Export duty to replace quotas?

The government is considering replacing export quotas by duties, Mykola Markevych, president of the Association of Farmers and Private Landowners, stated during the parliamentary land hearing. He specified that the Cabinet of Ministers already elaborated the corresponding bill that introduces export duties of 9, 14, and 12 percent on wheat, barley, and corn, respectively. The Day asked experts how the adoption of this document would influence the agrarian sector and its participants.

So far the government doesn’t officially confirm this change. However, there is no final decision on extending or canceling quotas for grain exports either. Meanwhile, the government will have to make a decision on the grain issue anyway, and do it in the near future, since the term of the quotas is to expire. As it is known, on October 4, 2010, the Cabinet of Ministers established export quotas, and on December 8 it extended them to the end of March 2011. It increased the overall amount by 1.5 million tons, to 4.2 million tons. And March is almost over.

Which option the government will choose is unknown. But late last week Deputy Minister of Economy Anatolii Maksiuta informed that the department didn’t prepare any proposals to extend grain quotas.

Meanwhile, participants of the agrarian market confirm the existence of the bill on grain export duties. “Yes, it exists,” stated Leonid Kozachenko, president of the Ukrainian Agrarian Confederation, in his conversation with The Day. “But we strongly object adopting it because farmers will suffer from its effect (they will lose a part of their profits), and their life is not easy today even without it,” he said. Kozachenko said that Argentina introduced export duties on agrarian products for three years in a row. In this period, according to Kozachenko, it fell out of the group of the world’s top five exporters of agrarian products.

“In the long term perspective the use of active grain quotas and a non-transparent system of quota distribution may become a serious problem for the Ukrainian agrarian sector,” Yurii Astakhov, vice-president of the investment-banking department of the investment company Dragon Capital, said in his commentary to The Day. Therefore, the expert supposes, export duties can improve the situation, for today such leading players as Nibulon and a number of international traders cannot conduct their main business.

Maria Kolesnyk, the head of the analytical department of the consulting agency AAA, also says that export duties are better than quotas on grain exports. The use of quotas, according to her, provoked many concerns and much criticism from market participants during the last distribution, because the leading export companies didn’t get quotas. If grain export duties are the same for all participants on the market (with no preferences), then the market will only benefit from it, she believes. And though export duties are much better for the market than quotas, they can also have a negative impact on the agro-industrial complex. In particular, Kolesnyk continues, it contradicts the terms of trade of the WTO. “Therefore other participating countries can be unhappy,” she predicts. Besides, another question emerges: “Who will pay it?”

According to Astakhov, financial expenses will bear heavily on grain trading companies, and they will try to shift this burden to the agricultural manufacturers. “In any case, the margins of both will suffer from it, what can have a negative impact on the entire field and the scope of investment in it,” he explained at length.

However, Kolesnyk supposes, if export duties are introduced, manufacturers will suffer more. Export duties will cost them a fraction of the purchasing price. “At today’s price, 14 percent is around 250 hryvnias,” Kolesnyk estimates the potential loss per ton of barley. “This is quite a lot.”

“It’s difficult to call export duties advantageous for grain manufacturers, but, on the other hand, given our situation we have to choose the lesser of two evils,” Volodymyr Lapa, director general of the association the Ukrainian Agrarian Business Club, told The Day. And though export duties create a risk of losing profits for the manufacturer, Lapa believes that in this case the losses can be minimized, and if officials want — they can be avoided altogether. For this, as the expert explained, one should add to the bill the mechanism of distributing the gathered revenue between manufacturers. In particular, Lapa continues, one can use the mechanism of distributing money in proportion to the amount of area sown, he says. “They submit proper documents, gather duties, and everyone gets a subsidy,” Lapa explains.

In any case, Lapa supposes, one can establish export duties for not longer than until July 1, 2011, so as not to affect the next crop. According to him, the state of affairs on world markets changes for the better, therefore there shouldn’t be any restrictions on grain exports. After the new crops appear on the market, export duties will hurt manufacturers, Lapa explains. Its continuous functioning is not expedient, in the opinion of the expert, also because of the prognosis of a good grain crop.

According to the International Grains Council (IGC), in 2011 a record crop is expected in the world: 1.805 billion tons. This is 79 million tons more than last year, the March IGC report states. This prognosis is based on high estimates for grain crops in Russia, the US and the European Union. World experts also expect good crops in Canada, Kazakhstan and Ukraine.

Meanwhile, the American Chamber of Commerce in Ukraine asked in a letter to the Cabinet of Ministers that the government and other state bodies refuse from a monopolization of the market for agricultural products and resume grain exports as soon as possible.