Ukraine to Ban Wheat Exports from mid-November

24 October 2012

Ukraine will begin restricting wheat exports from 15 November onward, the country's agriculture minister announced today. The news comes as the country - one of the world's largest wheat exporters - attempts to deal with the fall-out of a poor harvest and rising prices for staples.

"There will be a full ban from Nov. 15. There will be a government order about this. We are not playing games here. We do not have any other option," Farm Minister Mykola Prysyazhnyuk told Reuters earlier today.

Both Russia - another major exporter - and Ukraine have restricted exports of wheat in the past, with their 2010-2011 limits prompting vociferous criticism from their trading partners. Both countries scrapped these policies in June of last year. (See Bridges Weekly, 1 June 2011)

Unlike Kiev, however, Moscow is not yet expected to impose any new export restrictions on grains of its own, according to recent comments by President Vladimir Putin.

Prices for contracts to purchase wheat in December have risen slightly - but not dramatically - since the news broke last week that Kiev was considering limiting its exports of the staple. Back in 2010 when Russia announced its own restrictions, prices surged to a 23-month high as a result. (See Bridges Weekly, 29 September 2010)

Export restrictions in periods of high prices or poor harvests have been blamed for exacerbating hunger for the most vulnerable. Food riots followed such measures in the past and, some analysts say, may have contributed to the ‘Arab Spring' uprisings. Delegates at the WTO circulated two separate proposals to address export restrictions last year ahead of the WTO's December ministerial conference, only for both proposals to ultimately be dropped. (See Bridges Weekly, 7 December 2011)

Not yet a repeat of 2008 food price crisis, experts say

Ukraine has "very large" stocks, according to Abdolreza Abbassian of the UN Food and Agriculture Organization, and could "easily" export six to seven million tonnes. The FAO official chalked up the ban on exports to domestic politics and an upcoming election.

The fundamentals of the wheat situation, in Abbassian's view, do not suggest a repeat of "what happened a few years ago." While stocks, he explained, are very low globally, production both in some importing countries and others, such as France, has improved. This could lead Europe to export more than anticipated and for others to perhaps import less if their domestic production has increased.

However, prospects for agricultural production elsewhere are looking grim. Australia's harvest is likely to be down by 28 percent when compared with last year, and a key wheat producing region in Russia is facing a drought. Abbassian observed, though, that the Australian comparison was with a record year for the country. Such news, when taken in isolation, could be "horrifying," but when the numbers are added up there was less reason for immediate concern, he said.

Food importing countries worried

"We want Ukraine to do what Russia is doing," said a trade official for a wheat importing country, referring to a news report describing Moscow's current hands off-stance in allowing domestic prices to rise, in turn making wheat exports uncompetitive on global markets. However, reports from the Russian capital have at times been conflicting, with Andrei Belousov - Russia's economic development minister - apparently contradicting Putin's position by suggesting last month that the country may indeed apply limits on exports in the future.

Another trade delegate worried that their country did not have the "money for higher prices." Food price inflation and an uptick in prices may drive the most vulnerable, often net purchasers of food, to hunger, warned the FAO's State of Food Insecurity report for this year. Abbassian noted that many countries will have to find a way to pay for higher prices for food, meaning that they may have to cut other support that they provide to their citizens, such as subsidies for energy.

Several developing country trade officials told Bridges that countries should have a right to restrict exports in the case of a shortage of critical foodstuffs. However, they observed, such restrictions do affect others and should be taken with caution and consultation. The WTO's Agreement on Agriculture governing the issue stipulates as much.

WTO rules require that countries imposing export restrictions notify other members, with an exception for developing countries that are not major exporters. One major wheat importer told Bridges that consultations with Ukraine have not yet taken place.

Although Ukraine has submitted notifications to the WTO in the past on measures restricting exports, sources told Bridges that an announcement for the new measure has not yet been circulated to members.

ICTSD reporting; "Vladimir Putin Bans Grain Exports," THE GUARDIAN, 5 August 2010; "Russia opens door to grain export limits," FINANCIAL TIMES, 21 September 2012; "Russia opts for market forces over export ban," FINANCIAL TIMES, 22 October 2012; "UPDATE 2-Ukraine confirms wheat export ban; shipments in doubt," REUTERS, 24 October 2012; "Grain Stocks Down 26% Year on Year," MOSCOW TIMES, 21 October 2012.

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