Grain export barriers upheld, losses pile up
by Vlad Lavrov, Kyiv Post Staff Writer
Feb 01 2007, 01:10
Despite mounting complaints from grain traders and cash-strapped farmers, the government has remained stubbornly behind its controversial restrictions on grain exports, which it says will stay in place for the immediate future.
Economy Minister Volodymyr Makukha told journalists on Jan. 30 that he didn’t see any prospects for lifting the quotas, which have been particularly tight for wheat. However, he added, revisions could be made by the end of February.
The notice was not well received by grain traders and farmers, who claim to have incurred hundreds of millions of dollars in losses as a result of the restrictions.
The export quotas were unexpectedly introduced last fall by the new government of Viktor Yanukovych. The command-style economic policy was intended to boost state reserves in the light of rising global prices driven by poor harvests in key producing countries.
The World Bank, as well as the governments of the United States, Germany and the Netherlands, have harshly criticized the quotas.
Ukraine, one of the world’s top six grain exporting countries, produced a sizable grain harvest this year of about 34 million tons, or just 9 percent less than last season. This included a record harvest of barley feed grain. Yet, to the shock of traders, officials slapped strict quotas on this grain, too. Only a tiny fraction of grain has been exported this season compared to previous seasons, and virtually none since the beginning of 2007.
“Since the early fall, about 20 percent of what normally is exported was exported,” one trader said.
As result, huge stockpiles of grain have piled up in scanty storage facilities at ports. The poor conditions have caused some of the grain to germinate and rot, rendering it useless for export, even for use in the production of alcohol or fertilizer additives. Insiders say some traders have opted to dump significant quantities of grain into the Black Sea in order to avoid paying storage fees. For example, last month, a major international trading company lost about 10,000 tons of grain stored at the Yuzhny terminal near Odessa.
In addition to hitting domestic farmers and multinational grain traders active on the market, the Ukrainian government’s quotas have further inflated world crop prices. Traders said Ukraine’s restrictions alone have raised world prices on various types of grain by at least $20 per ton.
Huge losses
Experts said the government’s populist attempts to keep domestic bread prices low would severely backfire, hurting the country across the board.
Another trader, Mykola Kompanets, who heads the Ukraine operations of Chicago-based WJ Grain, said the restrictions have severely damaged Ukraine’s reputation as a reliable supplier of grain. And Ukraine’s nearby competitors, Kazakhstan and Russia, have capitalized by increasing wheat exports several fold, capturing
Ukraine’s hard-won market share.
“We have been fighting for our share on the world market for the last 18 years, and it will now be very difficult to regain it.” Kompanets said.
The controversial quotas have also made insurance companies covering the growing losses of grain traders irate. Kompanets predicted that insurance companies would launch massive lawsuits against Ukraine in retaliation. He called the situation at the Yuzhny port a “catastrophe.”
According to a statement released on Jan. 24 by the Ukrainian Grain Association (UGA), a nonprofit organization uniting 52 Ukrainian and international companies, grain exporters have lost at least $100 million on freight vessels’ idle time, and are about to lose as much from having to dispose of the rotten grain.
Mykola Tomych, president of the farmers and private landowners association, said the “poorly thought-out” moves have caused losses of $600 million for Ukrainian farming operations by preventing them from selling their crop at market prices.
Some experts expect the losses incurred this year to overlap into problems for next year’s harvest, arguing that farmers will be short of funding and lose trust in key export crops.
Shell-shocked traders claim that the restrictions are causing a wave of corruption to spread within the sector, referring to reports that little-known grain trading firms are landing significant export quotas and then offering to sell these quotas to large traders.
by Vlad Lavrov, Kyiv Post Staff Writer
Feb 01 2007, 01:10
Despite mounting complaints from grain traders and cash-strapped farmers, the government has remained stubbornly behind its controversial restrictions on grain exports, which it says will stay in place for the immediate future.
Economy Minister Volodymyr Makukha told journalists on Jan. 30 that he didn’t see any prospects for lifting the quotas, which have been particularly tight for wheat. However, he added, revisions could be made by the end of February.
The notice was not well received by grain traders and farmers, who claim to have incurred hundreds of millions of dollars in losses as a result of the restrictions.
The export quotas were unexpectedly introduced last fall by the new government of Viktor Yanukovych. The command-style economic policy was intended to boost state reserves in the light of rising global prices driven by poor harvests in key producing countries.
The World Bank, as well as the governments of the United States, Germany and the Netherlands, have harshly criticized the quotas.
Ukraine, one of the world’s top six grain exporting countries, produced a sizable grain harvest this year of about 34 million tons, or just 9 percent less than last season. This included a record harvest of barley feed grain. Yet, to the shock of traders, officials slapped strict quotas on this grain, too. Only a tiny fraction of grain has been exported this season compared to previous seasons, and virtually none since the beginning of 2007.
“Since the early fall, about 20 percent of what normally is exported was exported,” one trader said.
As result, huge stockpiles of grain have piled up in scanty storage facilities at ports. The poor conditions have caused some of the grain to germinate and rot, rendering it useless for export, even for use in the production of alcohol or fertilizer additives. Insiders say some traders have opted to dump significant quantities of grain into the Black Sea in order to avoid paying storage fees. For example, last month, a major international trading company lost about 10,000 tons of grain stored at the Yuzhny terminal near Odessa.
In addition to hitting domestic farmers and multinational grain traders active on the market, the Ukrainian government’s quotas have further inflated world crop prices. Traders said Ukraine’s restrictions alone have raised world prices on various types of grain by at least $20 per ton.
Huge losses
Experts said the government’s populist attempts to keep domestic bread prices low would severely backfire, hurting the country across the board.
Another trader, Mykola Kompanets, who heads the Ukraine operations of Chicago-based WJ Grain, said the restrictions have severely damaged Ukraine’s reputation as a reliable supplier of grain. And Ukraine’s nearby competitors, Kazakhstan and Russia, have capitalized by increasing wheat exports several fold, capturing
Ukraine’s hard-won market share.
“We have been fighting for our share on the world market for the last 18 years, and it will now be very difficult to regain it.” Kompanets said.
The controversial quotas have also made insurance companies covering the growing losses of grain traders irate. Kompanets predicted that insurance companies would launch massive lawsuits against Ukraine in retaliation. He called the situation at the Yuzhny port a “catastrophe.”
According to a statement released on Jan. 24 by the Ukrainian Grain Association (UGA), a nonprofit organization uniting 52 Ukrainian and international companies, grain exporters have lost at least $100 million on freight vessels’ idle time, and are about to lose as much from having to dispose of the rotten grain.
Mykola Tomych, president of the farmers and private landowners association, said the “poorly thought-out” moves have caused losses of $600 million for Ukrainian farming operations by preventing them from selling their crop at market prices.
Some experts expect the losses incurred this year to overlap into problems for next year’s harvest, arguing that farmers will be short of funding and lose trust in key export crops.
Shell-shocked traders claim that the restrictions are causing a wave of corruption to spread within the sector, referring to reports that little-known grain trading firms are landing significant export quotas and then offering to sell these quotas to large traders.
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