Due to import restrictions, Ukrainian farmers lost about 10 per cent of their income.
Although imports have increased, the domestic market of Ukraine is still characterised by an oversupply.
The selling price of wheat on EXW terms is less than the cost price.
This means that imports using gray schemes and dumping prices will continue.
Losses of Ukrainian farmers
Six months later it became possible assess the consequences of a coordinated external attack on the cost of Ukrainian grain.1 The strategy of foreign states to limit the export of Ukrainian wheat has proven to be of limited effectiveness. Ukrainian farmers, under pressure from external factors, dropped prices. But the discount was not catastrophic and amounted to about 10 per cent of the total sales price. This confirms the correctness of the expert forecasts published in the article. “Ukrainian grain: Nothing personal, it’s just business”.
At the end of 2023, Ukraine exported 44.8 million tons of grain. This is 16 per cent more than in 2022. However, the total value of exports decreased by 9 per cent and amounted to US$8.3 billion.2 During the year, the average world price of grain decreased by almost 16 per cent.3 This will cancel out the same increase in export volumes. But it does not explain the 9 per cent decline in export value. If Ukrainian grain were sold at world prices, the decrease in prices would compensate for the increase in exports. Then the total value of exports did not change. However, this figure decreased by 9 per cent. It is this value that shows the total financial losses of Ukrainian farmers due to export restrictions.
The secret of financial losses
Marvellous! But the price of Ukrainian grain sold legally does not differ much from world prices. As of 23 February 2024, the selling price of Ukrainian wheat on FOB Black Sea terms was US$217.5 per ton.4 For European grain, this average was US$222 per ton.5 That is, the price difference was about 3 per cent. But this is almost three times less than the reduction in the value of exports at the end of the year.
There is a logical explanation for this. The total value of exports has decreased significantly due to grain supplies under gray schemes and dumping prices. Such supplies make it difficult for European farmers. This is the reason for the protests. For example, Polish farmers are actively opposed to the export and even transit of Ukrainian grain.6 They even came up with a mechanism for punishing the sale of Ukrainian grain at a low price. The Polish Association of Grain Producers offers establish a base price for imported grain. Enterprises that sell grain at lower prices must pay the difference in prices to the state budget. The budget should distribute this money as subsidies to Polish farmers.7
Ukrainian farmers sell grain under gray schemes and dumping prices due to economic difficulties. Although imports have increased, the market is still characterised by oversupply. This puts downward pressure on prices. In 2023, the average cost of wheat production in Ukraine was US$146 per ton.8 But the average selling price on EXW terms is less than the cost price. For example, on February 24, 2024, the average national selling price for wheat in Ukraine was US$136 per ton.9 This confirms that Ukrainian farmers continue to experience problems with sales. Some farmers import grain at dumping prices that are higher than domestic ones – the only way to survive. If it were not for import restrictions, there would be no such gray sales and dumping prices.
Let’s be honest. People who buy Ukrainian grain abroad at dumping prices earn good money on speculation. Therefore, it is unfair to blame only Ukrainians for what is happening. Europeans are also involved in this business. Let’s say more. Dumping prices and gray schemes are the results of restrictions on legal sales! In fact, the difference between legal and illegal prices is the earnings of those who organised obstacles to the export of Ukrainian grain. Ukrainians dump in order to survive. But someone is making money from the misfortunes of Ukrainians. War is not only a difficult time. War is also a period of dirty deals!
What’s next?
While the war continues, it is not possible to remove external pressure on the cost of Ukrainian grain and grain supplies under gray schemes. The reason is that trade in Ukrainian grain is carried out according to temporary rules that are not perfect. To support Ukraine, European authorities liberalised the export of Ukrainian grain to the EU.10 This created an imbalance in the existing trading system. European farmers turned out to be uncompetitive compared to Ukrainian ones. And Ukrainian farmers began to abuse new opportunities due to the consequences of the war. In turn, external players began to put pressure on Ukrainian wheat producers in order to take advantage of the war to achieve favourable terms of transactions.
After the war ends, the temporary sales rules will be changed. That is, the current situation will no longer be possible. Events will develop according to three scenarios.
If Ukraine maintains European prospects, then joining the EU is inevitable. This means that Ukrainian farmers will begin to work according to European rules. Ukrainian grain will become more expensive. Markets will change. The cost of logistics will decrease. And profits will increase.
If Ukraine becomes a neutral state that is not subordinate to Russia and the EU, then pre-war trade rules may return to the market. This is comfortable for Ukrainian farmers.
If Ukraine is captured by Russia, the development of the grain market is difficult to predict. Strong shocks are possible. The owners of many businesses may change. The area under crops may change. Sales markets will also change, etc. This is the most catastrophic scenario for the development of the situation.
The development of the situation depends on the United States, which is Ukraine’s main ally. Which of the following scenarios can America allow?
Australian Rural & Regional News asked American political scientists about this. All of them were asked one question:
What result of the Ukrainian-Russian war will the US government agree with?
1. Ukraine will defeat Russia and join the EU and NATO;
2. Ukraine will retain its independence but will remain a neutral state;
3) Ukraine will be conquered by Russia.
“I believe that the only acceptable result for the US government would be for Ukraine to defeat Russia and join the European Union and NATO as this will be seen as the strength of the US government”
– President at Illyrian Consulting Firm, Egli Tundo.
“First and most importantly, there is no way that Ukraine “wins” this war. President Zelinsky’s goals are to reclaim all land that Russia has taken, a significant part of which they’ve had since the Barack Obama administration. The best outcome that Ukraine can hope to obtain is a negotiated surrender where they remain an independent country but likely lose some land in eastern Ukraine to the Russians”,
– Owner & President, Klink Campaigns, Inc., Matt Klink.
“I think the US would be amenable to options 1 and 2 that you lay out. Would definitely not be happy with option 3”,
– CEO and Founder, Capitol City Research, Willis Jones.
As we see, political consultants give Ukrainian farmers the right to a future. Experts do not admit that all of Ukraine will be captured by Russia. Which means most businessmen will keep their business. However, what the rules of this business will be is not known. The Ukrainian grain market may return to previous conditions or start working according to European rules. Everything depends on the future political status of the country. No one knows what this status will be. The unknown still weighs on Ukrainian farmers.
References
1. https://arr.news/2023/09/27/ukrainian-grain-nothing-personal-its-just-business/
2. https://www.unian.net/economics/agro/eksport-zerna-skolko-ukraina-zarabotala-v-proshlom-godu-12544617.html
3. https://www.fao.org/worldfoodsituation/foodpricesindex/en/
4. https://ukragroconsult.com/ru/grain-prices/
5. https://agridata.ec.europa.eu/Reports/Cereals_Dashboard.pdf
6. https://www.epravda.com.ua/rus/news/2024/02/23/710335/
7. https://www.tridge.com/news/will-the-reference-price-stop-grain-imports-from-u
8. https://www.reuters.com/markets/commodities/ukraines-grain-sector-losses-could-top-32-bln-2023-due-war-2023-10-19/
9. https://tripoli.land/pshenitsa-furazh
10. https://www.robert-schuman.eu/en/european-issues/669-the-geopolitics-of-european-wheat
