February 14, 2011

 

Ukraine's government wants grain trade monopoly

 

 

Ukraine is trying to pull out private grain traders from the lucrative export market in a move that could hurt exports and ruin it's  country image, a traders' union body said Friday (Feb 11).

 

The union said the proposed policy, under which traders will have to buy grain from a state company instead of dealing directly with farmers, would leave the cash-strapped agricultural sector without millions of dollars of investments.

 

"The aim is to force traders to work on the FOB basis," UZA head Volodymyr Klymenko said, explaining further that the traders would only be able to buy grain in ports. "I used to think it was a joke, but after five months I understood it was not a joke but state policy. We are talking about the monopolisation of the market," Klymenko said.

 

Ukraine's Farm Minister Mykola Prysyazhnyuk said last year that grain traders had to limit their operations to trading in ports and that grain purchases from farmers and logistics should be under the control of state-run firms.

 

Hundreds of small and large traders buy grain from farmers and store it in about 250 private silos across the former Soviet republic before delivering the commodities to ports for export.

 

Klymenko said this system, which has allowed Ukraine to become the third biggest grain exporter in the world, would be ruined if the Ukrainian parliament adopts a draft law proposed by lawmakers last week.

 

The draft law, prepared by deputies from major parliamentary factions, would allow only the state-run grain company and producers to export agricultural commodities.

 

"It means a creation of super monopoly, but it contradicts almost all Ukrainian laws. If the parliament adopts this law it will mean that nobody will be able to export grain from Ukraine," said lawyer Oleksiy Volkov.

 

Ukraine, the world's top barley exporter and a major wheat supplier, has already introduced export limits this season after a drought last summer to prevent a rise in domestic bread prices after neighbouring Russia banned grain exports for the whole 2010/11 season.

 

And before the the introduction of export quotas in October, it all but banned exports for several weeks through customs procedures, causing millions of dollars in losses for traders.

 

Ukrainian grain exports, which vary from 13 to 25 million tonnes per season depending on the harvest, are mostly controlled by foreign trade houses and the changes in rules could affect the image of Ukraine and its government, Klymenko said.

 

The draft law has already raised concerns among traders, who have invested millions of dollars in Ukrainian grain export terminals, silos and local farms.

 

"What are we supposed to do with our grain terminals, with our 250 silos?" Klymenko said. The international Grain and Feed Trade Association (GAFTA) told its members that it was highly concerned about the draft law.

 

"This will again restrict international trade from Ukraine. The issue was serious enough to be raised with the World Trade Organisation," GAFTA said.

 

"As I understand the draft law, this could create a state export monopoly on Ukrainian grain apart from direct sales by farmers. Ultimately this would mean the end of independent grain export trading in Ukraine," one European grain trader said.

 

"It would not be realistic to organize sales in major grain tenders using farmer selling. But such a clause would allow Libya and others which have bought farmland in Ukraine for their own food supplies to continue production," he added.

 

Ukraine, which consumes about 26 million tonnes of grain per season, exported 21.5 million in 2009/10 but could reduce shipments to 13 million in 2010/11 due to export curbs.