A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
A look at the news

Is the Ukrainian grain market in jeopardy?

March 3, 2014

The crisis in Ukraine has left the country in ruins. Following the human disaster and geopolitical tensions, the risk of economic collapse might be in store for Ukraine in a context of structural failures––devaluation of the hryvnia, sluggish economic growth, rising interest rates (more than 30 percent) and the threat of default. The public debt has reached over $80 billion, or 43 percent of GDP. The country’s capital requirements are nearing $35 billion.

While experts were discounting the risk of a destabilization of European grain markets at the end of January, the risk is now taken extremely seriously, and such concerns are all the more legitimate that Ukraine is one of the major grain exporters in the world.

Both the FAO and the OECD had indicated that the Ukrainian agricultural sector would grow by at least 40 percent in the five next years, while its corn production increased by tenfold in five years. As of January 23, Ukraine had already shipped 20.9 million tons of grain, a 34 percent increase over the previous year1. Yet, it is not clear if exports will reach the record goal of 28 million tons this year, since these forecasts were made before the onset of the turmoil in late November.

In the long run, the threat of a Ukrainian economic collapse could widely impact the country’s agricultural activities, and bring global grain markets in its wake.

The devaluation of the national currency, the reluctance of Ukrainian banks to extend new loans as well as cash withdrawal restrictions are prompting farmers to reserve sales. In addition, local sources are indicating that some farmers have already withdrawn from grain markets, thus disturbing the domestic markets (local price increases).

As far as exporters are concerned, a $10/ton bonus is paid on immediate deliveries to prevent contract cancellations linked to late arrivals to the ports. Yet, the tensions in Crimea––close to the export harbor of Odessa––could disturb the supply for ship loadings.

The situation thus remains grim, and at present time no sensible forecast can point toward not only the country’s political evolution but also future trends for the Ukrainian grain market. The circumstances could prove to be identical to Russia’s grain embargo in August 2012 and its consequences on soaring wheat and corn prices worldwide. In the case of Ukraine however, we might observe potentially more sustainable and permanent consequences that could alter the very structures of the world grain market, and the threat of increased price volatility.

Ukraine now requires structural measures and emergency aid, and letting the “invisible hand” work in the Ukrainian grain market will not improve the situation, quite the contrary. The IMF, the World Bank, the EU and Russia must all sit down at the same table to prevent the collapse of a strategic player.

1 According to the research 'Offre et demande agricole'

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Paris, 17 June 2019