of the global and Ukrainian grain markets. The Economist at the FAO Investment Centre, Dmitry Prikhodko, reported about the medium-term prospects of development of the global markets of wheat and corn — until nearly 2027. The speaker noted that according to the UN forecasts, by 2050 the global population will total nearly 10 bln people. D.Prikhodko noted that nearly 2/3 of the population will live in cities. In turn, such trend will result in significant changes in the structure of demand and food consumption — the clear growth of meat consumption. Such trends will stimulate the growth of demand for feed grains. The speaker highlighted Asian and African countries as the leading regions in the future population growth. According to forecasts, they will increase the consumption of wheat by 60 mln tonnes and 16 mln tonnes, respectively. Therefore, the exports to the regions will increase. As for the developed countries, the expert said that the import volumes will decline, due to the sufficient reserves for development of their domestic production capacities.
At the same time, D.Prikhodko said that the European Union will become the major importer of corn, and in terms of further development of trade relations between Ukraine and the EU, the market segment will be quite promising.
As for Ukraine, the expert noted that by 2027, the country will increase the general production volume of major agricultural crops (wheat, corn, barley, soybeans) by 21% — from 64.167 mln tonnes in 2017 to 77.716 mln tonnes, and the exports — up 19%, from 42.406 mln tonnes to 50.532 mln tonnes. The reporting growth trends will cause the necessity of intensive development of the required capacities for crop storage and transportation.
The analyst at APK-Inform Agency, Andrei Kupchenko continued reporting about the forecasts, but with regard to Ukraine. The expert said that in terms of the successful beginning of the current season, the market still has a large number of questions and uncertainties. A.Kupchenko specified the major global factors, which stimulated the uncertainties:
- trade wars. It mainly refers to the current trade conflict between the USA and China, resulting in periodic imposition of various sanctions on the supply volumes and their structure, which have a significant impact on the cost level;
- drought. The expert provided information about the request of German agrarians concerning compensation at the sum of 1 bln USD for reduction of the harvest volumes of grains. The fact will definitely have its impact on development of prices in Ukraine, due to the direct synchronization of prices for wheat with the European stock exchanges;
- devaluation of the Turkish lira. The factor already started influencing the market during two recent months;
- logistics. The expert called the current situation with the railways as the major problem, which solution is not expected in the foreseeable future. Also, the speaker added that the problem with transportation of grain cargoes is not the only one. There are some problems with transportation of mineral fertilizers, so one of the largest manufacturers of the products plans to stop the production processes.
The analyst estimated the market demand in the transportation capacities of grain cargoes at the level of 61 mln tonnes (the forecasted production of grains and pulses in 2018/19 MY), including 39 mln tonnes of the export potential of Ukraine in the reporting season.
The President of the Phytosanitary Association of Ukraine, Vladyslav Sedyk reported about problems with the quality of grain crops produced in Ukraine. The speaker drew attention to the fact that to date, in terms of the steadily increasing production volumes and expanding the export geography, agrarians still do not produce grains in the export-oriented way. The production does not meet the phytosanitary requirements of the countries-importers, which significantly limits the further export potential. According to the analysis of the first batches of the new crop for export, the content of impurities by fusarium reaches 60%, which means the loss of such markets as Malaysia, Syria, Japan, Thailand, Indonesia, Mexico and Egypt. Ukraine does not have the required level of care for the future harvest and its quality through the initial usage of the high-quality and prepared seed materials.
The Deputy Minister of Agrarian Policy and Food of Ukraine, Viktor Sheremeta reported about some problems with seeds. He confirmed that the country has the potential of increasing grain production, as well as enlargement of the export volumes. Thus, agrarians have to do all the things needed for the production of high-quality grains. Also, V.Sheremeta focused attention to the need to ensure transparency of the grain market, which still has a significant corruption component. At the same time, the Deputy Minister said that further solution of the existing logistical problems in Ukraine is also quite important, especially in the sphere of railway transportation, since Ukraine ships the main share of Ukrainian grain cargoes towards the terminals by the reporting mode of transportation.
The Director on Logistics at Delta Wilmar, and member of the Logistics committee at the European Business Association (EBA), Valery Tkachov highlighted the problems of railway transportation in Ukraine. He said that to date the Ukrainian Railways (Ukrzaliznytsia) is the most important factor for grain exports. Its effectiveness of work directly influences in the export potential of the country. The expert outlined the following problems as the major ones with transportation of grain cargoes by railway transport:
- unpredictable increase in the cost of railway transportation of grain cargoes;
- closing of low-margin/low-density railway stations for cargo operations;
- nontransparency of the system of distribution of rail cars of the general fleet of cars of Ukrzaliznytsia;
- low carrying capacities of the port railway stations.
The Deputy General Director at Nibulon LLC, President of the Association "For development of the Dnieper river as the main traffic artery of Ukraine", Volodymyr Klymenko reported about the priority of providing grain rail cars to the elevators, capable of shipping railway routes. For example, in the USA the railway ship 95% of all grain cargoes by routes only. The similar situation is observed in Poland. As for the problems with rail cars and locomotives, V.Klymenko said that the cars are needed to grain market participants during the harvesting campaign and accumulation of the export batches. Then, in April the rolling stock is useless, and it is idle. Every season, all grain producers plan to export the harvest volumes in the first six months. But the number of rail cars is insufficient.
The President of the Ukrainian Grain Association (UGA), Mykola Gorbachev reported about the serious logistical problems not only in the field of railway transport, but also during transportation of grain cargoes by motor transport, as well as development of the river logistics in Ukraine at the minimum level.
The General Director at Nibulon LLC, Oleksiy Vadaturskyy focused attention on the necessity of development of the river logistics in Ukraine. O.Vadaturskyy specified the absence of the common strategy of transport infrastructure development of the country as the main obstacle for development of the river logistics. According to him, the river transportation is still noncompetitive to the motor and railway transport, due to the absence of the required dredging improvements. The depth of the Dnieper should reach 3.65 m, but in fact to date it totals 2.9 m, and sometimes in the direction of Belarus it reaches 0.6 m. It is critical for the country to realize the dredging works, but the authorities still failed to provide any real works, although previously at different times the Presidents of Ukraine signed two memorandum for dredging of the Dnieper.
In conclusion, the expert noted that the potential of grain cargoes transportation by the river exceeds 15 mln tonnes, i.e. in terms of the general exports of 60 mln tonnes, Ukraine can transport 25% of the volumes by the river vessels. But to date, river transport ships nearly 5% of the volumes.
At the same time, the city mayor of Mykolaiv, Oleksandr Senkevych reported about the problems in cities, due to shipping of goods by roads to the ports. He said that the presence of the port provides the losses only to the city: the condition of motor roads, damaging of the bridge, the collapse of sewers, etc.
In conclusion, O.Senkevych assumed that provision of the funds from the port dues in Sea Commercial Port of Mykolaiv can somewhat remedy the situation, but to date the city actually does not receive the reporting funds. The city mayor of Kherson, Volodymyr Mykolayenko and the city mayor of Voznesensk (Mykolaiv oblast), Vitaly Lukov reported about the similar problems in their cities.
The Agricultural policy adviser at the IFC, Oleg Nivievskyi informed about the urgent need to optimize the logistics of grain cargoes, including development of the river logistics. According to the expert, year after year Ukraine is steadily approaching the status of "super-agrarian country", which allows competing with many leading countries. But the cost of agricultural logistics in Ukraine is still quite high. The expert made the comparative analysis of the cost of logistics in the USA and Ukraine. According to him, for 4 recent years the average shipping cost of Ukrainian grains to the ports decreased from 60 USD/t to 30 USD/t. At the same time, in the USA the average costs total nearly 20 USD/t. While the scales of transportation (distance to the export markets) in the country are much greater.
Also, the Director of Dnipro Cargo Limited, Viktor Sokha reported about the prospects of the river logistics. Ukraine needs to develop the river transportation capacities, using Kherson and Ochakov as the estuary ports. The reporting region has large-scale territories, allowing to develop the ports, and not so high overload, like the ports of Big Odessa work with. But in the long term they will have to settle the issue with dredging works.
Also, the forum speakers told about the problems and prospects of grain terminals in the Azov Sea basin. The Director on business operations at UkrTransAgro LLC, Andriy Leonidov informed about the difficulties that companies faced in the region. At the same time, the speaker pointed out that European countries use rail transport exclusively for passenger carrying operations. They transport all goods by the river.
The Professor at the centre "Safety of the marine fumigation technologies and transportation of dangerous goods", State Enterprise Ukrainian Research Institute of Transport Medicine of the Ministry of Health of Ukraine, Evgeny Belobrov made the final report about the potential of shipment of fumigated grain cargoes by "sea-river" and "coaster" vessels.
After the official part of the first day of the Forum, the organizers invited all participants to the dinner where they could personally negotiate with the speakers and business partners about questions to their presentations. On the second day of the event, the participants visited the infrastructure facilities of Mykolaiv oblast: Nibulon shipbuilding and repair yard, and the terminal Dnipro Cargo Limited (Ochakov).
The first part of the agro-logistics forum "Dnieper-Danube-Black Sea" presented the most topical issues and problems concerning the grain logistics segment of Ukraine. The speakers discussed the major limitations for development of the grain market of Ukraine and its export direction, which require immediate adopting of the necessary legislation, as well as development of the clear plan and strategy.
Constantine Zeykin, APK-Inform Agency