Interesting report from Ukraine

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Ukraine's grain harvest prospects grim - weekly

Copyright 2003 British Broadcasting Corporation
BBC Monitoring Kiev Unit
Supplied by BBC Worldwide Monitoring
May 14, 2003, Wednesday

Ukraine is heading for its worst grain harvest in the past few years after winter frosts killed off almost 90 per cent of winter crops in parts of the country, journalist Volodymyr Chopenko has said in the influential weekly Zerkalo Nedeli. Although farms are better prepared and have more funding than last year, poor harvest and unreliable statistics is likely to force the state to resort to unpopular measures such as restricting grain exports, the journalist said, offering a detailed analysis of this year's harvest prospects and the state of Ukraine's agriculture. The following is an excerpt from report in English by Ukrainian newspaper Zerkalo Nedeli web site on 8 May; subheadings are newspaper's own:

The most common and the cheapest product in Ukraine is rising in price. The shortage of grain and flour is at odds with the reported abundant harvest of 38.8m tonnes, even if this figure is reduced by 11.5m tons of exported grain.

The grain problem is now especially high on the agenda, since half of the winter crops has been destroyed by frost and the spring crops have not been sown at the most appropriate time.

Cold Facts

It turns out that there is only an approximate calculation of total grain harvest figures. Experts admit in private that this calculation may differ by up to a 30 per cent from the real yields and gross harvest figures. Consequently, if we speak about last year's 38.8m tonnes of grain harvest, the real figure may vary in the range between 27.2m and 50.4m.



These statistics are collected by a rather simple method. Specific farms are identified to represent each region during the harvest campaign. Information about the selected agricultural firms is generated on the basis of the forms specifying sowing results and total losses. District departments of agriculture use this data to generate daily reports to the regional departments which then are forwarded to the capital. The Agrarian Policy Ministry has its own channels of information, that is why its operational reports are significantly different from the data of the State Statistics Committee. These data more or less coincide only in the annual reports. Despite all the privileges provided to the agricultural production sector, the heads of agricultural production units conceal the actual financial indices of their operation for the sake of additional incentives. They restrict access to the information about the area sown, as a result of which their crop productivity may become extremely high, average or low, depending on their needs.
Passage omitted: agricultural statistics unreliable

Two years of bad harvest in 1999 and 2000 had lowered our expectations to the extent that nobody believed in the almost 40m-tonne grain crop in 2001. Moreover, we were frightened by such a crop, since we were not ready for it and did not know what to do about it. Having no reliable markets and no state regulation, Ukraine could have drowned in such an abundance. Agricultural officials, powerless and confused, started to talk about diversification of grain production, the production of corn and beans. Exports saved the situation to some extent. Ukraine has become one of the world's six largest grain exporters.

In 2002, Ukraine had 3m tonnes of wheat reserves and expected a good harvest. It was less than in the previous year, but rather optimistic in terms of food supply. Out of the 38.8m tonnes, 29.5m was produced by agricultural production firms and 9.3m by households. The figure for households was 15,8 per cent higher than in 2001. What contributed to it? Their cultivated areas increased by 450,000 hectares and their harvest was 27.5% richer than the average for agricultural production firms. Can we blindly trust such reports? It is practically impossible to check if they are reliable, since the gross grain harvest is calculated on the basis of information obtained by sampling.

Passage omitted: More on unreliability of official statistics

To alleviate bread shortages, the government was forced to give out grain reserves without the certainty of their being replenished this year. Such behaviour is not typical for the State Reserve, but it had no other choice. Governors and mayors reassure people: "Don't panic! There will be enough bread for all!" According to the statistics, indeed there is enough bread. The norm of bread consumption is 113 kilogrammes per capita. The Ukrainians annually consume 5.424m tonnes of bread. However, the same statistics testify that all the various enterprises produce a total of only 2.4m tonnes. Consequently, 3m has to get to the market from the "shadow", from mini-bakeries which do not pay any taxes.

Spring "carols"

There has not been such terrible weather since 1947. First the frost destroyed the barley, then the wheat. As much as 80 to 90 per cent of the winter crops were destroyed in Ukraine's major grain producing regions (Dnipropetrovsk, Donetsk, Mykolayiv, Kiev, Odessa, Zaporizhzhya, Kyrovohrad and Kherson Regions). Some of the farms lost everything. There was some hope that weak shoots would revive in spring, but as the snow began to melt, the crops started to rot.

Unfortunately, adverse weather also affected spring crops. Sand storms, which hit the south and the west in late April, blew out the newly sown grain from the dry soil. Late spring delayed sowing by 15 to 20 days, whereas the amount of work increased by a third because of the re-sowing of the winter crops.

The remaining winter crops require intensive technological treatment, mineral fertilizers and herbicides, according to the Agrarian Policy Ministry. It is very costly, but there is no other way. Rye is in a better condition, as almost 700,000 hectares were kept safe in the Polissya area. It also must be given intensive care. The weather forecast in all zones is very favourable for corn, that is why it is likely that instead of the planned 1.5m hectares, corn will be grown on up to 2m hectares. Barley, to the amount of 10m tonnes, has also remained intact. Only on condition of adherence to such a plan will it be possible to maintain grain production on 14.8 million hectares. And it is still too early to talk about the harvest.

According to operational data, better technical provisions are in place for field works this year than in 2002. The number of available tractors increased by 30 per cent. The number of ploughs, harrows and sowing-machines has also risen. There is a sufficient supply of highly productive seeds, mineral fertilizers and fuel. By mid-April banks had provided 1.8bn hryvnyas 340m dollars in loans for the agricultural sector, covering 95 per cent of the total requirement of 1.9bn. This is twice as much as in the same period of 2002. There was also a significant decrease in interest rates, from 27-28 per cent last year to 16-26 per cent this year. The government has urgently found 28bn hryvnyas as received, apparently 28m hryvnyas and repaid last year's debt to farmers who suffered from bad weather conditions. The Cabinet of Ministers resolution No 410 of 31 March 2003 provided for a 30m hryvnyas in compensation for damages caused by frost that will be distributed in portions to the regions.

A series of regulatory documents has been adopted to avoid the mistakes of last year. In compliance with a Cabinet of Ministers resolution, the state plans to buy 4.5m tonnes of grain from farmers this year, 2m of which will be acquired in security transactions, 2m for regional needs and 500,000 tonnes for the State Reserve.

This is how the situation is viewed from the capital. But what about the provinces? Individual farmers, who provided a quarter of last year's total harvest, continue working as of old: harness themselves to the harrow and sow by hand. Much touted bank loans have not reached their farms. As much as 9.4bn hryvnyas is needed to do the field works, but only half of this amount can be paid with loans and working capital. Due to this the acreage allotted to grain is likely to shrink this year. There is a strong temptation to break off a piece of it for sunflower, because last year the market for sunflower seeds was much more attractive than the grain market. Moreover, four new oil extraction plants were put into operation in addition to the already existing ones.

Passage omitted: more speculation on this year's crop

As for its intentions, this year the state will try to become an active player on the grain market and is likely to use "forbidden methods". It will restrict the movement of grain beyond the regions' borders before the formation of regional reserves, introduce export duties and quotas on exports of food grain and abolish the practice of VAT compensation in export transactions.

Passage omitted: more on the role the state can play

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MORE NEWS




Ukraine braces for poor grain harvest

Copyright 2003 British Broadcasting Corporation
BBC Monitoring Kiev Unit
Supplied by BBC Worldwide Monitoring
May 27, 2003, Tuesday

The situation in the Ukrainian grain market remains unstable as the country braces for its worst crop in recent years, a leading Ukrainian daily has said. Officials in parts of the country still appear to rely on administrative mechanisms to keep bread prices stable. The following is the text of the article by journalist Vitaliy Knyazhanskyy, published in the Ukrainian newspaper Den on 22 May and entitled "Grain forecast: Administrative measures will lead to subsidies on bread for the poor"; subheadings have been inserted editorially:

The other day, the US Department of Agriculture published a forecast saying that Ukraine's production of wheat, the most important food crop, in 2003 would be 9.5m tonnes against 20.5m tonnes in the current season. Accordingly, wheat consumption within the country will shrink to 12.3m tonnes - 1.3m tonnes less than in the previous marketing year - and stocks carried over to the beginning of 2003-2004 will be just 0.41m tonnes, whereas they reached 3.6m tonnes in the 2002-2003 marketing year. Wheat exports from Ukraine in 2003-2004 will be 1m tonnes against 7.5m tonnes in the current year. Similar losses are forecast for rye. But the American experts predict a small increase in the production of fodder cereals.



Ukrainian officials in the agrarian sector, including Deputy Prime Minister Ivan Kyrylenko, who looked, as in olden days, to rain to save them, just like the world's most precise Ukrainian statisticians, who have inherited the standards of that state-of-the-art Soviet science, can only thank their counterparts in the USA , who are not prevented by the (unexpectedly!) heavy frosts in December, the crust of ice in January-March or the hot, dry wind in May from making objective forecasts. Ukrainian recollections of the future look like this: the grain harvest will not exceed 35m tonnes, including 12-14m tonnes of wheat. Hence the new agrarian initiative concerning direct subsidies on bread for low-paid groups in the population, announced by Agriculture Minister Serhiy Ryzhuk at the beginning of May.
A fall in grain exports will, naturally, affect the inflow of foreign currency into the country and so may usher in an element of risk for the stability of the hryvnya. As a result of the diminished cereal production, distortions and panic buying may arise in the market of certain regions, and, as happens quite often in our country, the authorities will start to dampen them down by administrative measures. This will heat up the situation even more and may affect bread prices. This, in turn, will give rise to a fresh bout of inflation.

National measures and past sins

It was reported on Tuesday 20 May that, to forestall this scenario, Ukrainian President Leonid Kuchma had signed a decree "On additional measures to stabilize the grain market". The document is intended to stabilize the food market and strengthen competition inside it, remove distortions in commodity flows and the prices of grain and grain products, introduce mechanisms for state regulation of the grain market and reinforce consumer protection. The government has been instructed to take steps to procure grain for the State Reserve, organize interventions in the market, form regional stocks exclusively through accredited exchanges and use them to reduce the level of commodity and price fluctuations.

The measures planned by national leaders seem very timely, since the situation in the grain market is starting to deteriorate. In May, Ukraine's regions stepped up their purchases of flour from the State Reserve. Its chairman, Mykola Pesotskyy, has said: "Flour sales from the State Reserve rose substantially in May, and there was an increase in the number of applications from the regions" (although, since the start of the grain interventions, the regions had been reluctant to buy flour from the State Reserve, showing more interest in purchasing bread grain). In the next season, the State Reserve committee plans to increase its purchases of grain from the 2003 harvest by at least 150 per cent so as to be able to intervene in the grain market at the time when prices rise. Pesotskyy imagines that grain prices in the 2003-2004 marketing year will be double those in the current year owing to the bad crop forecast. Accordingly, the head of the State Reserve committee even proposes that all state regulation of the market should be concentrated in his department and that, instead of the suggested financing of pledge purchasing by the Khlib Ukrayiny Grain of Ukraine state joint-stock company, the State Reserve should be given the money to purchase grain from the new harvest.

Admittedly, the government seems bent on following a different path. It has already decided to set up a state company called the agency for rescheduling the debts of companies in the agro-industrial complex, which is actually intended to revive Khlib Ukrayiny. The agency will be lumbered with all the debts of the parent company and will be tasked with collecting them from the debt-ridden agricultural producers. The only question is whether it will be necessary to create an agency-2 next year i.e. to bail out the agency . The "grain battle" has been joined by the Antimonopoly Committee AMC too. Committee chief Oleksiy Kostusev has told Den that, on orders from the president and the government, the AMC has been conducting, since the beginning of April, a comprehensive survey of the grain, flour, bread and bakery markets in order to find, and put a stop to, monopoly abuses and thus to prevent bread prices from rising. At present, prices are being restrained. Kostusev thinks that is basically due to tough state regulation and to bakeries' cutting their costs.

Kostusev denies that there are monopoly violations in the exporting of Ukrainian grain in the current marketing year. Exports involve 557 companies, including foreign companies with a worldwide reputation. But Ukrainian companies account, nevertheless, for the lion's share of exports, although the three largest grain exporters have taken less than 25 per cent of the market.

It is, essentially, minor violations that have been found and prevented, but their influence on the situation in the grain market as a whole could not have been particularly noticeable. So far, all the grain sins and faults have fallen on the head of Leonid Kozachenko, the former deputy prime minister for agriculture. The Ukrainian Prosecutor-General's Office, which has completed a criminal investigation, accuses him of abusing his authority and position, damaging the interests of the state and corporate bodies through losses in the exporting of grain from the 2002 harvest amounting to 1.5bn hryvnyas about 280m dollars ; through lost revenue to the state budget totalling 21.6m hryvnyas because of the reduction of charges and services when inspecting grain to be exported; and through losses of 6.8m dollars to the state. He is also accused of undermining the authority and standing of state bodies and of undermining Ukraine's food security. The prosecutor's investigators are, of course, in a better position to know.

Local measures to freeze prices

Meanwhile, the habitual system for controlling the market and prices continues to exist in Ukraine. It is unclear whether this is in keeping with, or in spite of, the leadership's decisions. Accordingly, Kharkiv governor Yevhen Kushnarev recently reported to the president that bread prices in the region were stable. How has that been achieved? Kharkiv producers of flour and bread, as well as companies trading in bakery products, have been instructed not to raise the prices of those products. According to Kushnarev's order, market participants are instructed "to maintain temporarily, until 1 January 2004, without change the prices that were in operation as of 1 March 2003". However, real-life market relations in our country have already shown convincingly that purely administrative measures usually end up a