Introduction of minimum export prices will cause significant drop in grain exports - UGA

The Ukrainian Grain Association (UGA) believes that the introduction of the mechanism of minimum prices for the export of agricultural products will lead to a significant drop in grain exports from Ukraine and losses to agricultural producers.

This is stated in the message of UGA, the Ukrainian News agency reports.

UGA calls on President Volodymyr Zelenskyy and the government to suspend the implementation of the mechanism of minimum export prices for agricultural products, as this will have an extremely negative impact on the ability of exporters to fulfill their obligations, undermine the trust of international partners in Ukrainian counterparties, complicate the planning and financing of export activities, and at the same time reduce the competitiveness of Ukrainian goods on world markets.

"Today, the grain market is highly competitive, which means that traders and exporters offer producers the highest possible price, which correlates with the price on the world market, taking into account the cost of logistics and insurance. If the minimum prices do not correspond to global price trends, this will destroy competition in the Ukrainian grain market and will lead to its over-regulation and create new broad opportunities for corruption," the message reads.

It is noted that the introduction of minimum export prices will put half of Ukrainian exports at risk, which in the conditions of war and insufficient tax revenues is equivalent to economic collapse and the complete destruction of the ability to independently finance the Ukrainian military.

Thus, according to the report, the introduction of minimum prices will actually destroy the system of forward contracts and lead to uncertainty in the market regarding the fulfillment of obligations by exporters and the purchase of grain.

"As you know, many producers enter into forward contracts with exporters for the future harvest at a specified price. Without forward contracts, commodity producers will be deprived of sources of financing their activities, and exporters will not have certainty about future prices and sales volumes, which complicates production and export planning. This can lead to inefficiencies and increased costs for both the producer and exporters. In addition, forward contracts allow exporters to plan logistics operations in advance. The lack of such agreements can lead to problems with the organization of these processes, delays and increased costs, including insurance," the statement reads.

Also, many agricultural enterprises use bank loans secured by forward contracts.

At the same time, the absence of forward contracts deprives farmers of the opportunity to receive such loans, which limits their access to the necessary financing for production and export activities.

"Forward contracts help companies plan their cash flows and financial management. Without the possibility of entering into forward contracts, companies can face difficulties in managing liquidity, which can negatively affect their financial stability. This turns Ukraine into a spot market with all the consequences, including the lack of predictability and opportunities for farmers to manage their risks in a civilized way by concluding forward contracts linked to prices on world exchanges," the message reads.

Also, according to the report, the implementation of a minimum export price that will not correspond to price trends in the world market will lead to non-fulfillment of contracts.

"If the minimum price calculated in Ukraine rises above the contract prices, exporters may consider the fulfillment of contracts unprofitable and look for ways to avoid their obligations. This may lead to disruption of supplies and unforeseen consequences for importers of Ukrainian products," the message states.

It is noted that the regulation of the price of exporters through the establishment of a minimum price contradicts the norms of the World Trade Organization (WTO), of which Ukraine is a member, in particular, the principles of free trade and non-discrimination.

"It should be noted that in the world there is no practice of market regulation of the price of the future period based on the price of the past period. This prevents the development of free and reliable trade between the participants," the message reads.

In its turn, the Ministry of Agrarian Policy and Food reminds that the Parliament adopted bills Nos. 10168-2 and 10169-2, which amend the Tax and Customs Codes regarding the improvement of foreign economic operations for the export of certain goods.

These documents determine the minimum export prices for agricultural products, primarily for grain and oilseeds.

"The introduction of laws on minimum prices for the export of agricultural products will create mechanisms to combat the shadow export of grain and oil crops. And it will establish clear rules for all market participants. The Ministry of Agrarian Policy is now developing appropriate tools for the application of these laws. In particular, the minimum prices after the entry into force of the laws will be determined on the basis of the developed methods every month on the 10^th," noted Acting Minister of Agricultural Policy Taras Vysotskyi.

As the Ukrainian News agency earlier reported, Ukraine increased grain exports by 3.1% to 48.9 million tons from the beginning of the 2023/2024 marketing year (July 2023 – June 2024).

Ukraine exported 49 million tons of grain in the 2022/2023 marketing year, which is 1.3% more than in the 2021/2022 marketing year.

To request a correction, please send an email.