JOHN MARONE, KYIV
OF BREAD AND BOLSHEVISM – GRAIN QUOTAS RETURN TO UKRAINE
The Soviet authorities loved to portray their country to the world as a dictatorship of workers and peasants.
In fact, the peasants were at the bottom of the Soviet Union’s socio-economic hierarchy, forced to feed the workers, the army and the party functionaries who controlled their lives.
Independent Ukraine may eventually have to again force a large percentage of its people to till the fields in order to provide the rest of the country with something to eat, following the latest demonstration of command economics by the government.
Last week, the Cabinet finally admitted that it intended to renew severe restrictions on the export of grain.
Despite vigorous protests by grain traders, farmers and foreign governments, no one was surprised by the new quotas, which merely represented the continuation of a policy instituted last fall.
The government’s reason for the renewed restrictions was Ukraine’s recent bout of dry weather.
Indeed, this year’s harvest could end up being smaller than last year’s due to drought; however, in the opinion of everyone but the government, the harvest is not so small as to justify quotas.
But who should Ukrainians believe – blood sucking capitalists and foreigners, or the vanguard of the proletariat, whose only concern is that the people get cheap bread?
As for the country’s farmers, they ceased being seen as wholesome laborers as soon as they started trying to make a profit.
Ukrainian farmers may have finally gotten the point, though, this time around.
Why should they risk investment against bad weather and world markets if the government is going to force them to sell their produce at a lower price to ‘the people’ anyway?
It’s the people, of course, whom the government has in mind, as the coalition of prime-minister Viktor Yanukovych gets ready to challenge the country’s pro-Western opposition in early elections later this year.
There is nothing like cheap food, as well as the rises in pensions and state wages that the government has promised, to dispose voters to their cause.
Although the prime-minister has spent no great effort to change his public image as a cheat in the last presidential elections to that of a modern leader of a market economy, his choice of coalition comrades in the parliament speaks to the contrary.
Together with the Socialists and Communists, the champions of the peasant, Yanukovych has shown himself to be at best indifferent to implementing reforms directed at greater integration with Europe.
Yanukovych’s Regions faction itself is a loose mix of post-Soviet reactionaries and pragmatic industrialists.
All the same, as in Soviet times, party officials and industrial workers need farmers to feed them.
But following the government’s June 20 decision to re-impose grain quotas, farmers are expected to start planting more profitable crops such as rape seed, which is used in the production of bio-fuel.
Experts say that the increased use of land worldwide to produce bio-fuel is the main reason for skyrocketing international grain prices.
Increasingly capricious weather and a higher world population have also raised the demand for bread.
These trends could be a windfall for Ukraine, currently the world’s sixth largest grain exporter.
Instead, out of incompetence and short-term planning, Ukraine’s government is shooting itself in the foot.
When the government first imposed grain quotas last fall, farmers had already started work toward this year’s harvest. But next year may bring even smaller grain yields than this year and last, regardless of the weather, as farmers switch to crops they can sell.
Experts estimate that Ukrainian farmers have already lost upwards of $200 million in the last nine months due to the government’s command-economy tactics.
Most damaging has been the way the government introduced its restrictions: suddenly, secretly and with no input from farmers and traders.
Since grain export quotas were introduced last fall, traders have reported losses of up to $100 million in fines for broken contracts. Even if the government does decide to free up exports in October, when its newest quotas are due for renewal, there will not have been enough time to arrange sales.
Last year, with a harvest just a little below average, around 34 million metric tons, the government also said it was looking after the country’s food security.
It didn’t explain, however, why it hadn’t taken the precaution of buying enough grain for state reserves, instead of unilaterally and belatedly halting grain shipments abroad.
Moreover, grain traders and farmers have repeatedly said that the worst part of the government’s policy has been its unpredictability.
Last year, for example, the government unexpectedly and immediately introduced inaccessible export licenses, then switched to quotas that were cancelled over the course of the next several months, promised that it would cancel the last quotas this May and then – surprise, surprise – announced new quotas with two weeks notice in June.
When foreign diplomats have protested, they were told to mind their own business; when traders have complained, they were said to be exaggerating their losses.
Is this the behavior of a modern market-oriented government? One gets the impression that the Ukrainian government’s economic gurus think that world markets operate like a corner store.
Apparently sensitive to last year’s media reports of grain traders throwing rotting grain into the Black Sea to avoid paying crippling extra storage fees, the government proudly announced this year that it had given traders a full month to export the grain that they had already stored at port.
With such foresight in policymaking, one wonders whether it’s incompetence or outright self sabotage that guides Ukraine’s government.
The secretariat of President Viktor Yushchenko, for example, has already said the grain quotas will hurt Ukraine’s chances of joining the World Trade Organization. Unlike his leftist coalition partners, Yanukovych has supported WTO entry, which would benefit the industrial wing of the Regions faction. However, the prime-minister has hampered other initiatives toward Western integration, preferring closer ties with the Kremlin, which supported his ill-fated grab for the presidency.
No one would deny that the Ukrainian government has the right, the obligation, to ensure that Ukrainians have enough to eat. Some are even sympathetic to the fact that the cash-strapped government is afraid of paying market prices for grain. However, there is no excuse for the opaque and unpredictable way that the export restrictions have been carried out. Moreover, the size of the new quotas – only 3,000 metric tons for each type of grain exported – equates to a complete ban. Normally, Ukraine exports around 9 million metric tons of grain a year. Although the government recently reported that as much as 10 million tons of grain might have been damaged from draught, this figure is just a forecast, and one not shared by anyone else.
So if Ukraine ends up with more grain than it needs, who will sell what’s left? Not the grain traders, as they have been effectively put out of business. The opportunity afforded by such a situation to well connected middlemen speaks for itself and to a return to old-style corruption.
Another equally important question that arises is who will be planting Ukraine’s next crop? The peasants of Soviet times weren’t thrilled about feeding the workers, army, party bosses and intelligentsia. That’s probably why the Communist authorities had to keep them from moving to the city. If the government doesn’t start understanding the complexity and fragility of the market economics that it claims to espouse, it may have to start making people become peasants again.
John Marone, Kyiv Post Senior Journalist, based in Ukraine.
June 25, 2007
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