Ukraine's government should ensure that farmers' interests are protected
in an innovative $3bn grain-for-loan deal, which would see the country supply corn
to China in return for credit lines, a leading agricultural expert said.
Mykola Pryaszhnyuk, Ukraine's agriculture minister, revealed that Kiev
is set next month to sign a deal in which the country sends China some 3m
tonnes of corn a year "to be supplied at market prices that are set at the time
That would be more than enough to meet China's import needs for the
grain in 2012-13, although these requirements are expected to grow significantly,
promoting the country potentially to the world's top importer in a decade's time.
In return, Ukraine, whose economy has yet fully to recover from a
contraction of 15% three years ago during the world recession, will receive $3bn
in credit lines.
But the fruits of a plan which would boost Ukraine's firepower for
much-needed investment should not come at the expense of farmers' welfare, Sergey
Filofilov, general director at influential consultancy UkrAgroConsult, said.
If the gains from such a plan "are reasonably equally distributed then
it bodes well for farmers in countries with surplus production but lack, or
difficulties in accessing credit", Mr Feofilov told Agrimoney.com.
US forecasts for China corn imports
2012-13: 2.0m tonnes
2015-16: 7.5m tonnes
2017-18: 10.8m tonnes
2019-20: 14.2m tonnes
2020-21: 16.0m tonnes
2021-22: 18.1m tonnes
Sources: USDA Wasde, Baseline reports
"However, if the benefits flow to the administrators of the transaction
through hidden rent-seeking activity, this presents a problem.
"Reasonable distribution of benefits will encourage farmers to push for
"Opaque and unclear benefit distribution will likely be at the cost of
the farmers and in the long run will kill this and other deals of this kind."
China is also amid a long-running drive to boost its grain imports from
Argentina, another major crop exporting country with a need for foreign
Ukraine's government has a mixed history of promoting farmers'
interests, angering growers by imposing quotas after the drought-hit harvest in
2010, and then rolling restrictions over into highly unpopular tariffs on
shipments in 2011-12, removed in the face of farmer protest.
Many believe Ukraine will early next year impose export curbs early in
2013 to protect domestic supplies – to the good of feed and food consumers, but
at the expense of growers denied access to international markets.
The government is also believe to have agreed with merchants maximum
grain exports of 19.4m tonnes in 2012-13, including 4.0m tonnes of wheat.
Mr Feofilov said the implications of the latest deal would be better
understood when the government announced more details on terms.
"The sooner details are released regarding who is doing what, at what
price and how the sooner we can understand the implications of the deal," he
One official said that the proceeds of the Chinese loans would be used
to finance the purchase of Chinese agricultural technologies.
While the current
cash for crops deal is a first, it is by no means China's first foreign
investment and infrastructure deal.
The Guangdong Bureau
of Coal Geology has revealed talks with Zimbabwean officials into the building
a $3.4bn thermal power station.
And, with foreign reserve assets estimated in excess of $3,000bn, deals
that see China exchange credit facilities for materials could become
increasingly common place.
China has already entered into similar deals in the energy market,
exchanging crude oil from Venezuela for example to repay loans from the Chinese
China's Ministry of
Commerce places the value of foreign direct investment deals at $86.8bn last
year, almost 70 times what they were a decade ago.
As for Ukraine, prior
to the credit crunch Ukraine was considered one of the most promising
emerging markets, recording a decade
of impressive growth.
economy was hard by Europe's recession, and has yet to recover all of the
economic ground lost.
With a mini
construction boom ahead of the Euro 2012 football championship now over, Ukraine's
economic prospects have already felt the pinch, and prompted some economists to
cut growth forecasts.