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P 221337Z JUN 07
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UNCLAS SECTION 01 OF 02 KYIV 001522 
 
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SENSITIVE 
SIPDIS 
 
TREASURY FOR ALIKONIS 
DEPT PLS PASS USTR FOR CKLEIN/LMOLNAR/SOWEN 
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYK 
USDA/FAS/OCRA FOR J FLEMINGS A THOMAS 
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MUMBAI FOR WKLEIN 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD PGOV UP
SUBJECT:  Ukraine:  GOU Imposes New Grain Export Limits 
 
Ref:  Kyiv 1422 
 
KYIV 00001522  001.2 OF 002 
 
 
Treat as Sensitive but Unclassified.  Not for Internet. 
 
¶1. (U) Summary:  As foreshadowed by recent official statements 
(reftel), Deputy Prime Minister Victor Slauta announced June 20 that 
the Cabinet of Ministers has made a decision to limit exports of 
grain, beginning July 1, in order to form a state grain reserve and 
limit growth in bread prices.  Political concerns in the run-up to 
the September 30 elections over increasing bread prices was the 
trigger:  PM Yanukovych pledged to keep bread prices stable and 
threatened to fire ministers who failed to keep them low.  In 
reality, there have been no significant increase in bread prices 
recently, but rumors of bread price rises clearly spooked the 
current government.  End Summary. 
 
CabMin Announces Limitation of Grain Exports 
-------------------------------------------- 
 
¶2. (SBU) According to a June 20 announcement by Deputy Prime 
Minister Victor Slauta, the Cabinet of Ministers issued a resolution 
to limit exports of wheat and grain.  The limitations come into 
effect on July 1.  The resolution does not set the date, when the 
limitation is to be lifted and has a clause that the limitation is 
in place "until the stock is replenished", although Minister of 
Agrarian Policy Melnyk stated they would be in effect through 
October 1.  (Note:  As of June 22, the resolution had not yet been 
published.)  The limitation will apply to milling wheat, corn and 
the mixture of wheat, barley and rye.  Exports of only a token 
amount of 3 thousand tons of each type of grain will be permitted. 
Sources in the Ministry of Foreign Affairs told us Minister 
Yatsenyuk vehemently argued in the Cabinet meeting against imposing 
the export ban, but was overruled. 
 
GOU Rationale - Bread Prices and Shortages 
------------------------------------------ 
 
¶3. (U)  The GOU defended the decision to introduce the quotas, 
arguing that the drought had caused a scarcity of grain inside the 
country and referring to the politically-sensitive issue of growth 
in bread prices.  After the GOU opened up exports of wheat this 
spring, domestic prices rose to approach world levels - wheat went 
from $173/ton on May 18 to $209/ton on June 8.  Prime Minister 
Yanukovych on June 14 ordered Slauta and Melnyk to come up with 
controls on bread prices, or lose their jobs.  Politics quickly 
intruded:  Deputy Prime Minister for Agrarian Policy Viktor Slauta 
accused opposition deputies from the Yuliya Tymoshenko bloc (BYuT) 
Trinduk and Khmelnitskiy of ordering bread price increases at 
bakeries under their control (in Dnepropetrovsk and Kyiv, 
respectively).  The two deputies countered that these accusations 
were false. 
 
Bread Prices Remain Stable So Far 
--------------------------------- 
 
¶4. (U) Although data is not yet in for June, according to the 
Ukrainian Statistics Committee, bread prices grew modestly in May 
2007 by 0.2% over April and 0.3% in April over March.  The 
agricultural market analysis company UkrAgroConsult reported that 
prices for the three most popular types of bread have not changed 
much in May.   Prices for bread from the flour of the 1st grade 
remained the same in 22 regions, grew 0.5-2.8% in 5 regions; prices 
for bread from wheat and rye flour did not change in 23 regions and 
grew by 0.5% - 3% in 4 regions; prices for bread from the flour of 
the higher grade remained the same in 24 regions, and grew by 1.2-3% 
in 3 regions.  Nonetheless, according to anecdotal reports, bread 
prices have gone up in June in some regions by as much as twenty 
percent. 
 
¶5. (U)  Bread prices are controlled by local goverments, who 
regulate only prices for three most common types of bread.  However, 
these three types of bread account for over three-quarters of all 
bread consumed.  Currently, local authorities have a range of 
instruments available to keep bread prices low.  For instance, 
because many bakeries are responsible for over 35% of bread 
production in their respective regions, their ability to raise 
prices is limited by the Antimonopoly legislation.  Local 
administrations also have the authority to set retail prices on 
 
KYIV 00001522  002.2 OF 002 
 
 
bread, as an essential food product, in accordance with a December 
1996 Cabinet of Ministers resolution. 
 
Grain Stocks Reported on Sufficient Level 
----------------------------------------- 
 
¶6. (U) Another argument, used by the GOU in justifying the export 
limitations, is the concern that the drought, which hit 10 Ukrainian 
oblasts, may leave the state without adequate domestic grain 
supplies.  According to the June 18 report of Deputy Prime Minister 
Slauta, the grain stock on hand in the country is 4.4 million tons, 
of which 2.5 million tons is wheat.  This level is equivalent to 
that accumulated in the same period last year.  (Note:  Most of 
these stocks are in private hands, as only half a million tons are 
owned by the Agrarian Fund or the State Grain Reserve.  End Note.) 
Agrarian Policy Minister Yuriy Melnik also confirmed at the June 20 
Agrarian Policy Ministry meeting that current domestic grain stocks 
were sufficient to avoid a crisis.  Moreover, the GOU is predicting 
a wheat crop of around 11.7 million tons, despite the drought, while 
projecting domestic consumption of only six to seven million tons 
for the next market year. 
 
Ambassador Criticizes Export Ban 
-------------------------------- 
 
¶7. (U) In a June 20 interview with Channel 5 television, Ambassador 
criticized the government's imposition of a ban.  He argued it would 
be much better to let market mechanisms work, noting that a ban 
would harm Ukrainian farmers and the overall investment climate. 
MP's Hanna Herman and Vasyl Kiselov, who belong to the Prime 
Minister's party took exception to the Ambassador's remarks, terming 
them interference in domestic affairs. 
 
¶8. (SBU) Comment:  Although the ban could have been worse (some 
traders feared an immediate ban on exports), its speedy imposition 
points to political panic as the motive.  As with the previous ban 
of last fall, there are clearly also interests (millers, bakers, and 
livestock producers) who will benefit from an export ban that 
depresses domestic grain prices.  However, for a government now 
facing elections in September, there is a clear interest to avoid 
politically-ruinous bread price increases -- at least until the 
elections are over.  This time around, as traders have exported most 
of their stocks and not purchased more grain, the full weight of the 
ban will fall on domestic farmers and not on politically-expendable 
(and largely foreign) grain traders.  The reaction of Ukraine's 
farmers will be key -- one trader told us he had heard already of 
plans by farmers to stage protests in Kyiv over the export ban. 
TAYLOR