The country says the non-binding memorandum of understanding it signs with wheat traders has been misinterpreted
Black Sea export restrictions have raised the ire of importing countries, but Ukraine claims it shouldn’t be lumped in with the rest of the region.
Taras Kachka, Ukraine’s deputy minister of economic development, trade and agriculture, said the country’s much-publicized 20.2 million tonne wheat export quota is being misinterpreted.
“It sounds like a limit, but in reality it is not a limit,” he told delegates attending the International Grains Council’s virtual annual conference.
Kachka said it is an annual memorandum of understanding signed by the government and the grain trade in Ukraine that provides a reliable estimate of how much grain was produced that year, what is required for domestic consumption and how much is available for export.
He said it is not a legal document and there is no obligation for grain traders to abide by the annual export estimate.
“It is simply a consensus that allows government and traders to plan their activities and ensure smooth trade flow of wheat to the outer world,” said Kachka.
He condemned other Black Sea exporters for imposing export restrictions in response to COVID-19 panic buying around the world.
“In our opinion it was unjustified,” said Kachka.
He thinks competitors such as Russia and Kazakhstan should follow Ukraine’s lead by engaging in “deep discussion” with the grain trade and conducting an in-depth supply-demand analysis to avoid government intervention in the trading of grain.
Cam Dahl, president of Cereals Canada, isn’t buying the idea that what Ukraine has in place is any different than the trade restrictions implemented by other Black Sea exporters.
“A rose by any other name still smells the same,” he said.
“If it looks like an export restriction, it probably is.”
Dahl is more focused on the outcome than the process.
“The end result is a throttling of exports, so I’m not seeing how much of a difference there is,” he said.
The U.S. Department of Agriculture views Ukraine’s actions in the same light as Dahl.
USDA chief economist Robert Johansson shared a chart during the conference outlining the various Black Sea “trade restrictions,” noting that many of them are being phased out.
The chart identified Ukraine’s restriction as an “export quota.”
Canadian wheat sales have exploded in the last few months. Some analysts have attributed that to the Black Sea export restrictions and improved rail movement in Canada.
Dahl doesn’t know if that is true. In some markets such as Nigeria, Canadian wheat is combined with Black Sea wheat to create a cost-efficient blend, so the restrictions wouldn’t improve sales in that market.
“On the whole, I’m not a fan of managed trade. I think it’s bad for exporting countries like Canada,” he said, because it increases price volatility, sales unpredictability and risk.
“I’d very much prefer that we could get to a place that was envisioned by the WTO, where we’re actually having science-based rules of trade that respond to market forces,” said Dahl.
Kachka made it clear that Ukraine won’t be budging from its current approach. He said the MOU system was a response to a poorly thought-out 2010 decision by the Ukrainian government to put real limits on wheat exports.
“It was a big, big problem both for international traders and the domestic market due to a corruption scandal,” he said.
Ukraine’s grain trade has been thriving since the MOU system was implemented. The country is expected to export 55 million tonnes of grain in 2019-20 compared to 13 million tonnes 10 years ago.
Grain storage infrastructure at Ukrainian ports has more than doubled to 4.9 million tonnes from two million tonnes.
“This is the Ukrainian approach and we (will) really continue this practice because we believe that it is a good one,” said Kachka.