Daily Insight-Grain export duties reconsidered; IMC, NGOK, Avangard, KSG Agro and Milkiland news

The Minister of Agriculture and Food, Mykola Prysiazhniuk, announced that the Ministry is considering canceling export duties on grain in early September. Mr Prysiazhniuk said that the possible abolition of grain export duties could be passed by the parliament though the changes to the Law \\\\\\\"On custom duties\\\\\\\". The parliament starts its new session on 6 September. We recall that the following grain export duties came into force in July 2011: 9% of the customs value, or not less than EUR17/tonne for wheat; 14%, or not less than EUR23/tonne for barley; and 12%, or not less than EUR20/tonne for corn.

Investment implications: We welcome the cancellation of grain export quotas. By our estimates, Ukraine will harvest over 50m tonnes of grain this season. Recently, Ukraine\\\\\\\'s PM Mykola Azarov announced that Ukraine would export 24m tonnes of grain in 2011/12. In July, Ukraine exported 330,000 tonnes of grain, a 5x MoM decrease. The traders say that competing with Russia is tough, as the latter offers grain with a US$30/tonne discount to lots offered by Ukrainian traders. As a result, existing duties put pressure on traders\\\\\\\' margins, as they cannot fully pass on the duties to farmers.

We believe a fully operational, free export market would be a justified step. With intensified grain exports, Ukraine will be able to receive a greater inflow of US dollars into the country, as exports are conducted mostly in dollars. In addition, the removal of duties will probably lead to a domestic grain price increase to narrow the lag in world prices, and this should play positively into farmers\\\\\\\' hands. However, we think exports of 24m tonnes of grain wouldn\\\\\\\'t be feasible in 2011/12. With a quarter of low grain exports, Ukraine will have nine months left in 2011/12 to export 23m tonnes of grain. This translates into 2.5m tonnes/month of shipments, which is impossible as Ukraine\\\\\\\'s total port capacity is only 2.1m tonnes/month. Therefore, estimated grain exports in 2011/12 amount to only 18-19m tonnes if duties are canceled in September.