Ukraine’s government decided to temporarily relax grain export quotas until July 1, satisfying producers but also threatening higher domestic prices.
oad at higher prices, but also threatening higher domestic prices.
First introduced 18 months ago, grain export quotas caused financial losses to domestic grain farmers, traders and producers and decreased the crop’s supply internationally at a time of serious worldwide food shortage.
Ukraine’s approaching accession into the World Trade Organization (WTO) and strong lobbying by domestic grain producers influenced the decision, experts said.
“Upon joining the WTO, expected on May 16, we believe there will be a transitional period for all the norms to be implemented,” said Svitlana Dryhush, research analyst at Renaissance Capital Ukraine.
The global community supported the April 23 decision, and World Bank President Robert Zoellick telephoned Ukraine’s President Viktor Yushchenko and Prime Minister Yulia Tymoshenko the next day to thank them in helping to increase global supplies.
Following WTO membership, the Ukrainian government won’t be able to impose quotas at will on the domestic grain industry, said Anna Dudchenko, an analyst at Concorde Capital investment firm. WTO members can only apply quotas if they prove that not doing so would harm their economy.
“We expect domestic grain prices to gradually adjust to the global levels, which could however cause higher inflation,” she said. “With increasing global food prices, we cannot expect Ukraine to remain unaffected.”
Inflation remains a threat to the Ukrainian economy, rising 3.1 percent in April and 3.8 percent in March, the government reported May 7. If the government had canceled the quotas, grain prices would have shot up 30 percent, said Yulia Nosal, an analyst at the Sokrat Group investment firm.
“Thus I don’t think quotas will be canceled this year because this may be a natural catalyst of inflation,” she said.
Last year grain traders suffered big losses, Nosal said, since grain stocks were full but couldn’t be exported.
The Ukrainian Grain Association anticipates 38 to 40 million metric tons of grain harvest this season, with domestic demand at 25 million metric tons, leaving 13 to 15 metric tons for export.
Sooner or later, Ukrainians will pay more for grain, experts said.
“Food prices are increasing worldwide and Ukraine can’t remain an island where bread prices are 50 percent lower than in Europe,” Dryhush said.
