The World Bank on Thursday called on leading grain producer Ukraine to immediately fulfil an earlier promise to lift export quotas to help ease the current global food crisis. “We urge the authorities in Ukraine to implement the announced decision fully and with immediate effect,” the Ukraine office of the international financial institution said in a statement which stated that lifting the controversial quotas would allow Ukraine to benefit from high global prices and increase the global supply of grains thus helping to alleviate the global food crisis.
Quotes and campaign promises
Despite campaign pledges and tough criticism from international organisations, the Ukrainian government continues to maintain quotas in place for grain export despite further losses to local producers and the sullying of Ukraine’s worldwide reputation as the breadbasket of Europe. Restricting grain exports serves as a way to fight inflation but it may turn out to be a big economic defeat for the agricultural sector.
This is not the first time that the World Bank has targeted Ukrainian quotas in its fight to combat global shortfalls in foodstuffs. The international body recently urged Ukraine to remove restrictions on grain exports and seemed to have gotten its way following quota reforms announced by the government at the end of April. “The World Bank welcomed Ukraine’s announcement on April 23 that it was lifting all restrictions on grain exports with immediate effect,” commented Paul Bermingham, World Bank country director for Ukraine at the time of the decision. “We now understand that the new regime will involve a system of increased quotas and licenses rather than full elimination”.
At the end of April Prime Minister Yulia Tymoshenko did indeed announce changes in existing restrictions on grain exports. The Prime Minister explained that this decision was based on the approach of the new harvest and, consequently, the diminishing need for export quotas. However, the government only increased all quotas without actually abolishing them. The export quota for barley has grown from 500,000 tonnes up to 900,000 tonnes, while the comparative figures for wheat and rye are an increase from 200,000 tonnes up to 1.2 billion tonnes. Meanwhile, the government prolonged the current quotas to July 1, which means that they will be in force through the end of this marketing year.
Fears of fuelling inflation
Ukrainian officials have repeatedly stated that control over grain exports is necessary to avoid a situation wherein heightened foreign demand would cause the rise of domestic grain prices and become yet another factor fuelling inflation growth. Traders and international institutions argue that keeping quotas in place will lead to further losses in the agricultural sector, thus prohibiting farmers from earning much-needed money in time for the new sowing season. “The World Bank believes that fully eliminating export restrictions will both stimulate agricultural production in Ukraine, allowing the country to benefit from strong global prices, and increase the global supply of grains, thus helping to alleviate the global food crisis. We urge the authorities in Ukraine to implement the announced decision fully and with immediate effect,” insists Mr. Bermingham.
Better later than never
According to the Internet agricultural agency APK-Inform, on May 8 Minister of Agriculture Yuriy Melnyk sent a letter to President Viktor Yushchenko suggesting the abolition of quotas before the end of the marketing year. However, analysts do not take this information seriously. “This is more of a political statement. Traders won’t be able to export even those grain volumes which are provided for with quotas. I don’t see any sense in this,” Reuters cites Mykola Vernytskiy, the director of the analytical company ProAgro as saying.
Missed opportunities of booming market
Serhiy Feofilov of the UkrAgroConsult analytical centre argues that any step now to abolish export quotas would be better than nothing but he agrees that significant profits have already been lost. “The prices [for grain] are going down both inside of the country and on world markets. Three-four months ago Ukraine could have sold its grain for the very highest prices available at the time but it didn’t happen because there were quotas and the storehouses continued to accumulate grain,” he explains.
At the end of April world prices for wheat dropped to the lowest level seen over the last six months. The price decrease was caused by the raised quotas for Ukrainian grain and forecasts for good grain harvests in Western Europe, Canada and the countries of the Black Sea region. According to the forecast from the International Grains Council, the world grain harvest will be 645 million tonnes this year, compared to 603.5 million tonnes in 2007.
Traders state that because of the difference between grain prices on the domestic and world markets producers have already lost over USD 1 billion. “Prices on the domestic market are lower than prices on the world market by USD 100-120 [per tonne] so far, but this gap is narrowing as world prices keep dropping, while farmers refuse to reduce domestic prices because they took out expensive loans that they need to repay,” says Mr. Feofilov.
New ideas and unclear future
According to a Reuters report, the Ministry of Agriculture is going to control the grain market by making intervention purchases and sales of grain crops and will ask the government to provide it with USD 257 million for this purpose. Mr. Melnyk also offers to sign agreements with traders which will enable “grain exports in larger volumes than previously, with a balance of demand and supply for the new 2008/2009 season.”
Nevertheless, the course of exports for the new marketing year as well as the next couple of months is difficult to predict. “This unsystematic regulation of exports when they first promise to abolish quotas and then that promise is taken away destabilises a large and important sector of the Ukrainian economy and it is unclear what will happen next,” concludes Mr. Feofilov.
