Grain price changes do not reflect the interests of the peasants
On the night of March 25, the Prosecutor General’s Office detained former Vice Premier Leonid Kozachenko on suspicion of malfeasance during his tenure in office and evading taxes of UAH 584,900 while general director of a joint venture, the privately held Ukrahrobiznes. According to Deputy Prosecutor General Ihor Dryzhchanov, the criminal case against Mr. Kozachenko is presently the last of ninety cases brought as a result of the investigation of the grain market situation.
It will be recalled that President Kuchma recently instructed Prosecutor General Sviatoslav Piskun to personally investigate the situation on the grain market and, in particular, the causes of grain shortages in certain regions under conditions of adequate production volume, look into reported cases of monopolization, artificial suppression of sales, and inflating the demand and prices for grain and bakery products. The president further instructed the Prosecutor General’s Office to analyze the setting of bread prices. “The crisis situation in grain and bread prices is unjustified,” said the head of state, stressing that the blame for this is above all that of the previous government. At the same time, he said that the present Cabinet of Ministers “has had enough time to find out what has happened to the missing grain before putting state grain reserves up for sale.”
“Our assignment is to prevent bread prices from rising. This is a personal assignment for the government and governors,” said Pres. Kuchma and instructed oblast governors to monitor bread prices and submit daily reports on price fluctuations.
Meanwhile, late the week before last Ukraine’s two of the biggest bread regions, the Autonomous Republic of the Crimea and Dnipropetrovsk oblast, fenced themselves off from the rest of the country by prohibiting the export of grain beyond their administrative borders. It will be recalled that these regions, having threshed over a million tons of grain, were among the first to report their achievements to the state’s leadership. Now it turns out that Dnipropetrovsk region has a mere 71,000 tons of bread grain left, while the Crimea has only 40,000 tons at its disposal. Zaporizhzhia oblast, where 1.9 million tons of grain crops were harvested in 2002, including 1.1 million tons of grain, has found itself in a similar situation. According to the Oblast Department of Agriculture, the current grain reserves in the oblast come to 56,700 tons vs. 52,000 tons required until the new harvest. Governor Yevhen Kartashov recently reminded bread producers of the agreement under which they may not raise prices for bread before the new harvest and warned them that “any price increases will be on your conscience.”
Bread prices in fact started rising throughout Ukraine about February 1. Since then, flour prices have gone up by almost 20% and thus far reached UAH 1200 per ton of the highest grade grain. Prices for third class grain increased by UAH 30 per ton and in some regions reached UAH 670. If prices continue climbing at this rate, according to analysts, bread price hikes will be unavoidable. The government is preparing to intervene in the grain market to restrict price increases. However, most Ukrainian bakeries forecast higher prices during the first six months proportionate to increases of prices for grain and flour. To all appearances, the Ministry for Agricultural Policy does not intend to prevent them from raising prices. According to Minister Serhiy Ryzhuk, the ministry believes that bakeries should form prices for bread on their own. “We are drafting proposals not to limit the bread sector in its price policy,” he said. The minister also pointed up one of the reasons behind the current conflicts, putting the blame on those, who in the period of grain oversupply on the market used administrative measures to force bakeries to reduce bread prices. “Certain managers artificially reduced bread and bakery products prices,” said Mr. Ryzhuk. Incidentally, last fall prices declined by 3-18 % in 11 oblasts.
However, the agricultural policy minister believes the bread grain reserves on the domestic market are sufficient. According to him, statements about the bread grain shortages are false. As he put it, the current bread grain reserves in the country come up to 2.6 million tons, which is enough to satisfy the demand of the bread-making sector until the new harvest. He stressed, however, that “bread grain reserves are just about sufficient. We need 1 million tons more of transition period reserves to guarantee provisional security.” Mr. Ryzhuk is confident that speculations concerning bread grain have been largely fueled by active grain export from Ukraine: “I opposed such active export of grain.” Ironically, the previous government stimulated grain exports precisely to raise its price on the domestic market and thus give farmers a chance to earn more money. And the prices did increase, albeit after all the grain had been bought from the farmers.
Perhaps the grain shortage is also due to an unexpectedly increased demand for seed after 43% of winter crops were damaged by frost. Meanwhile, the reserves of the insurance fund created to offset the farmers’ demand for reseeding grain come to merely 15% of what is required.
The bread scandal could not possibly be ignored in the parliament where such matters are traditionally used as a means of creating hype. SPU leader Oleksandr Moroz addressed an ultimatum to the government demanding that “exhaustive measures” be taken to remedy the situation on the grain market. In his view, at first the government declared a grain surplus thereby forcing down prices and leaving farmers short of UAH 7 billion. He further stated that last year grain traders bought grain from farmers at the average price of UAH 300 per ton, while a year earlier the price had been UAH 700.
Meanwhile, even the most experienced experts on the grain market are trying to understand what has happened to last year’s bumper crop of nearly 40 million tons. Market participants believe that by the end of this marketing year (July 2002-June 2003) a mere 1-1.5 million tons of bread grain will have been exported from Ukraine (Interfax Ukraine), while in the seven months of the previous marketing year some 9.5 million tons were exported (grain export in this marketing year was expected to reach 12 million tons, up 31.8% from the previous year). Obviously, the grain statistics are slightly off the mark. As The Day learned from Mykola Kompanets, president of the Ukrainian Grain Association, 6.2 million tons of grain from the 2002 Ukrainian crop have been exported, including 2.4 million tons of bread grain. In his view, all association members were urged to help provide grain for export. “Yesterday there was enough grain, and suddenly it’s all gone. How can this be possible?” he asked. He further predicted that even after reseeding has been completed, another 2 million tons of grain will be exported. “They’ve launched a grain shortage scare, and people don’t know what to do,” he said.
Meanwhile, the Prosecutor General’s Office has started its own investigation and is reporting some intermediate results. Deputy Prosecutor General Tetiana Korniakova believes that upward distortions are one of the reasons behind the confusion. According to her (www.gp.gov.ua), “We are questioning the officially tabulated figure of 40 million tons (the grain crop of 2002 — Ed.). Criminal cases have been opened virtually in every oblast.” To quote Ms. Korniakova, last year 10 million tons of grain were exported, while a mere 10,000 tons were sold through grain exchanges. Moreover, Ms. Korniakova believes that half the grain or 5 million tons “were sold at most unfavorable terms for the state and farmers alike.” The reason for this is because “pressure was coming directly from the government that issued 54 instructions in a couple of months and all of them concerned the urgent export of grain.” These instructions were either signed or given orally by Deputy General Prosecutor Leonid Kozachenko. According to Ms. Korniakova, as a result, with a grain crop in 2002 roughly the same as in 2001, grain sales volumes in 2001 were 1.5 times lower than in 2002, but revenue from these sales was 1.5 times higher. In particular, Ms. Korniakova has cited the example of a futures contract for grain supplies to Egypt under which Ukraine would be obliged to supply a million tons of grain at the price of $80 per ton. Balanced against the cost of delivery to the port, the receipts would come to $50 per ton. Moreover, under the contract Ukraine would be obliged to use the revenue from sales to buy expensive goods from Egyptian farmers, that is, citrus fruits, bananas, and cotton. Ms. Korniakova also said that the Prosecutor General’s Office is inspecting all the ministries and departments involved in grain export, as well as all grain traders and their contracts. It is studying the terms, possible privileges, ways of grain shipment, its grading, and prices. Simultaneously, the Prosecutor General’s Office is planning to upgrade the system itself, that is, state grain procurement policy.
Meanwhile, analysts are at a loss, looking back at the efforts of the previous government aimed at restricting bread price increases using market mechanisms, that is, by fueling exports, since there were no budget funds for any intervention in the market. As a result, the peasants were in fact robbed, and now the domestic market is feeling the side effects. What is this — incompetence of the government on the grain market or the intrusion of somebody else’s interests? As The Day learned from President of the Center for Market Reforms Oleksandr Paskhaver, “perhaps the deliberate policy for which Kozachenko was blamed was a mistake, but, of course, a criminal investigation in such a case should not be opened.”
The March 25 statement released by the General Prosecutor’s Office press service reads that during his tenure as Vice Premier Mr. Kozachenko acted contrary to national interests, did not ensure proper functioning of the agrarian sector, and “developed and introduced a grain sales mechanism disadvantageous to the nation’s agricultural producers.” According to the press service, considering the fact that the government purchased almost no grain, grain traders bought grain from farmers at the lowest prices and exported it at world prices. Therefore, grain exports were supported at the expense of domestic producers. “The aforementioned unjustified actions by Mr. Kozachenko caused a sharp rise of grain prices on the domestic market. In fact, he pursued a policy designed not to generate budget revenue, but to enrich foreign grain traders,” reads the statement. “By abusing his authority, the former vice premier has seriously harmed economic the interests of the state, causing a loss of UAH 1.5 billion that could otherwise have been made on the export of grain from the 2002 crop,” said the press service.
At the same time, Ivan Tomych, chairman of the parliamentary Committee on Agrarian Policy, as well as managers of the Ukrainian Agrarian Confederation (UAC) and Ukrainian Grain Association (UGA) expressed surprise at the detention of Leonid Kozachenko, who is also vice president of the Ukrainian Union of Industrialists and Entrepreneurs (UUIE) and a consultant to the premier. The UAC declared its intention to stage public rallies in support of Mr. Kozachenko.
Premier Yanukovych also expressed his opinion on the grain conflicts. To quote him, Kozachenko is innocent until proven guilty.
Below are comments from farmers and representatives of regional authorities, those who know the grain market situation firsthand.
Yevheniya ZAVOROTYNSKA, chair of the Association of Farmers of Pyatykhatky district, Dnipropetrovsk oblast:
“In my view, upward “revisions” accounted for 30% of the reported yields in some cases. Thus, authorities in the regions skewed the statistics in an attempt to please their superiors. This is hard to believe, but such “revisions” are still quite common. Moreover, much grain was smuggled out of the country. The temptation was substantial, since grain was purchased directly from the fields at UAH 200-250 (a little less than $40-50) per ton and sold for as much as $150 abroad. Notably, after a dry summer we collected little of the third grade wheat that is mostly used for making bread. Therefore, in the current situation on the grain market we cannot avoid importing grain and flour. I don’t believe the rumors that grain is stocked in great quantities on the farms. After all, the agricultural producers had to pay their debts. Only big farms could afford not to sell grain, but they are very few. Grain shortages are further evidenced by the fact that for the past two months food-processing companies have been actively searching for grain even in the backwaters.
“On the whole, I would say that the government has left agricultural producers to fend for themselves. To illustrate, following the summer storm a mere UAH 30,000 of relief was allocated for the whole region. However, this money was pocketed by just one person who is a local deputy. This time again, after all of our winter crops were damaged by frost, farmers have been searching for seed. But nothing is as simple as it seems. We were told that granaries are almost empty. There is a shortage of barley seed that now cost as much as UAH 1,200 per ton. Corn and sunflower seed is even more expensive, let alone fuel, fertilizers, and pesticides. Under such circumstances I, as chairman of the association of farmers, fear that small farms of 50-60 hectares will go bankrupt. Crop or no crop, one will still have to pay the uniform tax. Should the government fail to respond to the needs of the rank-and-file producers, the situation could take a dangerous turn this year.”
Serhiy MANIAK, chairman of the Vinnytsia Oblast Farmers’ Association:
“The current situation on the grain market is quite simple. First, regional authorities reported bumper harvests to receive praise, medals, and titles of meritorious workers in agriculture. Then the government exported part of the reported 40 million tons of grain. They thought they would sell one part and the other part would remain intact. However, there is no other part, because it was a figment of the imagination of those who reported high yields for the sake of rewards. As for the detention of Mr. Kozachenko, the government is looking for a scapegoat. I think that he will be released eventually, because he’s not guilty. But this is not the point. If anything, the agrarian sector needs a sober and strict approach, as well as strict oversight by the authorities and personal responsibility.”
Liubov LUKASHYK, deputy director, Vinnytsia Universal Commodities Exchange:
“Unfortunately, there is no reliable information on grain reserves in Ukraine. Therefore, it’s quite possible that this whole situation has been created artificially. Moreover, the farms could as well have held back seed. Thus we shouldn’t rush to conclusions that there is nothing to reseed the winter crops with. Bakeries in Vinnytsia have amassed stocks of flour and grain. Bread prices are quite stable in the region and are not expected to rise in the immediate future. Grain prices have increased on our exchange by no more than 10%. And this is only natural. As for the detention of Mr. Kozachenko, it is an open secret that he lobbied for the interests of foreign grain traders because he’s a trader himself. Meanwhile, the charges brought against him are quite vague. The main thing is that the grain market needed and still needs a single ironhanded administrator and, even more so, fixed prices. And no matter how reassuring certain grain producers may sound, the current situation is extremely worrying.”
