How record grain exports and bread prices in Ukraine are related
According to the results of 2021, Ukraine exported agricultural products worth a record $27.9 billion, exceeding the record figure of 2020 by 25%. Also, the largest scope of wheat exports in the history of Ukraine was recorded—20.07 million tons. At the same time, bread prices increased by 18.7% over the past year. investigates whether the export successes are linked to the rise in the bread price within the country.
It should be noted that the agrarian statistics use the concept of “marketing year” (MY) that lasts from July to June in Ukraine, while the state statistics provide data for calendar periods.
Сoncerns over wheat export
In December last year, it was reported that the export of Ukrainian wheat in 2021/22 MY increased by 29% in annual terms. There were concerns that the increase in exports would lead to a shortage of grain in Ukraine and higher prices.
On December 23, Reuters reported that Ukraine would consider limiting the export of milling wheat in the first half of 2022. Officials were expected to make a decision on the matter in mid-January.
On the same day, the Ukrainian Grain Association (UGA) reported that there were no grounds for restricting wheat exports amid a record harvest. Ukraine cropped a record wheat harvest in 2021—32.7 million tons, and domestic consumption iwas no more than 6-7 million tons of wheat per year.
How grain export is regulated in Ukraine
Every year, on the threshold of a new marketing year, the Ministry of Agrarian Policy and grain market participants agree on the maximum scopes of wheat exports by signing a corresponding memorandum. According to the annex to the memorandum signed in October, in 2021/2022 MY wheat exports are allowed at the level of 25.3 million tons.
In this scope, the ratio of food-grade and feed wheat is 60 to 40%.
“To meet the needs of the population, we need 5 million tons of high-quality wheat. We can export 14.8 million tons of this wheat. In total, 9.8 million tons of food-grade wheat grain, and exactly this much was harvested in Ukraine,” the head of the Ministry of Agrarian Policy Roman Leshchenko stated in October.
“Grain export allows farmers to sell their crops and receive income and ensures for the country the flow of foreign exchange earnings and taxes to the budget. Export restrictions will result in inability of the agricultural producers to sell the grown crop. They will not make a profit and will reduce the sown area under the respective crops. As a result, Ukraine will face a decrease in yields. It will also result in a decrease in investment in the grain industry,” the UGA noted.
In December, Taras Vysotskyi, First Deputy Minister of Agrarian Policy, told in an interview: “Over the past few years, a memorandum has proven to be an effective instrument. It clearly sets out the scopes that are needed for domestic consumption and the scopes of exports. We will continue this practice of agreements with the market participants. We do not see any threats of the current memorandum violation yet. For example, wheat export scopes are now decreasing every month.”
As of January 26, wheat exports since the beginning of the MY amounted to 16.7 million tons, that is, there are still 8.6 million tons before the country reaches the agreed limit.
Why bread rises in price in Ukraine
The bread price on the store shelves is growing for a number of reasons: the rise in price of gas and electricity, the growth of logistics and labor costs, etc. Vice-President of the All-Ukrainian Association of Bakers Oleksandr Taranenko stated at the end of January that if gas became rose in price 10 times during the year, then not raising prices would become a suicide for the industry.
Of course, one of the important reasons for the bread price rise is the increase in the cost of grain. But it rises in price mainly not because of a shortage of supply due to exports, but as a result of the same price hike in energy resources, logistics, etc.
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