Despite expectations for a bumper grain harvest this year, Ukraine’s farmers are expecting exports to fall this year, according to Deputy Minister of Agricultural Policy, Taras Vysotsky, UBN reported on November 14.
Ukraine is on course to see the previous year's yield increase by 5-10% y/y in 2023. But export restrictions and low domestic market prices are expected to keep the agricultural sector unprofitable. (chart)
Vysotsky said that Ukraine has maintained high levels of agricultural production over the past two years of full-scale war, particularly in crops such as corn, soybeans and rapeseed. However, the price landscape has deteriorated compared to the previous year and the difficulties of getting Ukraine’s grain to the international markets have increased.
Farmers are expecting significant losses of up to $3.5bn in 2023. That also poses a problem for the budget as grain exports are the country’s main source of foreign exchange earnings.
The drop in export revenues will hurt as thanks to the logistical problems Ukraine has been running a trade deficit in recent months adding to the fiscal woes at a time when Ukraine’s funding is increasingly in doubt. The National Bank of Ukraine (NBU) said at the start of November, the government will be short some $9bn in the last months of the year and Finance Minister Serhiy Marchenko said this week that there is a $29bn shortfall in funding in Ukraine’s 2024 budget.
To solve the problem, Vysotskyi suggests finding ways to improve logistics is crucial. Optimising export routes could potentially lead to higher prices on the domestic market, offering some relief to Ukrainian farmers grappling with the adverse economic conditions, but how that can be done remains unclear.
One option already being explored is Ukraine’s government is already in talks with the Central European countries on the western route to EU markets and beyond on a new certification scheme that would allow exports of grain through these countries, but ensuring the grain is now sold to local traders. Prices on the Polish market are still depressed thanks to the glut of Ukrainian grain on that market.
Another option is an agreement this month for Ukraine, Moldova and Romania to speed up rail connections between ports. Railway operators in Ukraine, Moldova and Romania have agreed on measures to improve transportation in the Reni-Giurgiulesti-Galac direction and vice versa.
As bne IntelliNews previously reported, Ukraine’s yield is increasing but exports are down by a third so far this year. Amongst the problems is that the Russian blockade of Ukraine’s main seaports has reduced the volume of seaborne grain exports.
Ukraine has been using a temporary corridor to get some grain out by sea and the US ambassador Bridget Brink said on November 13 that the 100th ship had left by this route. But the threat of Russian aerial attack has limited the amount of grain that can be shipped using this coast-hugging channel.
At the same time, a ban on the transhipment of grain by rail through Poland, Slovakia and Hungary has also reduced exports after cheap Ukrainian grain crashed the Polish grain market earlier this year. Those problems have been added to after Polish truckers blocked the border to protest about their loss of business after restrictions on the number of Ukrainian trucks using the crossing were lifted.
Ukraine has already harvested 71.5mn tonnes of the new harvest, and the US Department of Agriculture (USDA) has improved its forecast for Ukrainian corn and wheat exports. As of November 10, Ukraine’s farmers have harvested 71.5mn tonnes of new grain and oil crops. The USDA has increased its forecast for the balance of major crops for the 2023/2024 marketing year by 1.5mn tonnes to 29.5mn tonnes, and for export by 500,000 tonnes to 20mn tonnes. In addition, the ministry predicts that Ukraine’s wheat production will remain unchanged, and exports will expand by 1mn tonnes to 12mn. Updated global wheat forecasts predict increased supply, ending stocks, and lower consumption and trade volumes. As for corn, all indicators are anticipated to improve.
The prospects for restarting the Black Sea Grain Initiative that was suspended on July 17 are poor, according to recent comments by EU foreign policy chief Josep Borrell, who has been engaged in talks with Russia on the issue.