Despite the ongoing conflict, Ukraine remains a significant player in the global food market. However, challenges persist in agricultural exports, stemming not only from continuous Russian air attacks with ballistic missiles, multiple rocket launchers and military drones but also from some disruptive actions by Ukrainian allies. In an interview with "Apostrophe," Taras Vysotsky, the First Deputy Minister of Agrarian Policy and Food of Ukraine, discusses the harvest success of the past year, the portion slated for foreign sales, and strategies to ensure export deliveries.
Plenty of Buckwheat for Everyone
– The central question at hand is: What harvest yields have been achieved this year?
- Speaking of cereals and oilseeds, which form the backbone of the Ukrainian exports, we have harvested 22 million tons of wheat, almost 6 million tons of barley, and up to 30 million tons of corn. Rapeseed production reached 4 million tons, soybeans at 4.7 million, and sunflower at 13 million tons.
Overall, the plan was to harvest approximately 80 million tons of cereals and oilseeds.
– How much of this is needed for domestic consumption in Ukraine, and how much can we export?
- To meet internal demands, Ukraine requires approximately 20 million tons of grain. This figure may slightly increase throughout the year, given the current uptick in livestock farming. Nevertheless, domestic consumption will not exceed 25 million tons. Consequently, we have 55-60 million tons of agricultural produce available for export.
– For inner consumption, Ukraine need not only those crops that are traditionally exported. Have we managed to secure all the necessary supplies this year?
- Thankfully, we have harvested ample quantities of all major crops to cover our internal requirements. Beyond the usual exports, we have produced enough oats, millet, peas, and more. Vegetable yields, including onions, beets, and carrots, have shown improvement compared to the previous year. Furthermore, we have achieved a record-breaking buckwheat harvest, totaling around 220 thousand tons—nearly twice the amount needed for annual consumption. This results in a surplus situation.
– This is reflected in the significant drop in buckwheat prices, that certainly brings joy to consumers. Conversely, farmers are expressing worry as they face insufficient earnings, potentially leading to a reduction in buckwheat cultivation next year and its possible shortage.
- Producers are actively seeking ways to sell their goods, with the notable introduction of buckwheat exports, a phenomenon that was practically non-existent before. The key driver behind this shift is the substantial number of Ukrainian refugees now in Europe. They create a significant demand for buckwheat and contribute to spreading its consumption culture. This compels European networks to source this product from Ukraine.
The government is playing its part in facilitating this development. All previous restrictions on buckwheat exports have been removed. Consequently, the export of buckwheat to Europe has commenced. (On March 7, 2022, the Ukrainian Government prohibited the export of buckwheat, sugar, salt, large cattle, and meat from Ukraine. Although buckwheat is not a significant component of European cuisine, it is one of the staples in the Ukrainian diet. – Apostrophe.)
Primary export routes are maritime
– The substantial export potential prompts the question: what is the strategy for handling the transportation of such a considerable volume of cargo?
- The optimal choice is undoubtedly the sea route. Loading other pathways, no matter how we strategize, is unlikely to cope with the sheer volume of our products.
Hence, the maritime corridor, initiated in September, holds considerable significance for us. It is currently performing well, with an increasing number of ships managing to reach the ports of Greater Odessa despite persistent hostile attacks. This offers reasons for measured optimism. If the corridor's traffic continues to grow, it will provide the means to fulfill our export needs.
– However, navigating towards Ukrainian ports remains a risky endeavor. Recently, for instance, a Russian rocket hit a ship flying the Liberian flag.
- Certainly, these incidents do not encourage ship-owners to send confidently their vessels to Ukraine, given the elevated risks. This raises the crucial issue of securing insurance coverage for these risks.
For us, it is not just about having insurance policies but also about the cost of that insurance. As it is known, this cost is tied to the level of risk. Hence, for the initial ships navigating the corridor, the cost reached up to 7% of the overall value of the vessel.
Such steep insurance rates are unacceptable for us. It becomes part of the ultimate cost of grain. And if it goes up, the price that producers receive for their products decreases by an equivalent amount. Consequently, due to the expensive insurance, farmers are facing a significant loss of $10-15 per ton of produce. Therefore, Ukraine is keen on a substantial reduction in insurance premiums.
– What level, in your opinion, they can be reduced to?
- Our goal is to lower the insurance expense to 1%.
– Yet, with ongoing Russian air attacks, the risk reduction is slow. How can we substantially cut insurance premiums?
- To address this challenge, the government, in collaboration with the British insurance company Marsh McLennan, has established a joint insurance fund worth $100 million. Ukraine contributes $20 million, while the remaining volume comes from the British side.
This arrangement allows the insurance of vessels bound for Ukrainian ports at a 1% rate. In case of force majeure, ship-owners will receive full compensation for their losses.
This insurance is not limited to grain-carrying vessels; it also applies to those transporting various goods, including metallurgical products.
– By the way, what happened to the ship that was hit by the missile?
- I cannot disclose the details.
– Nevertheless, there is an ongoing risk of vessels facing renewed blockades or substantial disruptions. Are there alternative plans in place?
- The primary alternative route is also maritime; it runs through Danube ports and remains operational despite ongoing air strikes. Additionally, grain is transported by rail, directing a significant volume to the Romanian port of Constanța.
There is also a minor portion of the products transported by road at present.
Government aids grain producers
– Land transportation sparked disputes with our Western neighbors as their local farmers resisted competition from Ukraine. The situation, particularly with Poland, was quite contentious. Have acceptable solutions been found for these issues?
- Currently, this issue is not as pressing. Transporting by trucks is considerably more expensive than other modes of transportation. Given the recent global declines in grain prices, exporting grain by trucks has become economically impractical. Consequently, the flow has been relatively insignificant lately.
– Export issues are driving up transportation expenses, resulting in reduced earnings for producers. How does this affect their financial standing, and could the income downturn lead to agricultural enterprises being unable to operate?
- The fall planting season is complete, and the progress of spring activities will depend on the situation in the next two to three months. It is indeed challenging, but we are optimistic about improvements and actively addressing the issues.
Much hinges on the operating of the Black Sea ‘grain corridor’. We are counting on an increase in freight flow to meet export demands. Additionally, with the new insurance mechanism, transportation costs are expected to decrease, allowing farmers to gain an extra $30 per ton. This should help producers at least break even in their product sales and sustain their operations.
– Is the government taking measures to provide financial support to producers?
- Yes, the government has implemented measures to provide financial support to producers. In particular, farmers have the opportunity to access preferential loans under the ‘5-7-9’ program until March 31, 2024 (The Affordable Loans at 5-7-9%program in Ukraine started in early 2020. The state compensates a portion of the market interest rate, and the entrepreneur pays only 5, 7, or 9 percent annually - Apostrophe). A political decision has already been made to extend this option for an additional year, until March 31, 2025.
International institutions are also contributing to support Ukrainian farmers. The European Union has allocated 20 million euros for this purpose. Additionally, a deal has been inked between the Ministry of Agrarian Policy and the World Bank for 700 million dollars, targeted at bolstering the agricultural sector, including the preferential credit program.
Furthermore, direct financial assistance is planned for the most vulnerable agricultural enterprises - small farms cultivating up to 120 hectares of land. They will receive a one-time payment of 4 000 hryvnias per hectare. Those situated in de-occupied territories will receive 8 000 hryvnias per hectare.
These initiatives aim to support producers and ensure sufficient agricultural production in the upcoming year.