(Un)satisfying outlook

Food prices would remain stable for the rest of the year, the Minister of Agrarian Policy and Food of Ukraine Mykola Prysiazhniuk told journalists on August 31. “We are not concerned about any shortages of agricultural products now,” he said. “I am convinced we will go through this fall and winter without great price fluctuations, short of usual seasonal ones.”

However, some industry experts do not share the ministry’s “price optimism’ and expect significant fluctuations, particularly in the potato and oats markets. Moreover, the Ukrainian Agrarian Business Club’s experts predict that Ukrainians can safely expect lower prices for the so-called “borshch set” vegetables this fall. “Late vegetable crops, such as red beets, cabbage, carrots and onions, look very likely to come in abundance to the market this year,” says the president of the Ukrainian Agrarian Business Club Association Alex Lissitsa. “Obviously, their prices will go down, to the last year’s levels. Potato, on the other hand, will go even lower than that. Price for kilogram of the ‘second bread’ varied around three hryvnias last fall, while this year, it will cost about two-and-half hryvnias per kilogram.”

This price movement, the APK-Inform: Vegetables and Fruits agency’s experts explain, will be caused by this year’s bumper potato crop. The agency has raised its forecast in mid-August, and now predicts that surplus potato supply in the Ukrainian market may exceed the previous record level of one million tons. Experts say that such a substantial increase in production of this root-crop will inevitably affect its price. Already, the potato prices are scarcely above the cost of production.

In addition, experts note, Ukrainian farmers will have to make a strenuous effort to find a buyer for their produce. “Unfortunately, Ukraine will hardly be able to export its potatoes to the Russian market this year, as that country is also forecast to experience a sharp increase in production of this crop. Potato exports to the EU are altogether impossible due to low quality of Ukrainian produce,” says the APK-Inform: Vegetables and Fruits’ project manager Tetiana Hetman. According to the expert, the only chance to get rid of surplus potatoes, or at least part of them, is to explore new distribution channels outside of Russia, Belarus and the EU, particularly in other CIS countries.

While Ukrainians, it seems, will be able to eat potatoes in whatever quantity they want, those of them who like porridge are up for a hard time this year, experts say. Oats harvesting is complete in Ukraine, and the harvest campaign’s results have confirmed the experts’ fear of an “oats crisis.” Farmers managed to harvest 510,000 tons of the crop this year. This is only 10 percent higher than last year’s lean harvest (460,000 tons). Experts explain this sustained decline by the reduction of acreage under this crop. Over the past three years, it fell by almost a third, with 292,000 hectares that were planted with oats for this year’s harvest, while in 2009 the corresponding figure was 433,000 hectares. In addition, this year’s oats crop, while slightly larger than the last year’s one, is of mediocre quality, due to the prolonged rains that delayed the harvesting.

The possibility that oats can repeat the buckwheat scenario was identified by experts in the spring of 2011, as the country’s oats supply was depleted and prices for it went up. Since the year began, the oats groat price has increased by 6 hryvnias and reached 15 hryvnias per kilogram, with May increase alone being as great as 4 hryvnias per kilogram. The government traditionally has blamed speculators and unduly excited consumers for what happened to the market, but even the most rudimentary analysis of the balance of demand and supply in the oats market confirmed that the price increases were caused by the real crop shortfall. Despite its outright denial of any shortfalls, in July the cabinet finally added oats, along with “strategic” wheat, barley and rye crops, to the list of crops subject to government price regulation in the 2011/2012 marketing year. Some people in the government circles went as far as to put forward possibility of Ukraine importing not only buckwheat groat (which had been imported before), but oats groat, too. They set probable volume of imports at 5,000 tons, which would be enough to cover shortfall until the new crop arrives. But now, with the new crop harvested and projected to relieve the tension in the market, the oats supply situation is in no hurry to improve. Farmers are waiting for higher prices and refusing to sell their produce. Experts say the producers’ stance is completely understandable – given low grain prices, they are trying to earn some profits at whatever other crops they have harvested. But, market actors estimate, if such a blockade continues long enough, the prices for oats can surge up to 3,000-3,500 hryvnias per ton, despite the fact that historically, they averaged at or below 2,000 hryvnias.

TO THE POINT

Prime Minister Mykola Azarov considers it necessary to create a system of stable functioning of the food market. He said so in Kharkiv during a meeting with administrative and economic top management of the region. “We need stability in the food market. People ought to feel that stability. We must create a system in which we would not depend very much on a harvest, or any conspiracies, etc.,” Azarov said. According to the prime minister, it applies first and foremost to the so-called “social food.” Azarov also warned retail networks against setting excessively high prices for sunflower oil.

Let’s recall that Azarov promised last March that Ukraine would never again be faced with shortages in its food market. He made this promise against the backdrop of strong increases in food prices in the Ukrainian consumer market in January and early March. These increases were especially biting in the buckwheat and flour markets, prompting Ukraine to import a shipment of buckwheat from China to stabilize its price in the national market.