In the first half of 2018/19 MY, Ukraine decreased flour production volumes compared with the figures of many previous seasons, which should not come as a surprise. At the same time, the reporting decline was even more significant, compared with the previous year. In the calendar year of 2018, Ukraine produced 1.736 mln tonnes of flour, against 1.993 mln tonnes in 2017.
There are several stable reasons for such trend development: decreasing of the export volumes and domestic consumption rates. Even the growth of export shipments in November and December 2018 did not influence on the trend.
For 6 months of 2018/19 MY, the export volumes of Ukrainian flour totaled 128.5 thsd tonnes, against 244.8 thsd tonnes in the same period last year. Reduction of the downward trend from three-time to two-time compared with the last year results, became one of the positive moments.
However, the relative increasing of flour exports in the last months of 2018 was not the expected marketing breakthrough of Ukrainian flour millers. The reason is rather down-to-earth — it is dumping!
Despite the growth of prices on the domestic market of flour, the export prices did not demonstrate the same trend, but mainly showed the opposite one. In December 2018, the average price of high-grade flour increased by 3.5% compared with October, and totaled 8`360 UAH/t EXW (248 USD/t excluding VAT), while the average price of high-grade flour (in 50 kg bags) in FCA terms decreased by 3% and totaled 237.3 USD/t only.
First of all, the situation developed, due to the price dumping of PJSC State Food and Grain Corporation of Ukraine (SFGCU), which sharply increased the export shipments in the reporting period.
Taking into account the prices announced by market participants, the difference in prices of the similar batches of flour sold in the same period, same destination, and the same buyer reached 10-14 USD/t compared with other exporters. For example, some suppliers declared the prices of flour with delivery in December within the range of 230-244 USD/t FCA, while SFGCU offered the similar flour batches at 220-230 USD/t FCA.
It is necessary to voice some doubts about the fairness of the price dumping by PJSC SFGCU, due to the high prime cost of grain processing at mills of the state enterprise, and low profitability compared with such high-tech and modern enterprises as Roma Commercial Manufacturing Company LLC and Chmielnicki Mlyn. There is every indication that SFGCU provides loss-making business activity, in order to show good production results. Of course, there can be some other reasons for such "activities".
Also, some other mills were engaged in predatory pricing, but they could afford it, at the expense of the maximum loading of plant equipment and reducing the prime cost of grain processing. In addition, these were private enterprises, but not state-owned ones.
Decreasing of flour shipments to North Korea finally resulted in the growth of supplies to other, more promising destinations. The shipments to Israel somewhat decreased, but on the contrary, the exports to Palestine increased. Most likely, it is a nominal change of designators, but the statistics fixed the reporting dynamics.
Also, the shipments to Singapore and Kenya increased. Madagascar kept the same demand level for the Ukrainian products.
In December 2018, the trend became especially clear — the further increasing of the supplies in other destinations. Although the dominance of the supplies to North Korea still continued, it was not so threatening as before.
10 companies-exporters shipped 118.8 thsd tonnes of the product, or 92.4% of the general export volumes. The share of TOP companies always varied at the level of 88-90%, but in the current season the share even slightly increased. The return of Kombinat Khliboproduktiv Talne on the top positions of the rating, as well as the dumping effect of SFGCU, made its effect on the situation development.
It is indicative that to date, Ukraine manages to keep on the global market of flour at the expense of price only. Unfortunately, the country does not have such neighbours as Iraq or Afghanistan. There are no the large-scale orders from the UN. In addition, the growth of exports, even at the expense of low prices, allows to Ukrainian mills to keep the production volumes and reasonable prime cost during the period of steady decline in the domestic consumption. It is the only way to survive to the industry…
Sergei Sakirkin, Director of Production operations department, Agrarian Fund PJSC
