Tuesday, 6 December 2016

Another possible reason why Ukraine grain exports are falling behind?

Reading plenty of reports that Ukraine grain exports are falling behind because of a lack of grain wagons and tightened rules on transportation by trucks.

This has led to at least two interested organisations that I am aware of publicly complain to the government.

Changes in law limiting the size of trucks on Ukraine’s roads and lack of investment in railways is no doubt implicit, which news agencies have readily latched on to, but changes to VAT rules is more likely to have had a greater influence.

Previously farmers kept all the VAT element of sales in a separate account which could then be spent on specific items required for production, from memory included fuel, feed, fertiliser, seeds and pesticides.

In January this year the law changed so that 80% of VAT has to be paid to the government, no great surprise then that farmers are hanging on to grain and looking to sell for black cash.

While you can never be totally sure of the situation, the lack of trucks queuing up at silos when lines would normally be measured in kilometres and recent full on tax inspections (think raids, balaclavas, guns) suggest a lack of grain wagons is not necessarily the root cause.

There will be a limit on black cash grain sales as there will be a limit on where it can go and it won’t be long before farmers need to commit to input purchases, so, keeping in mind that January trade slows right down, come February we might see a rush on exports and prices dropping in the ensuing melee.