ХІІІ International Conference “Black Sea Grain - 2016”
April 20-21, 2016, Kiev, InterContinental
 
 

Conference report

REPORT

XII International Conference

"Black Sea Grain: Future is Now"

On April 22-23, 2015 in Kiev, Intercontinental Hotel, took place one of the largest global grain conferences and a premiere event of Ukrainian agri market – the XII International Conference "Black Sea Grain: Future is Now". Traditionally, forum discussed key drivers of grain sector in global and regional perspective, crop forecasts, logistic issues, reforms and investments in agriculture, highlights of current season and outlook for 2015/16.

More than 600 representatives of agribusiness from over 350 companies and 45 countries registered to participate in the "Black Sea Grain-2015" conference, confirming its high international status. It is worth to note that despite difficult political situation, agricultural sector of Ukraine continues to operate and develop, remaining attractive for investors.

Consulting Agency "UkrAgroConsult", as an Organizer of the conference, aims at promotion of agrarian sector of Ukraine, working out effective strategies for its development and attracting new international partners. Annually the conference is attended by international producers and processors of grains and oilseeds, agricultural holdings, traders, banks and investment funds, logistics, brokerage, insurance, legal and consulting companies.

Conference speakers identified a number of agricultural achievements in the past year and the range of problems facing the industry. About the leitmotif of the conference: in spite of the ambiguity of the situation in the country, Ukraine's agriculture remains attractive; volumes of grain production and processing are encouraging; logistics structure requires significant investment; market of financial instruments, which could protect producers from financial risks, caused by fluctuating prices, still does not work.

 

1. Ukraine continues to be a grain basket for Europe and beyond

During the first Discussion Panel "Ukraine: Challenges on the Peak of Agri Production and Exports," were revealed forecasts of cereals and oilseeds crops in the near future, as well as the major trends of Ukrainian grain market. According to Elizaveta Malyshko, Grain market expert, "UkrAgroConsult", in 2015 Ukraine will harvest 53-54 MMT of grain. According to expert, negative effect was caused by weather conditions and decline in fertilizers application. As a result, wheat crop will decrease to 21 MMT, corn crop — 24 MMT. Along with the crop reduction, it is expected that grain exports in the next season will decline to 29-30 MMT compared to 34 MMT expected in the current season. The expert also pointed out that despite crop reduction by 7 MMT, export potential will decrease only by 5 MMT due to a decrease in domestic consumption of grain.

 

According to UkrAgroConsult, feed grain consumption in the next season will drop by 7% in comparison with the previous year. This trend is caused not only by harvest decrease, but also by the reduction of cattle in Ukraine.

E. Malyshko also highlighted the following important aspects of harvest and corn market: optimization of the ratio of the areas under wheat and corn (as a result of reduction in price of the latter), growing usage of domestic corn seeds (in 2014 more than 60% of the areas under corn were sowed with imported seeds), decrease in corn supply to EU countries.

The speaker has stressed three main competitive advantages that have traditionally supported positions of Ukrainian grain: low prices, GMO free products and convenient logistics.

E.Malyshko also noted that in 2015 grain harvest within temporarily occupied territories in the East, taking into account the average expected yield, may reach about 800 KMT, a significant part of which will end up on Ukrainian territory anyway or will be exported through Ukraine.

Oilseed crop in Ukraine in 2015/16 season will reach 16.447 MMT, stated in her report Yulia Garkavenko, Oilseed market expert, UkrAgroConsult. According to analyst, sunflower crop will amount to 10.654 MMT, rapeseed – 1.754 MMT, soy – 4.039 MMT.

The speaker also drew attention to the fact that over the past 10 years the oil crops' structure changed significantly: in 2005, sunflower occupied 83% of sowing areas, soybean – 10%, rapeseed – 4%, while in 2015 these figures were 65%, 23% and 11%, respectively.

 

Ms. Garkavenko also stressed that over the years has changed the structure of exports and imports of soybean meal: if in 2005 import of meal stood at 160 KMT with the total absence of export, in 2015 its exports reached 100 KMT with almost complete absence of import.

Preliminary estimate of the total grain export from Ukraine, Russia and Kazakhstan in the season 2015/16 is 64 MMT, which is 6 MMT less than in the current season. This was stated by UkrAgroConsult expert on Black Sea grains, Elena Loshkareva.

The speaker also noted that the share of the Black Sea region in the world grain trade continues to remain high, despite the growth of world exports, increase in global competition and export restrictions in Russia. This season, the share was about 23%, which is close to the record of 2011/12 season. The share of the region in world corn exports grows more strikingly, given the significant increase in production in Ukraine and Russia and a fairly high global demand. In 2014/15, the figure will be about 40%.

According to Ms. Loshkareva, total grain production in the Black Sea region in 2015 could reach about 164 MMT, which is 17 MMT less than in the current season. The final result will be affected by weather conditions, currency fluctuations, presence or absence of state export regulations, as well as growing competition between the Black Sea countries.

E. Loshkareva also stressed that the forecasted figure of grain harvest in Ukraine is about 52.53 MMT of grains, including 20,6 MMT of wheat (22,5 MMT last year), in Russia - 97 MMT, in Kazakhstan - at the level of "average long-term" (16-17 MMT).

The volume of feed production in Ukraine has a tendency to increase, although it is still far below the science-based number, informed Andrey Kim, Agricultural inputs market analyst, UkrAgroConsult. According to him, the volume of feed production, which in 2005 was just over 2 MMT, in 2014 came close to 6 MMT and in 2020 will increase to around 8 MMT.

According to A. Kim, the main producers of feed are agricultural holdings (87% of total production).The analyst also pointed out that in the past year, compared with 2008, the volume of packaged animal feed has increased and is now 20% compared with 5% of the total production. In the composition of feeds the increase is in the corn component.

Analyzing the state of livestock and poultry industry in Ukraine, Andrey Kim noted the following trends: reduction in the number of cattle and the growth of pigs and poultry, as a consequence — decrease in beef production and increase in the production of pork and poultry; creation and development of vertically integrated animal husbandry complexes; growth in meat exports and a reduction in imports.

The main risk factors for spring crop in Ukraine is shortage of financing and reduction in imports of agrochemicals and seeds. This thought was expressed by Mark Lindeman, analyst FAS, USDA, in his presentation: "Winter grain conditions and 2015 crop production forecasts for Ukraine and Russia." At the same time, he noted that in January imports of agrochemicals and corn seed hybrids were at last year level.

Mr.Lindeman also drew attention to the fact that, compared to last season maize prices have declined significantly. Assessing the state of cereal crops in late January, the expert said 40% were in good condition (compared to last year - 56%), in satisfactory condition - 42% (35% last year) and in bad condition - 18% vs. 7% last year.

 

As for Russia, according to Mark Lindeman, farmers are in a difficult economic situation due to reduction of the state budget, increase in farmers' debt, raising interest rates on loans, depreciation of the national currency. Prices for fertilizers and agrochemicals have increased by 30-40%, the latter are imported from Europe and in the face of economic sanctions by the EU their access is difficult. In addition, there is no state support in the prices for petroleum products.

Referring to the situation in Kazakhstan, the expert noted a decline in food grain areas with rising share of forage crops.

Current agribusiness strategies for Black Sea region should avoid short single-loop models and be calculated for 5-7 years

This was stated by Sergey Feofilov, Director General, UkrAgroConsult. According to the expert, businesses of the region today are largely guided by the strategies of the past, consisting of acquiring a large number of resources and assets, but not actually interested in managing them. And now, as the business in the Black Sea region brings an element of instability to the global market, firms seek to increase exports, especially of oilseeds, and do not think about its effectiveness.

The expert paid particular attention to the risks for today's agricultural markets of Ukraine, which, in his opinion, cause a sharp contraction of domestic market, decrease of effective demand, growth of government and corporate debt, shortening of foreign-currency and gold reserves.

"In such conditions,  Ukrainian food industry can turn into a huge factory for production of costs, since today producers are required to hold food prices while prices for raw materials grow," - said the analyst.

S. Feofilov stressed that Ukraine should find and take its place on the markets in the future, taking into account that by 2050 global grain production can grow to 3 billion tons, meat - up to 500 MMT, and China, the largest market, will spend on food up to $2 trillion per year, 2 times more than in 2009.

Black Sea countries strengthen their positions on the world grain market, informs Freight market expert, UkrAgroConsult, Svetlana Malysh, in her report "Development of grain logistics in the Black Sea region".

According to Ms. Malysh, the share of the Black Sea countries in the total world grain trade has increased from 16% in 2010/11 to 23% in 2014/15. At the same time, via the Black Sea ports of Ukraine in 2014 was exported about 35 MMT of grain, Russia - about 30 MMT, Romania - more than 15 MMT. Capacities of port grain elevators in these countries grow, and in 2014 were as follows: Ukraine - more than 45 MMT, Russia - about 35 MMT, Romania - 15 MMT.

 

The speaker also drew attention to the fact that the structure of investments into transshipment facilities in Ukraine and Russia, a significant role belongs to domestic companies: Ukraine – 80%, Russia – 86% of investments). In Romania, the main investors are foreign companies (70%).

Agri sector of Ukraine was the only sector of economy showing growth of production volumes in 2014, - stated by Financial analyst, UkrAgroConsult, Alex Morgun, in his presentation "Strategies of Ukrainian agri sector in the new realities".

According to A. Morgun, GDP growth in agriculture, forestry and fishing industry in 2014 was 2.9% year-on-year, with the decrease in production in all other industries.

The speaker pointed out that last year Ukraine managed to increase fats and oils exports of vegetable or animal origin, in comparison with the previous year, by 9.03% with an overall drop in exports during this period. Total exports of agricultural products in 2014 when compared with 2013, decreased only by 1.5%.

 

Mr. Morgun has emphasized that despite different trends in political situation in the country, the demand for food in the world continues to grow and, therefore, Ukrainian agricultural industry does not lose its attractiveness to investors.

He also drew attention to the fact that agricultural cooperatives in the near future will play a significant role in the economy of the sector, as the government began large-scale reforms in the field for support of the small and medium agribusiness.

Ukraine's GDP in dollars tends to decrease – informed Nikolay Gorbachov, Director, New World Grain (Ukraine), within Discussion Panel “Ukraine and global transformation of the agricultural sector”. According to him, if the figure in 2008 was $179 billion, in 2009 - $113 billion, then in 2015 it will be at the level of $81 billion.There are no objective reasons for the growth of the economy, said the speaker.

At the same time, he said, the Ukrainian agricultural industry has a significant potential for economic growth. If 10 years ago the country produced 3 MMT of corn, today this figure has increased 10 times.

 

Senior Vice president of Rietumu Banka, Renat Lokomet, (Latvia) spoke about further investment in the agricultural sector of Ukraine with cautious optimism. According to him, European bankers see the prospects of Ukrainian agriculture, and will invest in it, once a "period of turbulence" finishes in the industry.

 

2. Land market - is still in the future. The Parliament is thinking

“Land policy of Ukrainian agri sector will continue to be based on lease. Lifting moratorium on agricultural land sale is unlikely” - this was stated by Andrey Selyutin, Attorney-at-law, Arzinger, in his presentation on the topic: "Land market in the context of economic reforms in Ukraine".

According to the speaker, none of the recent policy documents - coalition agreement, agreements with the EU and the IMF - has points about lifting moratorium. Further development of the industry is planned through:

- Harmonization of Ukrainian legislation with the legal framework of the EU (in the areas of regulatory standards for trade in crops and livestock, as well as seed quality policy, production of organic products and products with GMO);

- Development of the lease;

- Following and improving existing VAT system;

- Empowerment of local authorities regarding land issues;

- Simplifying procedures of land rights registration and land auctions.

Andrey Selyutin also outlined the main points of recent land reforms. According to him, the main achievements in this area took place in 2012-13  - creation of the national system of land cadaster, separation of state and municipal property lands, improvement of land auctions procedure. 2014-15 were marked by introduction of more transparent access to land registry data, simplification of notary registration of lease rights, etc.

 

Attention of the audience was also drawn to the issues of deregulation of land relations, including  reduction the list of essential conditions of the lease contract, cancellation of obligatory state expertise of crop rotation, and so on.

Members of the parliament’s agriculture committee are working on the legal framework to increase investments into the industry, informed by, Leonid Kozachenko, President of Ukrainian Agrarian confederation, Deputy of Verkhovna Rada. According to him, grain potential of Ukraine is 120 MMT per year, 50-60 MMT of which could be exported.

 

 

3. Logistics

In the next 10 years grain transportation and storage infrastructure in Ukraine needs investments of approximately USD 5-6 billion. Such estimation was given in the reports of Dmitry Prikhodko, Economist, FAO.

According to Mr. Prikhodko, in case of an increase in the volume of transportation by Dnieper, it will save funds for the repair of the railway infrastructure and the purchase of grain cars. During the next 10 years, Ukraine will face the need to update the park grain cars in the amount of 22 thousand pieces, the estimated cost of which can be up to $2 billion.

If Ukraine will not develop export handling capacities, it will face the need to build an additional amount of internal elevators, which is much more expensive.

The economic effect from solving the problem of grain freight transportation by water along the Dnieper can be up to $3 billion

This forecast was made by the president of "Nibulon", Aleksey Vadaturskiy, in his presentation "Ways to improve competitiveness of Ukrainian grain in the world market".

 

According to him, every year the Dnieper River can transport up to 10 MMT of grain, which implies, in particular, the construction of the towing and cargo fleet with a total deadweight of 50 KMT, attracting additional investments of up to $0.5 billion, the construction of 10 transshipment terminals, etc.

The speaker noted that today around 1.5 MMT of grain is transported by Dnieper, accounting for 4.2% of Ukraine's exports, while the corresponding figures for the Mississippi are 50 MMT and 60%. A. Vadaturskiy also drew attention to the fact that the Dnieper ranks 9th in the world by drainage basin and the length of navigable sections, whereas the volume of river traffic it only at 13th place (1.5 MMT against 126 MMT on Yangtze, 50 MMT on Mississippi, 13 MMT on the Rhine).

According to the speaker, the further growth of freight volumes on the Dnieper is prevented by significant siltation of the navigable sections and shallow waters, but the problem can be solved by dredging, the volume of which is approximately 3,069,000 cubic meters of soil.

The speaker also said that "Nibulon" today has 22 production units that handle 82.1 Th ha of land in 11 regions of Ukraine. In the 2013/14 MY, the company exported more than 4.5 MMT of agricultural products.

 

Investments in logistics and the reform of the regulatory system can significantly improve the conditions for agribusiness in Ukraine

 This was said by the representative of the International Finance Corporation, Heinz Strubenhoff. Having listed the factors that make agribusiness in Ukraine competitive (available and cheap land, proximity to the Black Sea ports and importing countries), Mr. Strubenhoff also gave an analysis of the factors preveting the development of the industry. Among the latter, he called excessive regulation, manual control of market interventions, political risks of export restrictions.

The speaker pointed out that in 2013 over 50% of agricultural firms were faced with the need to obtain any permits, and more than 80% - with audits conducted at least once a year.

He also drew attention to the relatively high cost component of logistics services in the final price of Ukrainian agricultural products. Thus, if in the US in the production of corn, the figure is 14%, in France in the production of wheat – 10%, in Ukraine - 47% and 31%, respectively. The difference in the cost of logistics in France and in Ukraine is 28 US dollars per tonn.

According to the speaker, 50% of companies believe that businesses must pay for solving the problem of obtaining permits, more than 60% believe a bribe must be given during an inspection.

With regard to the competitiveness of river transport when transporting agricultural goods, H.Shtrubenhoff, noted that the net cost of transportation of one tonn of cargo by river is 8.89 US dollars per ton, while in the railway and road transportation the figure is respectively 10.47 and 16.36 US dollars per tonn.

 

Today, potential investors into Ukraine's agriculture keep their interest primarily to processing facilities, grain storages and port elevators

This was told by the Yuriy Shved, KPMG, in his report "FDI and access to credit of Ukrainian agribusiness in current conditions".

According to Mr. Shved, investment in such facilities could implemented by Ukrainian, as well as foreign, investors, among which - the national holdings, investment funds from China and countries of Southeast Asia.

On the issue of the impact of recent developments in the agricultural holding "Mriya" on the general investment climate in Ukraine, the speaker noted both positive and negative factors of such influence. Among the former Mr. Shved, in particular, named "the gain of experience in the holding transition under the management of creditors with the active participation of the state". The negative aspect primarily, said Y. Shved, is the blow to the investment attractiveness of the Ukrainian agricultural industry in general and "latifundia" economic model, which will lead to a loss of investor interest from large holdings. According to the expert, the magnitude of the external financing of the sector will recover no earlier than 2016.

 

4. Global tendencies

The leading exporter of wheat in the medium term by 2024 will be the EU and not the Black Sea region, as previously thought. Such forecast by FAO and USDA was presented to the conference participants by FAO expert, Dmitry Prikhodko.

According to him, by 2024 the EU will export about 35 MMT, Russia - 27 MMT, Ukraine - 12 MMT of wheat.

The expert also said the increase in the nominal price of wheat and corn should not be expected, and the real price for these crops, accounting for inflation, will decline.

D. Prikhodko also mentioned that by 2024 the world's GDP will increase by 3.5%, GDP growth in Ukraine will slow down from 4.6% to 3.3%, in Russia - from 4.9% to 2.9%.

In the global context significant changes of the world wheat market structure are not expected, - said by Neil Townsend, Director of CWB Market Research Services (Canada). According to Mr Townsend, a change will be seen in the US share of world wheat exports, which is to fall from 28% to 16%. The total wheat market volume is estimated as 720 MMT.

World corn production in 2014/15 will be 991.5 MMT against 988.7 MMT in 2013/14, reported Chairman of AgFlow, James Dunsterville, Switzerland.

According to him, the demand for this crop will grow from 944.8 to 971.2 MMT, respectively.

At the same time, the speaker noted a significant drop in prices for this crop in average from

$235 to $170 per ton. In his words, the difference in price for the countries of the Black Sea region and Brazil will be $65, for France - $55.

Asian countries will buy cheaper grain of a higher quality, said Chris Lehner, ADM-Archer Financial Services, USA. According to him, the reduction of the US share in the total export volume gives Ukraine a good chance as a potential supplier of grain.

Flor exports from Kazakhstan, the volume of which now stands at 1.8 MMT per year, will decrease to 1.2-1.5 MMT, informed chairman of the Union of Grain Processors of Kazakhstan, Evgeniy Gan.

The speaker also gave an estimation of 7 to 8 MMT of export potential for year average, and stressed that consumption rates for bread in the countries of Central Asia are quite high, 400 - 500g., and will grow in the future.

Mr. Gan predicted reduction of areas under wheat and a simultaneous increase of the area under melons and oilseeds in the country for the next few years.

Grain harvest in the current season, according to him, will be 18.9 MMT. The speaker also noted the high degree of integration of grain flows in Kazakhstan and Russia.

 

Black Sea Grain