Ukraine is among the world’s biggest wheat exporters, with a grain production capacity which far exceeds its domestic needs, despite a climate that sometimes creates difficulties.
Infrastructure problems have held back the country’s capacity to ship grain to the rest of the world, but Ukraine’s domestic transport sector and export facilities have improved.
The International Grains Council (IGC) is expecting a small decline in Ukraine’s wheat yields in 2010, although the ministry of agriculture has said that crops were mostly unaffected by winter frosts. The IGC expects Ukraine’s wheat crop to come to 19 million tonnes, down from 20.9 million in 2009 and 25.9 million in 2008.
"Higher profitability is expected to encourage farmers to plant more maize, with the area forecast to increase by 9%, to 2.4 million hectares (2.2 million)," the IGC said. "However, difficulties in obtaining credit could be a limiting factor."
The IGC estimates total Ukrainian grain production at 45.4 million tonnes in 2009, compared with 52.5 million in 2008. It put wheat production at 20.9 million tonnes in 2009, compared with 25.9 million in 2008. The maize crop was 10.5 million tonnes in 2009, compared with 11.4 million in 2008. Barley production was 11.8 million tonnes in 2009, down from 12.6 million the year before. Production of oats was unchanged at 800,000 tonnes.
In a report on the Ukrainian grain sector published in February, the U.S. Department of Agriculture (USDA) office in Kiev, Ukraine said that the preliminary production forecasts for 2010 would probably need fine tuning when the impact of the weather was clearer later in the season. It pointed out that the difficult economic situation and the crisis in the banking sector had obliged farmers to be selfsufficient and economize.
"Ukraine remains on the list of top grain exporters, thanks to bumper crops in 2008 and 2009," it said. "Budget constraints will likely leave farmers without any significant direct subsidies as well, but tax legislation remains favorable for the industry. The situation with overdue value added tax (VAT) refunds was exacerbated in the 2009-10 marketing year, and it negatively reflects on future farm incomes, as grain trading companies are likely to pass the risks of government failures to refund VAT to local producers through price discounting."
The report also noted: "Domestic consumption is influenced by the economic meltdown, while grain prices kept stable thanks to high pace of grain export sales in the first half of the 2009-10 marketing year. Export sales are expected to slow down in the remaining months of this marketing season, but total grain exports may exceed 20 million tonnes in marketing year (MY) 2009-10 and will definitely be the second largest grain exports in Ukraine’s history (after almost 25 million tonnes of grain exported in MY 2008-09)."
Ukraine is also a big wheat flour exporter, with shipments out of the country expected to come to 300,000 tonnes in 2009-10, a fall of 10,000 on the year, according to the IGC.
"In spite of a relatively good wheat crop in 2009, flour production decreased to 1.4 million tonnes during seven months (July-January) of MY 2009-10, which is 13% less compared to the same period of the 2008-09 season," the USDA said. "The decrease was mostly attributed to lower production of bread and bread products that decreased by 8% in July-January of MY 2009-10, compared to the same period of the 2008-09 marketing year."
There was also a fall of 8% in the production of pasta products in to in the July-to-January period of 2009-10. The government of Ukraine "continuously tries to regulate bread prices through limiting profit margins for bakers and retailers (especially for so called "social bread"), which has an adverse impact on domestic wheat flour production, the USDA report said.
The USDA has estimated that the average Ukrainian flour mill is working at 30% to 38% of capacity.
According to the Ministry of the Economy, flour production is stable at just under 3 million tonnes a year and has been since the start of the century, having declined from around double that level in 1990. It puts the number of enterprises processing grain in Ukraine at around 600, including 200 with bakeries integrated into the works. It puts total flour milling capacity at approximately 11 million tonnes, around three times more than is needed for domestic consumption. Large flour milling enterprises are responsible for about 70% of production, although the ministry also points out that there are a lot of private "mini-mills." The United Nations Industrial Development Organization had the total number of enterprises producing "grain mill products" in 2006 at 1,009, its most up-to-date figure.
In a report published in 2007, the USDA described Ukraine’s food-processing network as having "developed during the Soviet era and…designed for large-scale production and subsidized inputs."
"The insufficient number of oilcrushing facilities was expanded by large multinational companies," it said. "These companies renovated many existing facilities or built new ones in order to meet demand. Crush capacity increased from 3.8 million tonnes in 2003 to 5.5 million tonnes in 2006."
"Grain handling and processing facilities were also renovated and a number of new export-oriented port terminals built. One of the new grain terminals (with a capacity of 100,000 tonnes) was built in Sevastopol in 2005. Other port terminals were completely renovated in recent years, including Yuzhnyj terminal (TIS) and the grain terminal in Odessa."
According to the USDA estimates, Ukraine’s sunflower seed production decreased by 7% in the 2009-10 marketing year, to 6.3 million tonnes, still the second largest crop on record. "We expect sunflower seed production to decrease to 6 million tonnes in the 2010-11 marketing year," the USDA’s office in Kiev said in a report in March, noting that the sunflower seed price increased in the 2009-10 MY on the back of sunflower seed oil production and exports.
Rapeseed production was 1.87 million tonnes in 2009, down from 2.87 million the year before, a fall blamed on the weather, while soybean production was 1.04 million tonnes, up from 812,400.
The USDA is expecting domestic rapeseed production for biodiesel to be low in 2009-10 and 2010-11 because of the lack of a legal framework for largescale biodiesel production. "When the global economic meltdown pushed crude oil prices down, the economic feasibility and political motivation of the government to develop a biodiesel industry in Ukraine almost disappeared," it said. "On the other hand, there are lavish state subsidies for biofuel production that came into force on Jan. 1, 2010."
The government wants to see, it says, 20% of energy coming from renewable sources by 2020.
With rapeseed, E.U. biofuels policy makes exporting seed much more attractive than crushing it in Ukraine.
According to the USDA, Ukraine exported a record 6.9 million tonnes of wheat from July to December 2009.
"Among the biggest buyers were traditional buyers from North Africa (Tunisia, Egypt), the Middle East (Israel, Jordan, Syria), Asia/Oceania (South Korea, Bangladesh), and Europe (Spain), as well as some new markets (e.g. Kenya)," it said. "The second half of the marketing season is expected to be less dynamic."
The IGC has penciled in a total wheat export figure for 2009-10 of 9 million tonnes, compared with 12.9 million in 2008-09. It expects Ukraine to export 5 million tonnes of maize, a decrease of 500,000 tonnes. Barley exports are put at 6 million tonnes, down from 6.3 million.
Ukraine joined the World Trade Organization on May 16, 2008 and cut most agricultural import duties to negotiated levels. It is also bound by international agreements on Technical Barriers to Trade and Sanitary and Phytosanitary measures.Chris Lyddon is World Grain’s European editor. He may be contacted at email@example.com.