Ukrainian farmers weigh: To seed or not to seed?

This year’s spring planting season in Ukraine is in big jeopardy.

Three European Union’s neighbors of Ukraine, namely Poland, Slovakia, and Hungary, imposed a ban on the import and even the transit of a wide spectrum of Ukrainian agricultural commodities including grain, meat, dairy, honey, while Romania is considering implementing such a measure. Bulgaria also imposed a ban on import of Ukrainian agriculture commodities.

Authorities in these countries claim that unrestricted flow, first of all, of Ukrainian grain and oilseeds damages their domestic markets.

Last year in order to help Ukraine with export after Russia had blocked Ukrainian sea ports the EU canceled quotas and tariffs for Ukrainian ag imports. The EU established the so-called solidarity corridors for Ukrainian agricultural commodities.

But, because of the EU infrastructure restrictions including insufficient railroad throughput and ports’ transshipment capacities the incoming flow of commodities from Ukraine overflowed the local storage facilities since Ukrainian exporters began to figure out how to sell their products on the local markets. Some ‘findings’, to put it mildly, included the redirection of transit to local buyers, downgrading the quality of commodities from food or feed to industrial usage like production of biofuels, and temporary storage of grain in local facilities that eventually clogged the access to them by local farmers.

One must keep in mind that there is a big difference in the economies of scale in ag commodity production in the EU and Ukraine. While in the EU the majority of ag commodities are produced by small farmers that operate on areas of tens of hectares the main producers of ag commodities in Ukraine are big and huge corporations that operate on tens or even hundreds hectares. Even Ukrainian farmers operate on land areas of several hundred to several thousand hectares. Because of these the cost of production in Ukraine is significantly lower than for the European farmers. So Ukrainian producers may sell commodities with prices that are lower than the cost of production for European farmers thus damaging their income.

After some negotiations within the EU and between Ukraine and her neighbors they agreed to restore the transit under strict control including sealing the cargo. The restrictions for import are going to be lifted on July 1. Also, the negotiations within the EU about the prolongation of the temporary no quotas and no tariffs regime are still in progress.

But there is still a great volume of grain in Ukraine that has to be exported before the harvest. Some experts assessed this volume to be about 10 to 15 million tons.
At the same time, Russia continues to slow down the movement of grain by sea in the frame of the “grain initiative” using very slow inspections of vessels at the entry of Bosphorus. The “grain initiative” expires on May 18 and Russia threatens to not prolong it.

Thus the export of Ukrainian agricultural and food commodities practically will drop close to zero at least till July 1.

Ukrainian producers already have problems with funds for the planting season as well as limited access to the inputs — quality seeds, pesticides, and fertilizers. This year’s prices of inputs surged by 20%. At the moment producers have about 60% of what they need.

There are a number of other problems facing Ukrainian ag producers. The prolonged rains delay the start of planting. And there still remains the problems with demining fields on liberated territories, shellings by Russia of territories close to zones of hostilities.

So the extreme uncertainties with the future military operations, the prospects with unblocking Ukrainian ports, prospects with the restoring of export forced Ukrainian ag producers to ponder on almost Hamlet’s question: to seed or not to seed? And if yes, what crop and what areas?

At the moment some Ukrainian experts believe that there will be big reductions in areas planted with corn, wheat, rye, and barley. It is very likely that previous forecasts of this year’s grain and oilseeds crops of 50 to 55 million tons may turn out to be too optimistic.