Grain and Flour Market in Ukraine
08 April 201413 min reading
Having productive fields and suitable climate conditions, Ukraine is one of the countries that have the highest agricultural production potential in the world. Being one of the world’s leading wheat, corn and barley exporters; the country achieved to disturb especially wheat and world grain market due to the political turmoil especially in the last few months. This situation reveals the important role of the country in world grain market.
Called generally as the bread basket of Europe, Ukraine has one third of the black land known as the world's most fertile soil. Agricultural production constitutes 10% of the country’s GDP and also constitutes 14% of the exports. The most important agricultural products produced in Ukraine are grains, legumes, potato, sugar beet and sunflower seed. Being among the important exporters of the world in wheat and corn, the country is the largest producer in the CIS countries for vegetable oil.
Despite the increase in the agricultural product prices, Ukraine has an apparent potential in getting share from the world food trade that increases day by day. Both WTO membership and starting negotiations with European Union to sign FTA form trade opportunities to Ukraine. These developments also mean opening of Ukrainian agricultural industry to competition in the domestic and foreign markets. In this context, public and private industry seeks for the ways to improve the competitiveness. Besides, the stronger commitment of the new government that came after the political turmoil in the recent months to EU would possibly accelerate this process.
GENERAL ECONOMIC OUTLOOK IN UKRAINE
Just like in other Soviet Bloc countries, Ukraine inherited an economic heritage that is based on heavy industry and insufficient in terms of technology. There were some delays on the reconstructing of the country economy and reforms. Variety in the industry was realized gradually, economy started to recover in 2000s with the help of the production increases in metal and chemical industries depending on the strong demand in Russian and Asian markets. Privatization and foreign capital evolved slowly compared to other former communist countries.
Declines in production in 1990s and thus the economic contraction as a result of these declines and hyper-inflation process decreased the living standard of a large portion of the population. Although poverty is widespread, small portion of the population majorly in Kiev and other big cities gained welfare increase and “a new rich” district was formed. The income difference of those people and the poor ones has been increasing day by day.
Having an economic structure dependent on commodity prices like paddy rice and foreign finance, Ukraine has become one of the countries that are affected from global economic and financial crisis. The effects of the crisis were more severe than what was projected due to political instability the insufficient precautions for the crisis. According to the formal data; GDP decreased 35% in 2010 compared to the previous year.
When we come to the year 2011, growth rate reached to 5,2% level. The most important reason for this growth is shown as the increase in the production of export-oriented industry. There was a slowdown in the industrial growth with the effect of the decrease in the export demand at the second half of 2011; however increase in the rate of the outcome of the agricultural industry provided support for the economic performance. Again in this period, there was a significant increase in the retail sales. The increase of GDP declined to 4,6% in the last quarter after it reached the top with 6,6% in the third quarter. It is stated that the price decreases of paddy rice as an important export product were effective on this decline.
When it is about 2012, the growth rate decreased to 0,2% with the effect of the decline in the industrial production. Despite the investment opportunities like Euro 2012 European Football Championship from which the government expected significant income and visitor income, the loss seen on the foreign performance especially in the second half was reflected on the growth figures. High interest rates and the decline in private investment created problems in majorly construction sector and many other industries. Temporary increases seen in the consumer expenses before the elections created a limited recovery effect on this rate. The growth in the country in 2013 is estimated to be 1,8%. The country was projected to have a growth of annually 3-5% in 2014-17 period. However, it is not known yet that how much the political turmoil and government change have affected these projections.
AGRICULTURE IN UKRAINE
Having productive fields and suitable climate conditions, Ukraine is one of the countries that have the highest agricultural production potential in the world. Approximately 55% (41,7 million hectares) of the country land is arable farmland. Despite these vast lands, the farmlands cannot used freely and are not accepted as a guarantee in getting credits/loans. This situation prevents the farmers to overcome their financial problems and make it impossible for them to start modernization activities.
In the former USSR period; meeting 24% of the grain production, 58% of the sugar beet production, 25% of the meat and milk production by itself, Ukraine continues to be an important agricultural product producer today. Grain, potato, sugar beet, sunflower and soybean are the major ones among the most important products produced by Ukraine today. The country is the largest producer of majorly sunflower and vegetable oil among CIS countries just like in the past. Being also the largest exporter of sunflower oil, Ukraine has realized significant increases in palm oil, grape and rapeseed and also soybean in the recent years.
The increase in world food prices and demand is important because of the contribution of Ukraine to the export of agricultural products. Ukraine is among the top10 countries in world grain export. Some resources state that total grain production of the country may reach to 90-100 million tons. The production in the country is estimated to increase more in the future with the modernization investments.
It is stated that taking the industry out of the “collective” structure with presidential regulation released in 1999 was significantly effective on the development of the agricultural industry in Ukraine. With that regulation, “collective” members either established private farms by purchasing the land rights or hired those lands.
The moratorium on the farmlands due to the Standby Agreement with the IMF should be removed. Production with old fashion machineries are counted as one of the most important reasons that damage the soil fertility in Ukraine.
GRAIN PRODUCTION AND CONSUMPTION
According to the data of 2012/13 season; Ukraine as one of the world’s leading agricultural product manufacturers ranked eighth in the world wheat production and sixth (If the EU does not count) in world coarse grain production.
According to the data of U.S. Department of Agriculture (USDA) for agricultural production; ranking eighth in the world wheat production in 2012/13 season, Ukraine realized 2,4% of the total 656,4 million tons of world wheat production. When the wheat production of Ukraine is reviewed by years; it is seen that the production, which was 20,5 million tons in 2002/03 season, reached to 25,8 million tons in 2008/09 season that was the highest level of the last 10 years. Decreasing in the following seasons, the production remained at 15,7 million tons level in 2012/13 season. USDA projects that wheat production will reach to 22 million tons with an increase of approximately 7 million tons in 2013/14 season.
Wheat consumption of the country is almost close to the half of the production amount. Using averagely 11 million tons of wheat for its domestic consumption, Ukraine reached to the highest consumption rate with 14,9 million tons in 20122/12 season. Ukrainian wheat consumption, which was 11,8 million tons in 2012/13 season, is projected to be realized at 11,5 million tons in 2013/14 season.
Having an important place also in world corn production, Ukraine realized 2,4% (20,9 million tons) of the world corn production that was 863,4 million tons in 2012/13 season. When the corn production of Ukraine is reviewed by years; it is seen that the production, which was 4,1 million tons in 2002/03 season, increased significantly in the last 10 years. Reaching the highest level of the last 10 years with 22,8 million tons in 2011/12 season, Ukraine realized 20,9 million-ton corn production in 2012/13 season. The country is expected to reach a record increase with 10 million tons. Together with this increase, total corn production is projected to increase to 30,9 million tons.
Ukraine uses almost half of the corn production for its domestic consumption. When the consumption data is reviewed; it is seen that Ukrainian corn consumption, which was 3,5 million tons in 2002/03 season, reached to the highest level of the last 10 years with 8,1 million tons in 2012/13 season. Ukrainian corn consumption is projected to increase in 2013/14 season in parallel with the increase in the production and will be realized at 10,1 million tons level.
Having a very low production and consumption amount for rice, Ukraine competes with Russia for barley production in most of the seasons. When the production data of the recent years is reviewed; Ukraine achieved to be one of the world’s two largest barley producers (except European Union) in the last four seasons except 2012/13 season. When the barley production of the country is reviewed by years; it is seen that the production, which was 10,3 million tons in 2002/03 season, reached to the highest level of the last 10 years with 12,6 million tons in 2008/09 season. Decreasing significantly in the following seasons, Ukrainian barley production declined to 6,9 million tons in 2013/13 season. The production is projected to increase a little and reach to 7,5 million tons in 2013/14 season. Ukraine uses an important part of the barley production for its domestic consumption. Realizing averagely around 6 million tons of barley consumption annually, Ukraine reached to the highest level of the last 10 years with 7,4 million tons in 2002/03 season. Decreasing in the following years, barley consumption declined to 5 million tons in 2012/13 season. Consumption is projected to reach 5,2 million tons in 2013/14 season.
Ukraine that cannot reach the same efficiency with other products in oat and rye production realizes oat and rye production amount between 500 thousand tons and 1 million tons.
FOREIGN TRADE IN UKRAINE
When 2012 figures are evaluated; it is seen that Ukraine’s total foreign trade volume reached to 153,3 billion dollars. According to that; Ukraine’s export in 2012 was realized as 68,7 billion dollars and the import was 84,6 billion dollars. According to the 2011 figures; Ukraine’s export was 69,4 billion dollars, the import was 83,2 billion dollars and the foreign trade deficit reached to 13,8 billion dollars level.
Increasing consistently until 2009, Ukrainian foreign trade had a large contraction in 2009 due to the global crisis. Country’s export decreased 41% and import decreased 47% in 2009 compared to the previous year. According to the estimations; Ukraine expected to reach the figures of 2008 in 2015.
When Ukraine’s foreign trade is reviewed by countries; it is seen that Russian Federation has a quite important place compared to other countries. The reason of that is Ukraine is an important importer of oil and natural gas and a great part of this import is made from Russia. Crude oil and natural gas imports constituted 7 billion dollars of 13,2 billion-dollar import from Russia in 2009. When these values are evaluated for the year 2012; imports from Russia reached to 27 billion dollars and crude oil and natural gas imports were close to 17 billion dollars.
Turkey ranked second after Russia among the countries to which Ukraine make exports. According to 2012 data; the export amount realized by Ukraine to Turkey was 17,4 billion dollars. Egypt, Poland, Italy and Kazakhstan follow Turkey. China ranked second after Russia in Ukraine’s import. According to 2012 data; import amount from China to Ukraine was 7,9 billion dollars. Germany, Belarus, Poland and the U.S. follow China in Ukraine’s import. While base metals (39.3%), machinery and equipment (13.7%), chemicals (10.9%), food & beverage and agricultural products (%10.7) are among the major export items of Ukraine; ores, fuel and energy (39.0%), machinery and equipment (20.0%), chemicals (11.6%), food & beverage and agricultural products (6.7%) and industrial products (5.2%) have an important place among the import items.
PLACE OF GRAINS IN FOREIGN TRADE
Being on the top on grain trade just like world grain production, Ukraine has an important place especially in world wheat trade. Being among the top 7 countries in world wheat export; with an export of 7,1 million tons realized in 2012/13 season, Ukraine got a share of 4,8% from world wheat export that was 147,1 million tons.
When Ukraine’s wheat export is reviewed by years; it is seen that the export, which was 6,5 million tons in 2002/03 season, reached to the highest level with 13 million tons in 2008/09 season. Declining to 4,3 million tons in 2010/11 season and reaching to 5,4 million tons with a little amount of increase in 2011/12 season, Ukrainian wheat export is stated to be realized as 7,1 million tons in 2012/13 season. The projection for Ukraine’s wheat export in 2013/14 season is 10 million tons.
Ukraine is among the most important countries in world corn trade just like in the production. Achieving to be one of the world’s largest 4 corn exporters in the last four season, Ukraine realized 12,7% of the world corn export which was 100 million tons in 2012/13 season. When the country’s corn export is reviewed by years; it is seen that the export, which was 811 thousand tons in 2002/03 season, increased significantly in the following seasons in parallel with the production. Reaching to the highest level of the last 10 years with 15,1 million tons in 2011/12 season, Ukraine’s corn export declined to 12,7 million tons in 2012/13 season. Export is expected to increase in parallel with the production and reach to 18,5 million tons in 2013/14 season.
Another agricultural product for which Ukraine has a great place in the world trade is barley. Ranking fourth in world barley export after Australia, Argentina and Russia in 2012/13 season; Ukraine realized 12% of the world export that was 22 million tons in the same season all by itself. When the barley export is reviewed by years; it is seen that the export, which was 2,8 million tons in 2002/03 season, reached to the highest level of the last 10 years with 6,3 million tons in 2008/09 season. Declining in the following seasons, export decreased to 2,1 million tons in 2011/12 season. Increasing to 2,6 million tons level in 2012/13 season, Ukrainian barley export is estimated to remain at 2,5 million tons level in 2013/14 season.
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