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Ukrainian grain becomes more competitive on international market

13 July 20209 min reading
Nikolay Gorbachov
President of the Ukrainian Grain Association

“Ukraine produces more than 3 times more grain than we need. The grain crop production in Ukraine grow annually. UGA`s expert foresight shows the production growth on 100 MMT, and 70 MMT of export till the 2022 year. We have a good tendency to increase grain production and export. We are changing our approach to production and export. Ukrainian grain becomes more and more competitive on the international market, and we see such changes. We see a huge potential to export our grain to Asia and hope our trade will increase.”

Ukraine is one of the world’s top grain exporters. The country harvested a record 75.1 million tonnes of grain in 2019, up from 70 million in 2018. Production growth has contributed to the improved export performance of the Blacksea country and it has become a competitive maize and wheat exporter in the world. Given that its domestic supplies are expected to increase faster than domestic consumption, Ukraine's share will increase in the global grain markets.

Miller Magazine interviewed with Nikolay Gorbachov, President of the Ukrainian Grain Association (UGA), who has a significant role in Ukraine's being an important actor in the international grain markets. He is President of UGA since 2017, whose members export up to 90% of Ukrainian grain crops annually. He previously worked as Director for “New World Grain Ukraine” (Soufflet Group) and as Commercial Director for “Soufflet Ukraine” in Ukraine and Russia. Worked for various Agri trading companies, he has more than 20 years of experience in the Ukrainian agrarian market. He was awarded the “Honorary Medal” by the Ukraine government in 2008 and a Diploma from the Cabinet Ministers in 2009.

Speaking to Miller Magazine Mr. Gorbachov assesses on recent developments in the grain industry and the prospect for Ukrainian grain exports.

Mr. Gorbachov, could you please give some information about the Ukrainian Grain Association? What is the mission of your Union?
The Ukrainian Grain Association (UGA) is an association of grain producers, processors, and exporters. The organization founded in 1998 to protect the legitimate common interests of its members, promoting the formation and development of the grain market in Ukraine, and creating the necessary organizational conditions for the interaction of its members.

The members of UGA are worldwide known corporations, the biggest Ukrainian exporters, and grain manufactures, who export up to 90% of Ukrainian grain crops annually. We are glad to be a partner of IGC and GAFTA.

What are the initial effects of the coronavirus outbreak on the Ukrainian grain exports? How the coronavirus could impact Ukrainian grain supply?
As you know, in March when quarantine started in Ukraine, agriculture was not under any restrictions. So the pandemic situation didn't have any impact on agriculture production. But we had some trouble with the seaports of our importers and some turbulence with transportation. It had not a big influence, but some discomfort we had. But it was the end of the marketing year, that’s why we have exported almost all export volume, so it wasn’t a problem.

Do you think Ukraine would apply the grain export restrictions in the coming period?
There is a tradition in Ukraine. Every year UGA and other grain market participants signed the Memorandum of Understanding with the Ministry for Development of Economy, Trade and Agriculture of Ukraine for the new marketing year. This year it happened on the 1st of July.

Memorandum plays an essential role in maintaining the balance between domestic grain consumption and the country’s export opportunities. Stability and predictability are key priorities for the Ukrainian grain market and one of the main factors of national food security. The document contains mechanisms for the interaction of grain market participants, exchange of information on grain export prospects, monitoring of grain market functioning.

The parties agreed to monitor the state of grain export from Ukraine monthly. Additionally, the signed document is designed to contribute to the stabilization of the Ukrainian grain market by stimulating the uninterrupted grain exports. Grain market participants will be informed in advance about the critical grain export opportunities as well as changes in foreign trade regimes. In addition, Annex to the Memorandum of Understanding will be signed in August to establish the maximum export volumes of wheat in 2020/2021 MY.

The Memorandum for the new marketing year is a result of sustainable B2G cooperation between the business community and the Ministry of Economic Development, Trade, and Agriculture of Ukraine.

So, we don’t need any restrictions on export, because we have such cooperation with the Government, and we know the export volume at the beginning of the year.

Ukraine's grain exports have reached a record in the 2019/20 season. Will Ukraine be able to repeat this success in the new season? Can you share the projections for wheat, corn and barley production for the 2020/21 season?
Nonetheless, the grain crop production in Ukraine grow annually. UGA`s expert foresight shows the production growth on 100 MMT, and 70 MMT of export till the 2022 year. Ukraine is heading for these indicators, so for the 2019/20 year, the production reached 98 MMT and the export reached more than 62 MMT. It was a record, because of record production and export of wheat and corn.

This year we expect the same volume of production – 97-98 MMT and export we expect will be 58 MMT. So we expect less wheat production but more corn. And, we hope we will have a new corn production record.

Every month, UGA publishes supply and demand balances, where we say about our main indicators and of course we publish our forecast. This is free public information. Everybody can read it on our website.

There are concerns that Covid-19 will have lasting impacts on international grain trade. Do you share these concerns?
We hope everything will be OK and COVID-19 will not have a big impact on grain trade. But we understand that some financial troubles the pandemic can create. But it will have not critical for the trade because every country will try to have enough food and feed consumption. Ukraine produces more than 3 times more grain and oilseeds than we need, so we can export it without any problems. However, economic recession all over the world can make some turbulence on the international market, but also we see how the government of the USA or EU supports their economy. In Ukraine, we do not have such financial support, but also do not have any restrictions.

What kind of changes have you experienced in the grain industry in recent years?
We have a good tendency to increase grain production and export. For example, the average yield of wheat in Ukraine is 4 t per ha and in France, it is 8. Or we have an average yield of corn 7 t per ha and in the USA (Iowa state, because of the same climate and weather conditions) – 12 t per ha. So we understand that we have big potential. That's why we see some tendency of changing production technology of grain, and we are changing our approach to production and export. Ukrainian grain becomes more and more competitive on the international market, and we see such changes.

Ukraine is one of the most important grain producers and exporters in the world. It has been trying to increase its exports. However, logistics problems are limiting the Ukrainian grain trade. Could you tell us recent investment plans and projects to solve logistics problems?
Almost 95-98% of all grain export Ukraine do by its seaports. And the main limiting factor is how to transport grain from the field to the port. The main transport is the railway. We have just one state railway company, which has some problems with the locomotives. So the grain export is increasing, and we need more railway capacity, but the railway company cannot satisfy our needs. We hope that in the nearest future, we will have some competition in the railway market. We have a draft of the law, which will make an opportunity to transport the cargo by the private railway company. It will solve the problem of the locomotives' deficit.

In addition, river transportation can solve the logistic problem partly. We have a big river – Dnipro, which length almost through all country – from the north to the south. Now, we have transported more than five MMT by the river and can increase its volume to the 30 MMT. Nevertheless, we need some more infrastructure capacity. This is the nearest future, and we see how some companies actively build the river terminals and buy barges.

What are the other major challenges for Ukrainian grain exporters today?
Of course, Ukrainian exporters have some internal problems. Mainly it is our legislation, which has a period of adaptation to the EU legislation. But we understand that it should become, and we cannot have another way. Of course, we have strong competition in the international market and some non-tariff barriers with some countries. But UGA makes everything possible to solve it, and we have some success. For example, we have reopened the Vietnamese market for Ukrainian grain. It is a very important market for our corn. We have some fumigation misunderstands with India. In addition, we are trying to sign a phytosanitary agreement with China and Indonesia. We see a huge potential to export our grain to Asia and hope our trade will only increase. However, we also see big potential to export our grain to our neighbors – Turkey, Egypt, and the EU. We have good communication with such destinations and hope our trade will be mutually beneficial.

There are no critical problems for Ukraine, which can be like a disaster. We see the big demand for our grain from all over the world and understand that we can sell our grain anyway because we have good quality and a nice price.

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