Ukraine cracks down on illegal grain export operations; concerns for industry survival

Under a decree recently passed by the Ukrainian government, the export of grain and oilseeds will be permitted only for companies passing a newly established exporter verification procedure to prove they fully comply with the foreign exchange controls.

Foreign exchange revenue from exports

The measure is called to help the government combat shadow grain export, during which foreign exchange currency is not returned to Ukraine, as requested by law.

Nearly 20% of Ukrainian grain is currently exported under grey schemes, Think Brave, a Kyiv-based consultancy, estimated. Usually, this means that grain is purchased from farmers for cash by fly-by-night companies. It is exported under fake documents, and the business is liquidated shortly after so that the owners do not return foreign exchange revenue to Ukraine.

Concerns that new rules will kill industry

Ukrainian Grain Association said that “a recent surge in the number of initiatives aimed at imposing additional regulations” on Ukrainian farmers could kill the grain industry.

The new rules should have been adequately tested to make sure they won’t put obstacles for the business critically important for the Ukrainian state in the current circumstances, the grain association stated.

Further complicate the situation

As the new scheme is not tested, it may further complicate things in the already fairly regulated grain market and will lead to a significant drop in exports and, consequently, grain prices for Ukrainian farmers, the grain association warned.

“As a result, Ukrainian farmers, who have been suffering for 2 years from low purchasing prices and high logistics costs due to limited export opportunities, may go bankrupt and lose everything.”

“In this case, the country will lose almost the only industry that fills [the state] budget in times of war and provides the country with foreign exchange earnings. Under these conditions, additional ill-conceived and unnecessary interference in regulating the grain and export markets will only harm the country,” the grain association added.

More measures on the pipeline

On November 16, the Verkhovna Rada Committee on Finance, Tax and Customs Policy supported 2 bills aimed at combating “black” grain exports and non-return of foreign currency earnings, Yaroslav Zheleznyak, member of the parliament, said in a statement on his social media channels.

Under the bill, the authorities will set a minimum price under which Ukrainian farmers could export grain.

Zheleznyak added that shadow exports cost the country $4 to $6 billion of non-returned export revenue, which incurs substantial losses to the state budget.