Ukraine’s consumers got some good news this week, when representatives of the world’s largest agricultural trading houses said they expect food prices to drop in 2013. For producers, however, the message is less upbeat, with worsening commodity price outlooks hitting at Ukrainian names listed abroad and the prospect of tax hikes lurking in the background.
Speaking at the Financial Times Commodities
Summit in Lausanne this week, Glencore Head of Agriculture Chris Mahoney said
“(prices) will relax for a couple of years.” The message was followed up on by
Alberto Weisser, a chief executive at agricultural trade giant Bunge, who told
the audience at the summit that he was “optimistic about prices coming down.”
Ukrainian experts, however, weren’t so quick
to agree.
“To some extent the fall of wholesale food
prices this year in Ukraine, comparing to the last year, may be confirmed only
in the case if we receive the good level of harvest this year as it is
forecasted right now,” Oleksandr Verzhykhovskyi, executive director at
Ukrainian Agribusiness Club, told the Kyiv Post. “This year we expect that the
harvest of cereals will be on the level higher than the previous one, if no
extreme external weather factors influence it within vegetation period.”
A combination of a harsh winter and record hot
summer drove Ukraine’s 2012 harvest down considerably, compared to 2011,
leading to higher food commodity prices, Verzhykhovskyi added.
On the other hand, prices on traditional
fruits and vegetables, which were extremely low the past few seasons due to
good harvest levels, stand to rise this year.
The reason? The demand from foreign countries
has increased, according to the State Statistics Service, which noted that
exports of traditional foods, such as onions, carrots, cabbages and beetroots,
jumped 5,800 tons in March – up 71 times the volume exported a year ago, when prices
were 50 percent lower and quality was higher.
Some 11,900 tons of carrots and beetroots – 20
times the amount during the same period last year – were exported in the first
nine months of the 2012-13 season. Russia is the biggest buyer by far consuming
69 percent of Ukraine’s vegetable exports.
But not everyone is benefitting from the
surge. Ukraine’s biggest agribusiness companies, particularly listed companies
operating in the grain and oilseed sectors, have taken a beating in the past
week.
Sunflower oil producing giant Kernel – one of
20 biggest companies on the Warsaw Stock Exchange – brought the whole market
down with an almost 8 percent fall on Friday, April 19, following the
publication of disappointing results.
But Kernel’s 18 percent, week-on-week, crash
was by no means an exception: sugar producer Astrata dropped 27 percent on the
week, while agricultural producers KSG Agro and Agroton both fell 25 percent.
While some have speculated that traders are
pricing in a “no deal with the International Monetary Fund” scenario, falling
commodity prices and poor forecasts for 2013 are a more probable culprit.
“A more likely explanation (is) that investors
just moved out of cyclical stocks due to weaker prospects for China and a
weaker demand/price outlook on selected commodities (f.e. coal and grains),”
Kyiv-based investment bank Dragon Capital wrote in a note to investors.
Domestic issues are another challenge facing
Ukrainian agribusiness. In one of the latest episodes of Ukraine’s never-ending
land reform, the State Land Resources Agency of Ukraine posted on April 5 a
draft law on its website, calling for comments and proposals.
According to Yuriy Nikolaychuk, a partner at
Ulysses law firm, the new draft removes the most heavily criticized aspects of
the previous draft law, but maintains the previous version’s core elements:
heavy restrictions of sale or ownership of land, with a seven year minimum rent
term, with domination of state ownership and control in the market.
Increased fees are also likely to appear the
introduction of a minimum rent amount of three percent of the normative land
value, a measure aimed at protecting the owners of land and ensuring equitable
remuneration for its use, according to Nikolaychuk.
This is not the only recent state intitiative
aimed at milking Ukraine’s agro sector. Indeed, the newly created Ministry of
Revenues and Fees this week suggested a change in the calculation of the fixed
agro income tax, which agrarians currently pay in lieu of other taxes.
As present, the fixed agro income tax is
calculated based on the value of the land farmed, determined in 1995. Instead,
the ministry suggests basing the calculation on the fluctuating cadastre value
of the land.
This would effectively increase the fees paid
to the state sixfold, from $0.68 to $3.8 per hectare, according to estimates
from Dragon Capital. While the investment bank’s analysts do not except the
current hike to pass, the risk of increased tax.
And with HR 1.3 billion ($160 million) in
expected additional revenues, government tax collectors might just find it too
tasty a morsel to pass up.
Kyiv Post staff writer Christopher J.
Miller can be reached at [email protected], editor Jakub Parusinski can be
reached at [email protected].
