Planting of late spring crops is drawing to an end in Ukraine. Crop benefiting rains suggest that grain production may be high, probably above 52 MMT. This will bring grain export potential to some 26 MMT. In the conditions of expanding grain supply, market players see grain export regulation as a particularly important point.

A memorandum between the government and trader and farmer associations turned out to be an effective tool to monitor grain exports in the ending 2012/13 season. In view of the successful experience of using this regulation method, the government does not conceal its interest in drawing up a similar memorandum for the next season of 2013\14. 

No doubt, the government will keep a close eye on export dynamics by the registration of export contracts, thereby ensuring the country’s food security. Comparing exports with their volumes to be set in the memorandum is the best of the worst ways to control the export flow, and the registration of export contracts looks as an effective forecasting tool. For traders, the memorandum is a step in the right direction, away from quotas and licenses, because the document obliges the government to warn the public of any possible export restrictions two months before their imposition. This approach allows considerably decreasing contract failure risks.

Taxation is also an important factor for stable grain exports. In particular, troubled VAT refunds to grain exporters were the talk of the town throughout many seasons. In 2011, it was decided to introduce a zero VAT rate on grain operations. This temporarily solved the problem of piling VAT refund liabilities, but this provision is only valid until January 1, 2014. If no new regulatory documents are adopted or the old ones are not extended, the VAT refund problem will move to the forefront again. The lack of a solution will lead first of all to chaos in domestic grain pricing and complicate fixing of contract prices. Surely, there is still time left to prepare appropriate solutions.

The practice of signing a memorandum this marketing year and, the main point, its successful fulfillment by both parties (of course, not without some vices) shows the ability and willingness of the government and traders to look for compromise approaches to key problems of the grain market organization. This gives hope that mutually beneficial solving of problems will continue into the new season, in particular regarding VAT refund.

UkrAgroConsult