Prospects of Ukraine after establishment of Russian grain export ban




Ukraine: wheat supply and demand balances, thsd tonnes, thsd ha
  2008/09 2009/10 2010/11*
Beginning stocks 2 301 2 741 1 869
Sowing areas 7 116 6 852 7 069
Harvesting areas 7 054 6 753 6 456
Yield, c/hа 36,7 30,9 27,3
Production 25 865 20 884 17 649
Imports 1 1 2
Total supply 28 167 23 627 19 521
Consumption: 12 710 12 600 11 500
food 4 850 4 770 4 690
feed 5 370 5 330 4 500
seeds 1 370 1 410 1 400
losses 820 800 620
others 300 290 290
Exports 12 716 9 157 6 000
General distribution 25 426 21 757 17 500
Ending stocks 2 741 1 869 2 021
Stocks-to-distribution ratio 10,8% 8,6% 11,5%
* Forecast

At the beginning of 2009/10 МY, Ukraine had rather essential carry-over stocks of wheat. According to our estimations, the carry-over stocks totaled 2.7 mln tonnes. At the same time, the significant reduction of wheat production compared to 2008 results, caused the decrease of the total supply volumes to the level of 23.6 mln tonnes.

The domestic consumption of wheat mainly decreased at the expense of the fall of expenditures for food aims, caused by the continuing decrease of the domestic flour consumption. Feed aims consumption stayed at the previous season level. Thus, according to our estimations, taking in account the seed resources and losses, the general consumption of wheat in 2009/10 МY totaled 12.6 mln tonnes as opposed to 12.7 mln tonnes in 2008/09 МY.

Last season, Ukraine exported 9.2 mln tonnes of wheat as opposed to 12.7 mln tonnes in 2008/09 МY. Thus, according to our estimations, Ukraine entered to in 2010/11 МY with rather low beginning stocks of grain at the level of 1.87 mln tonnes.

The negative influence of unfavorable weather conditions, reduction of wheat harvesting areas, and the decrease of wheat yield in the current year conditioned wheat production in 2010 at the level of 17.9 mln tonnes. Taking into account the forecasted carry-over stocks of the grain, the total supply of wheat in 2010/11 МY will possibly reach the level of 19.8 mln tonnes against 23.6 mln tonnes in the previous MY.

According to our estimations, in the present season, the domestic consumption of wheat for food aims will reduce. We forecast the further decrease of flour production, because the domestic consumption of flour volumes still continues decreasing. Also due to the essential lowering of wheat total supply, we reduced the indices of wheat expenditures for feed aims.

Basing on the indices of wheat total supply and the level of wheat consumption, in 2010/11 MY, the export potential of Ukrainian wheat will possibly total 6 mln tonnes.

Establishment of wheat export ban by Russia till the end of December 2010, and the possible demands to enforce the ban directed to Kazakhstan as the member of the Customs Union, creates alluring prospects of grain selling on foreign markets for Ukrainian agricultural producers and exporters. Leaving the market of one of the leading grain exporters and possible leaving of the other one causes vigorous prices growth for grains on the leading exchange markets as well as whips up the countries-importers to sturdy and large-scale purchasing. In the present situation, exporters of Ukraine have bright outlooks, especially on the markets of countries of the North Africa and Middle East, where traditionally Ukrainian grains competed with Russian grains.

Despite all evidences, the situation still stays rather controversial. On the one hand, Ukrainian grain market operators will have the recognized benefits, on the other - grain production decrease in the current season, including wheat production reduction to the level of 17.6 mln tonnes (according to the estimates of APK-Inform Agency) and the export potential to 6 mln tonnes, respectively, which Ukrainian agrarians can export during the first months of the season. At the same time, the Agrarian Fund has not formed any measurable grain stocks yet, which makes the authorities of the country to remember about the term "food security" once again, besides, to date, the Government includes the same command of officials, which created and solved grain crisis of 2003/04 and 2007/08 MY. Again, bearing in mind the experience of these officials, Ukrainian agrarians may expect with a good share of confidence that Ukrainian Government can again enforce grain export limitations.

At the same time, such prospects are not so clear, because to date Ukraine has a lot of international liabilities, (the World Trade Organization, future free trade zone with the EU and etc.), and the current domestic agricultural producer will not calmly allow to the government to enforce any strict limiting measures, which will cause essential financial losses.

Of course, the government understands all circumstances of the issue, that is why to date, the export market of Ukraine faces all varieties of grain export delays through establishment of absurd additional inspections of grain lots in the Institute of forensic examination (!), railway delays and etc.

But such delaying measures will not last during rather long period of time, and in the nearest future, the Ministry of Agrarian Policy will have to make any certain decisions. At the same time, the future decision will definitely bring painful impacts for the economy of Ukrainian grain market and the society.

The country has two variants of development: agricultural producers will possibly face the most significant damages from any wheat export restrictions: they will not receive all planned financial benefits, and the compensation for disasters and funding shortfall of the recent years, or the population of the whole country will face the growth of prices for food products (especially in the terms of the essential rise of prices for natural gas and housing and community amenities services), which will provoke the new wave of inflation.

Of course, the second variant of the course of events is more frightening, compared to dissatisfaction of agricultural producers, traders and international organizations. The second scenario covers such issues as the local elections, tranches of the International Monetary Fund and trust rating to the government.

Rodion Rybchinskiy, Anastasia Ivasenko