Ukraine. Probable after effects of the increase in railway tariffs

Source:  UkrAgroConsult
Author:  Maksym Kharchenko

Article author:

Maksym Kharchenko
Freight Market Analyst

The Infrastructure Ministry of Ukraine agreed with the proposal of Ukrzaliznytsia (Ukrainian Railways Company) to increase rail freight rates by 70%. Ukrzaliznytsia is raising its tariffs for agricultural products without proper consultation with business. So, the Company wants to gain about USD 300 Ml by the end of 2022, making it possible to compensate for the significant decrease in the volume of rail freight traffic in 2022.

Last time Ukrzaliznytsia sharply raised its tariffs in 2015 (up 42.4%). That year, the indexation of rail freight rates was explained by high inflation and a decline in rail freight traffic due to the annexation of Crimea and the outbreak of hostilities in eastern Ukraine in 2014.

According to the Ukrainian Grain Association, the share of logistics in export-related costs has risen 5-7 times since the port blockade, reaching USD 180 per ton of grain. Given these logistics costs, farmers even now sell their grains below their prime production costs.

In the opinion of UkrAgroConsult, such a rise in railway tariffs will hit first of all small growers (farming less than 1 Th ha of land). It should be noted that small growers account for some 34% of the total grain production and 54% of sunflower production. According to our forecasts, a wave of farmer bankruptcies may occur next spring if Ukrainian ports are still blocked and grain prices remain low.

Moreover, the increase in tariffs will lead to a further decline in rail transportation because it will be impossible to transport grain by rail with such freight rates and the bankruptcy of farmers.

Full version of the article is available to subscribers  of ‘BLACK SEA GRAIN’ Weekly Report by UkrAgroConsult.

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