Ukraine recently implemented a policy that imposes minimum export prices for key grains and oilseeds. The aim is to reduce price distortions caused by the conflict with Russia.
This action targets the practice where domestic sales are made at artificially low price levels, and then exported in order to avoid taxes.
The new system, while intended to stabilize prices at home, may have significant implications for Ukraine’s agriculture sector and its position as a global exporter.
Does the new pricing rule affect exports?
The new Ukrainian policy sets minimum export prices on critical commodities like wheat, corn and sunflower oil.
The minimum price will be determined by the data provided by the state customs services, with a 10% reduction from the previous month’s delivery terms.
The Ukrainian Grain Association has expressed concern about the possible impact of these regulations.
The association warns the new price system could threaten up to half the country’s exports of agricultural products.
The UGA also highlights the fact that this policy could undermine the forward contracting system, which is vital for farmers to manage their financial risk and secure loans.
Forward contracts lock in future prices of commodities and provide stability to farmers as well as lenders.
The UGA is concerned that these contracts may become less reliable with the implementation minimum export prices.
This uncertainty could hinder the ability of farmers to obtain loans, resulting in reduced plantings and lower yields. These disruptions may exacerbate the problems facing Ukraine’s agriculture, which is already suffering due to war and economic instabilities.
Ukraine is one of the world’s leading exporters of grains and oilseeds. Any disruption in its exports would have a significant impact on global markets.
Minimum export prices could reduce the amount of Ukrainian agricultural products that are available in international markets, which would increase global food prices.
The global food price is already under pressure due to factors like climate change, disruptions in the supply chain, and geopolitical tensions.
Reduced Ukrainian exports may further increase global food prices and impact countries heavily dependent on Ukrainian imports.
Does it resolve domestic price distortions?
The new Ukrainian export pricing system was designed to correct domestic price distortions. However, it poses potential risks both for the Ukrainian and global agricultural markets.
Market uncertainty, the potential collapse of forward contracts and disruptions of exports are all important concerns that stakeholders need to closely monitor.
It is still unclear how the changes will affect the market and what their exact impact will be as the date of implementation approaches.
International and domestic stakeholders in the agricultural industry will closely monitor developments to gauge their potential impact on the global grain and oilseed markets.
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