Ukraine Market Report — Q3 2010
A drought in the wider region lifted world grain prices, Ukraine restricted exports in response, and the same policy reflex of 2007 produced the same commercial consequences.
Overview
Drought in the wider Black Sea region reduced harvests and lifted world grain prices sharply during the summer.
Ukraine responded with export restrictions, as it had in 2006 and 2007.
The repeated reflex
The measures and their consequences were the same as three years earlier, which is the point worth recording.
Domestic prices were partially contained. Farmers received less than the world price and reduced their planting intentions. Traders holding forward contracts faced non-delivery. And international buyers again registered Ukraine as an origin subject to administrative interruption.
By 2010 the pattern was established well enough to be predictable. Any future episode of high world grain prices would produce Ukrainian export restrictions, and any company writing a forward contract for Ukrainian grain should treat that as a material probability rather than a tail risk.
That expectation held until the trade commitments taken under the EU agreement and the WTO framework progressively narrowed the room for such measures — which is one of the less obvious benefits those agreements delivered.
Macro position
Recovery continuing. Industrial output rising on external demand. Inflation moderate. The IMF programme disbursing.
In October a constitutional court decision restored the presidential powers as they had stood before the 2004 amendments, concentrating executive authority.
Sectors
Agriculture — the year's paradox: excellent world prices and restricted access to them.
Metals and chemicals — recovering, with chemicals helped by the gas price arrangement.
Retail — beginning to recover as employment stabilised.
Banking — lending still restricted; asset quality slowly improving.
What the quarter settled
That the export restriction reflex was structural rather than particular to any government. Three different administrations had now used the same instrument in the same circumstances.
For a company, a policy reflex that has appeared under three consecutive governments is not a political risk. It is a design feature of the market, and it should be modelled as one.
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