Political popularity in Ukraine requires the government to artificially keep food prices low because the average Ukrainian spends 60% of their income to eat.  Ukrainian domestic sugar prices are political, but the global sugar prices are market driven.  It was no surprise that the government Anti-Monopoly Committee began an investigation into sugar prices whose pre determined conclusion is to establish justifiable sugar prices.  In Ukraine a justifiable price usually means the producer if he’s lucky will be allowed to charge between break even and or in some cases a 10% margin. 

Therefore the government has launched an investigation into the pricing practices of Mriya, Astarta, Ukrros, Rize, Podilski Chukrovarni, Panda, Dakor, Sintal, Zorya Podillia, Podillia, Zelena Dolyna, YuzevoMykalivski, Kraievyd, Oleksandrivski Chukrovii Zavod, Novomirhorodskii Chykor, Teofipilskii Chykrovii Zavod, and Starokonstantinivchykor.  However the government is not satisfied with investigating sugar producers, it also took on the wholesale companies affiliated with these producers and all the major supermarket chains.  Given that the agency investigating announced that it is sure that prices are to high before it started the investigation we are sure the government will find that they are too high and force price roll backs and fines.

The investigation is taking place against background of sugar prices breaking thirty year records on London’s LIFFE.  The big push behind the prices was the literal destruction of Australia’s sugar cane by a tropical cyclone. 

Although Ukraine continues to be plagued by inconsistent pricing, export and agricultural policies, it still remains a large enough market to be attractive.  British sugar producer, EDF MAN announced that it intends to expand its sugar operations in Ukraine.  The company currently operates three refineries and in the coming season intends to acquire land to grow its own beets. 

We also saw Thursday another political about face in EU sugar policy.  Up to Thursday the European Commission was planning to allow surplus sugar to enter the export market.  But when prices grew during the week the Commission changed its mind and said sorry, our sugar is going to stay home. 

The government may do some good Ukrainian sugar producers.  Apparently it plans to get duty free access to the Russian sugar market.  Vice Prime Minister Mr. Kluyev made the statement yesterday.  Mr. Kluyev is not well known in the sugar world, but because he is Ukraine’s lead on energy negotiations with Russia, there may be some substance to his statement.

Actually, as we all know, probably other than Brazil, domestic sugar prices have a tenuous relation to global prices, as most governments prefer to maintain a domestic pricing policy.  We look forward to the completion of the DOHA round so that perhaps global sugar prices will finally be the domestic price everywhere.

UkrAgroConsult