Russia/Ukraine: The grain gang?
(C) 2010 The Economist Intelligence Unit Ltd.
FROM THE ECONOMIST INTELLIGENCE UNIT
Russia and Ukraine are considering co-operation in the grain market, where both are global players
On April 19th the Russian and Ukrainian agriculture ministers announced they were negotiating the possible construction of export facilities in Ukraine and the reduction of railway tariffs to facilitate grain exports. Russia's agriculture ministry expressed an interest in paying for the upgrade of Ukrainian infrastructure. A few days earlier Viktor Slauta, Ukraine's deputy prime minister, said Russia wanted to build three or four grain-export terminals on Ukraine's Black Sea coast, as it was "suffocating" because of excess grain stocks. This would not be a cost-free concession: it would increase competition for Ukraine's grain exporters.
In recent years the grain markets of both states have displayed similar characteristics: governments either passively or actively ensured that the domestic market was well supplied, at the expense of exports, in order to keep domestic prices low and keep a lid on inflation (in both states, prices tend to grow at a double-digit rate each year). In the case of Ukraine, administrative barriers have been erected to grain exports. In the case of Russia, the country inherited just two grain export terminals from the Soviet Union and the government has done little to improve this.
Now, partly because domestic prices have fallen so low that governments have been forced to intervene in local markets, the policy priorities are changing. In the 12-month agricultural season that will end on June 30th, Russia's government expects that the grain harvest will amount to 97m tonnes, which will yield a 20m tonne surplus available for export on top of the 10m tonnes purchased by the government from domestic producers to support prices. Russia has little or no additional storage capacity and so there is a pressing need to export more grain.
Ukraine's harvest is expected to be roughly half the level of Russia's, but its exports could be slightly higher. In the first nine months of the 2009/10 season it had exported 18.5m tonnes and the total could reach 22m tonnes, depending in part on how quickly the government returns to exporters hundreds of millions of dollars in value-added tax (VAT) payments. Private-sector analysts UkrAgroConsult believe that the Ukrainian grain stockpile could rise from 3.2m tonnes to 4.3m tonnes in the course of this year.
Beyond short-termism
Globally, there is a huge glut of grain. The US Department of Agriculture (USDA) attributes this principally to a 34% increase in Russian and Australian harvests in the last two years, which has left the three leading exporters-the US, Canada and Russia-battling for market share. The pressing need to shift its excess stocks has led Russia to seek to export to Japan and Taiwan for the first time. It recently concluded a deal to sell 300,000 tonnes of grain to Bangladesh and is negotiating to sell 100,000 tonnes of grain and flour to Nicaragua.
In Russia's case, however, the determination to increase grain exports is not merely short-termist. Diversification of the economy has become the main economic policy priority and to this end the government plans to create a Silicon Valley just outside Moscow. Yet Russia could also do a better job of exploiting its natural advantages: it is a resource-rich country and yet oil and gas account for two-thirds of export revenue. Making better use of its other natural resources, including its huge territory and rich soil, might be a more viable way of reducing exposure to oil and gas prices than to become a globally competitive high-tech player.
The Saudi Arabia of grain
Already the two former Soviet states are important players on the global market. Ukraine is the world's largest exporter of barley and the fourth-largest exporter of maize and wheat. Russia is the second-largest exporter of grain overall, with a market share of 14%. Moreover, if global demand grows steadily in the next few years then Ukraine and Russia are perhaps the two most plausible candidates to respond by raising output and exports.
The agricultural sectors of both states have considerable untapped potential. They are undercapitalised, with credit difficult to come by and machinery much less plentiful (and modern) than in western states. The legal environment is a severe handicap-in Ukraine, for instance, a 2001 law banned the sale of agricultural land to foreigners and nationals alike. Supposedly this restriction is to be lifted in 2012; until then, modern agricultural enterprises will have to keep leasing land. Russia and Ukraine have some of the richest soil on earth, and huge tracts of land available for cultivation. According to one estimate, some 23m hectares of land across the former Soviet Union that was used for agriculture during Communism currently lie fallow. And then there is the problem of export capacity.
In this regard, Ukraine is the state best able to help Russia break out of its constrained situation: it has infrastructure and the capacity for expansion. Ukraine could respond to the increased competition by directing more of its surplus grain production as a foodstuff for the livestock sector, and so moving up the value chain. Grain consumers might nevertheless have cause for unease if Ukraine and Russia turn their talk of co-operation in the agricultural sector into concrete action.
SOURCE: Business Eastern Europe
05.05.2010, 2952 просмотра.
