UKRAINE BUSINESS NEWS: FIFTEEN ARTICLES
Ukraine Government Significantly Increases Import Duties & Other Restrictions. Parliament once again (year after year after year) delays sale of agricultural land
1. UKRAINE PERMITS RUSSIAN GOVERNMENT OWNED BANK
TO BUY CONTROL OF LARGE UKRAINIAN PRIVATE BANK
Serhii Zholobetskyi, Ukrainian News Agency, Kyiv, Ukraine, Friday, December 26, 2008
2. RUSSIAN STATE-OWNED VEB BANK TO BUY
UKRAINE'S PROMINVESTBANK
Bloomberg, New York, New York, Monday, 29 December 2008
3. UKRAINIAN PARLIAMENT IMPOSES ADDITIONAL 13%
TEMPORARY DUTY ON IMPORTED GOODS
Interfax-Ukraine, Kyiv, Ukraine, December 23, 2008
4. UKRAINE PARLIAMENT INCREASES CAR IMPORT DUTY TO 23%
Ukrinform, Kyiv, Ukraine, Wednesday, December 24, 2008
5. UKRAINIAN PRESIDENT WORRIED IMF MIGHT
CANCEL LOAN DUE TO INCREASE OF IMPORT DUTIES
Interfax Ukraine, Kyiv, Ukraine, Wednesday, December 24, 2008
6. UKRAINE CABINET LIKELY TO TEMPORARILY BAN
IMPORTS OF PORK AND POULTRY
Viktoria Miroshnychenko, Ukrainian News Agency, Monday, December 22, 2008
7. UKRAINE'S NEWLY ADOPTED BUDGET DEFICIT
FLOUTS IMF TERMS
By Natalya Zinets, Reuters, Kiev, Ukraine, Monday, December 29, 2008
8. UKRAINE'S UNEMPLOYED CAN DELAY DEBT
REPAYMENT TO BANKS
Bloomberg, New York, New York, Friday, 26th December 2008
9. UKRAINE PROLONGS MORATORIUM FOR SALE OF FARM
LAND UNTIL 2010
Yevhen Buderatskyi, Ukrainian News Agency, Kyiv, Ukraine, Tue, Dec 23, 2008
10. UKRAINE'S ANTIMONOPOLY COMMITTEE INVOLVED
IN AVIATION FUEL MARKET
UkrInform - Ukraine News, Kyiv, Ukraine, Friday, December 26, 2008
11. UKRAINIAN COMPANIES UNLIKELY TO PERFORM IPOS
IN 2009, BAKER & MCKENZIE SAYS
Interfax-Ukraine, Kyiv, Ukraine, Tuesday, December 23, 2008
12. AES KYIVOBLENERHO TO INVEST UAH 73.4 MILLION
IN DEVELOPMENT IN 2009
Ihor Yahkin, Ukrainian News Agency, Kyiv, Ukraine, Friday, December 26, 2008
13. UKRAINIAN RADA DISMISSES SEMENIUK-SAMSONENKO
AS STATE PROPERTY FUND CHAIRWOMAN
Iryna Bilan, Ukrainian News Agency, Kyiv, Ukraine, Friday, December 26, 2008
14. U.S. AMBASSADOR TAYLOR DISAPPOINTED WITH YUSHCHENKO'S
AND TYMOSHENKO'S INABILITY TO COOPERATE
Ilona Yarmoliuk, Ukrainian News Agency, Kyiv, Ukraine, Friday, December 26, 2008
15. BLACK SEA REGION WHEAT EXPORTS SURGE
Russia, Ukraine Edge U.S. Farmers With Lower Prices, Bumper Crops
By Tom Polansek, The Wall Street Journal, New York, NY, Monday, Dec 29, 2008
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1. UKRAINE PERMITS RUSSIAN GOVERNMENT OWNED BANK
TO BUY CONTROL OF LARGE UKRAINIAN PRIVATE BANK
Serhii Zholobetskyi, Ukrainian News Agency, Kyiv, Ukraine, Friday, December 26, 2008
KYIV - The Antimonopoly Committee of Ukraine has permitted Russia’s Vnesheconombank (Bank for Development and Foreign Economic Affairs,
Moscow) to buy over 50% of the shares in a biggest Ukrainian bank, PromInvestBank, Ukrainian News learned from the antimonopoly committee’s press service.
"The permit was granted to the state-run corporation Bank for Development and Foreign Economic Affairs (Moscow), which is not engaged in any business
activity in Ukraine, for the purchase of over 50% in CJSC Joint-Stock Commercial Industrial-Investment Bank (Kyiv)," the press release says.
Earlier, PromInvestBank owners declared the intention to draw Russia’s Vnesheconombank for joint increase of the statutory fund by UAH 900 million
to UAH 1.1 billion.
As Ukrainian News earlier reported, in early November, the National Bank of Ukraine and new investors of PromInvestBank agreed on increase of the
statutory fund of the financial institution by UAH 900 million to UAH 1.1 billion.
The temporary administrator of PromInvestBank several times prolonged the term for placement of the bank’s by-emission, which yet never took place.
In compliance with unofficial information, the new owners of a 68-percent stake in the PromInvestBank were Verkhovna Rada deputies Andrii Kliuev and Serhii Kliuev of the Party of Regions’ faction.
2. RUSSIAN STATE-OWNED VEB BANK TO BUY
UKRAINE'S PROMINVESTBANK
Bloomberg, New York, New York, Monday, 29 December 2008
KYIV - Prominvestbank, Ukraine's sixth-largest lender by assets, will be acquired by Vneshekonombank and has already received a first payment of $190 million, Interfax reported Saturday. An additional payment of $1 billion is expected in "the next few days," a source in Prominvestbank said, the news agency reported.
Ukraine's anti-monopoly agency said in a statement posted on its web site that Russia's state-owned VEB, also known as the Development Bank, had received approval for the acquisition of more than 50 percent of Prominvestbank.
The Central Bank took control of Prominvestbank in October after a run on deposits, appointing Krotyuk its temporary manager. Stabilizing the lender is a requirement for an aid package from the International Monetary Fund.
3. UKRAINIAN PARLIAMENT IMPOSES ADDITIONAL 13%
TEMPORARY DUTY ON IMPORTED GOODS
Interfax-Ukraine, Kyiv, Ukraine, December 23, 2008
KYIV - The Verkhovna Rada, Ukraine's parliament, has imposed an additional 13% temporary duty on all imported goods, apart from a list of goods that will be compiled by the Cabinet of Ministers.
A total of 269 MPs from the ruling coalition and the Communist Party voted for a corresponding law amending some Ukrainian laws aimed at improving the state of Ukraine's balance of payments due to the global financial crisis.
"Duties have been increased on all imported goods, apart from a [so-called] 'critical' [list of goods]," the head of the parliament's committee for tax
and customs policies, Serhiy Teriokhin, said.
4. UKRAINE PARLIAMENT INCREASES CAR IMPORT DUTY TO 23%
Ukrinform, Kyiv, Ukraine, Wednesday, December 24, 2008
KYIV - The Verkhovna Rada (Parliament) has passed a law increasing a vehicle import duty by 13% for the next six months, in particular, imposing a 23% import duty on cars.
The MPs, after amending some laws in order to improve Ukraine's balance of payments due to the global financial crisis, have increased duties on the goods the import of which doubled this year.
An increase in car import duties will be in effect within six months and the Cabinet of Ministers will then be able to extend the effect of this law for another six months without the consent from the Verkhovna Rada.
5. UKRAINIAN PRESIDENT WORRIED IMF MIGHT
CANCEL LOAN DUE TO INCREASE OF IMPORT DUTIES
Interfax Ukraine, Kyiv, Ukraine, Wednesday, December 24, 2008
KYIV - Ukrainian President Viktor Yuschenko has criticized the adoption by parliament of an additional temporary duty on all imported goods, apart from a list of goods that will be compiled by the Cabinet of Ministers. He said that this could be a reason for the International Monetary Fund (IMF) to refuse from future cooperation with Ukraine within the framework of a $16.5 billion loan.
"I'm alarmed by the report of my legal department on parliament's decision to impose an additional temporary duty on all imported goods. Parliament's
decision puts Ukraine's presence in international programs in jeopardy," the head of state said at a press conference in Kyiv on December 23. "Similar
decisions by Russia and Europe might be made against us in three days," he said.
6. UKRAINE CABINET LIKELY TO TEMPORARILY BAN
IMPORTS OF PORK AND POULTRY
Viktoria Miroshnychenko, Ukrainian News Agency, Monday, December 22, 2008
KYIV - The Cabinet of Ministers is likely to temporarily ban imports of pork and poultry meat, reads the government's relevant directive No. 1565 dated December 17.
By its directive No. 1565 entitled "Plan of urgent measures to avert negative impact on the agro-industrial complex by the global financial crisis" the government ordered the Agricultural Policy Ministry, the Economy Ministry and the State Customs Service to prepare corresponding proposals before December 25.
Besides, the document rules get ready for strengthening protection of the internal market of agricultural products involving methods of non-tariff regulation.
Apart from this, the Cabinet has intention to consider expenditure of prolonging the validity of resolution No. 1222, passed on October 17, 2007, which introduced mandatory declaring of changes of prices for foodstuffs, and of directive No. 592 dated April 12, 2008 on sale of imported meat at the domestic market by the State Committee for Material Reserves.
The Cabinet instructed responsible ministries and departments deal with the issue of optimizing tariffs for transportation of farm cargoes, work out a mechanism of forming a stabilization fund of fuel earmarked to carrying out of agricultural works.
As Ukrainian News reported, the Verkhovna Rada on December 11 passed the first reading of the government's bailout bill, No. 3353, proposing prolongation farmers' 2005-2008 outstanding loans until November 1, 2009, a ban on the import of meat and its byproducts on a tolling basis, and lifting of customs duty on the export of sunflower until September 1, 2009.
7. UKRAINE'S NEWLY ADOPTED BUDGET DEFICIT
FLOUTS IMF TERMS
By Natalya Zinets, Reuters, Kiev, Ukraine, Monday, December 29, 2008
KIEV -- Ukraine's fractious parliament adopted a 2009 budget on Friday with a 3 percent deficit -- at odds with conditions set by the International
Monetary Fund for a $16.5 billion economic rescue package. The 450-seat chamber, with a long record of erratic behavior, passed the budget with the
minimum number of votes after several failed ballots.
It also demanded the dismissal of Ukraine's Central Bank chief a week after the hryvna currency hit a record low and fired outright the head of the
privatization agency.
The global financial crisis has battered industry and consumers in Ukraine, prompting authorities to seek the IMF loan. The fund had made a deficit-free
budget a condition for the package. Many deputies said figures in the proposed budget were unrealistic: 0.4 percent growth against contraction forecasts of 5 percent by the economy ministry and 4 percent by the World Bank.
The head of parliament's budget committee, Mykola Derkach, acknowledged that the budget was "very optimistic. But we must adopt the budget. It is a step
in overcoming the crisis."
An aide to President Viktor Yushchenko, Oleksander Shlapak, said last week that new talks with the IMF would now be needed. "I cannot say how they will end, but I think that the chances of winning them over are 50-50," he said.
Other conditions attached to the IMF credit include maintaining currency reserves at $27 billion and strict limits on expansion of money supply.
The move against Central Bank head Volodymyr Stelmakh was symbolic, because only Yushchenko can remove him, subject to the chamber's approval, and he has shown no inclination to do so. Even if Stelmakh stepped down, analysts said, the parliament was unlikely to secure enough votes to elect a
successor. "I doubt very much this parliament would come up with a broadly acceptable new candidate," said Vasyl Yurchyshyn, of the Razumkov think tank.
The assembly was, however, empowered to sack the head of the State Property Fund, Valentyna Semenyuk, who had remained in her job since 2005 despite a government attempt to remove her. Semenyuk opposed several key sell-offs. Privatization in 2008 was virtually at a standstill, bringing in 5 percent to 10 percent of the 9 billion hryvnas ($1.15 billion) of planned revenue.
Stelmakh, 69, has twice been Central Bank chairman, from 2000 to 2002 and since December 2004. Tymoshenko, at odds with Yushchenko for months on a
wide variety of issues, demands Stelmakh's dismissal and says the president should also quit.
The hryvna sank to a historic low of 10 to the dollar last week, about half its value in September. Repeated Central Bank intervention has since lifted
it to about 7.6. The hryvna's plunge has jolted confidence in the banking system, and officials warn of mass failure to repay debt.
Data released Friday showed the current account deficit deteriorating to $11.7 billion in January to November, from $10.5 billion in the first 10
months of the year. That figure has been widening because of steep increases in the price of imported gas. Ukraine has yet to conclude a 2009 pricing and supply deal with Russia and President Dmitry Medvedev has threatened Ukraine with sanctions if it fails to pay what Moscow says are $2 billion in arrears.
8. UKRAINE'S UNEMPLOYED CAN DELAY DEBT
REPAYMENT TO BANKS
Bloomberg, New York, New York, Friday, 26th December 2008
KYIV - Ukraine’s parliament passed a law requiring the country’s central bank to delay the repayment of debt by citizens who have lost their jobs. The law was backed by 230 lawmakers in the 450-seat assembly in the capital Kiev today.
Natsionalnyi Bank Ukrainy, the central bank, must adopt procedures allowing individuals who registered as unemployed after October 1, to delay
repayment to banks, according to a statement on Ukraine parliament’s website today.
The value of Ukrainian bank loans to individuals surged 62 per cent in the year through December 1, totalling 250 billion hryvnias ($31 billion),
according to central bank data. Financing issued in dollars by Ukrainian lenders accounted for about 53 per cent of total loans as of September 30, according to the central bank’s website.
Ukraine’s currency has slumped 37 per cent against the dollar this year as turmoil in global credit markets deterred investment in emerging markets.
The nation last month received a $16.4 billion loan from the International Monetary Fund to finance its current account deficit and stabilize the
banking system.
9. UKRAINE PROLONGS MORATORIUM FOR SALE OF
FARM LAND UNTIL 2010
Yevhen Buderatskyi, Ukrainian News Agency, Kyiv, Ukraine, Tuesday, December 23, 2008
KYIV - The Verkhovna Rada has prolonged the moratorium for the sale of the farm lands until January 1, 2010. A total of 263 of required 226 deputies backed the relevant bill No.3353 "On amending some laws regarding dampening of the negative impact of the global financial turmoil on the development of the agricultural sector." The law contains the relevant term on prolongation of the moratorium.
The law endorsed by the Verkhovna Rada on January 4 envisaged that the moratorium for the sale of the farm lands should have been in force until the legislative regulation of the land market: the law "On the land market" and the law "On the state land cadastre."
Besides, the law endorsed by the Verkhovna Rada allowing the Agrarian Fund to sell the facilities of the state price regulation within the favourable market situation. This term was endorsed to provide revenues of the special fund of the state budget.
As Ukrainian News earlier reported, President Viktor Yuschenko has forecasted the consent of all political forces with the cancellation of the moratorium for sale of the farm lands as of 2009. On January 4, 2008, the Verkhovna Rada prolonged the moratorium for the sale of the land plots until legislative regulation of the land market. There are over 60 million hectares of land in Ukraine, including 41.8 million hectares of farm lands.
FOOTNOTE: Ukraine's Parliament has once again punted on the issue of the real privatization of farm land. This has been going on now year after year after year. Ukraine has not found the leadership or political will in 17 years to pass legislation that would set the rules to allow agricultural land to be totally privately owned....to allow it to be bought and sold and used as collateral. This issue continues to severely hold back the development of agriculture and agri-business in Ukraine and costs Ukraine and her people literally hundreds of millions of dollars each year...and yes even billions. It is hard to imagine that for 17 years Ukraine has punted on this very important and critical economic and business issue. The concept of Ukraine just being the 'bread basket of Europe' is long out of date. Ukraine could be a major and reliable food basket for itself and the region, supplying a large variety of raw agricultural products and processed foods if Ukraine's politicians would just get out of the way. Why are there still millions of poor Ukrainians living in run-down villages on some of the best farmland in the world? Why is agricultural production in Ukraine now just back to the level it was before Independence in 1991? The answer is easy, Ukraine's politicians and government leaders for the past 17 years.
10. UKRAINE'S ANTIMONOPOLY COMMITTEE INVOLVED
IN AVIATION FUEL MARKET
UkrInform - Ukraine News, Kyiv, Ukraine, Friday, December 26, 2008
KYIV - The Ukraine's antimonopoly committee started investigation regarding violation of the antimonopoly legislation on the aviation fuel market.
According to acting head of the Antimonopoly Committee Oleksandr Melnychenko, the committee started investigation in Kyiv, Lviv, Odesa and
Simferopol.
"We held an investigation and found that though it seems paradoxically, but if in Boryspil (Kyiv Boryspil International Airport - ed.) the prices for
the aviation fuel have been reducing since September, then in other airports they are not reducing which does not meet the world trends," Melnychenko
claimed.
He underscored that the task of the Antimonopoly Committee is to determine the legal entities involved in these violations and to institute proceedings
against them. "And, of course, we intend to set a clear task for them - to drop the price for aviation fuel," the acting head of the Antimonopoly
Committee.
FOOTNOTE: The U.S.-Ukraine Business Council (USUBC) is very pleased to hear that the Ukraine Antimonopoly Committee is going to investigate the extremely and unusual high cost of aviation fuel in Kyiv. Several USUBC members have presented very strong evidence to USUBC about the cost of aviation fuel in Kyiv being totally out-of-line with such fuel costs in other European capitals. The extreme extra cost of jet fuel in Kyiv is having a severe impact on the ability of Ukrainian airlines to survive the financial crisis and be competitive.
11. UKRAINIAN COMPANIES UNLIKELY TO PERFORM
IPOS IN 2009, BAKER & MCKENZIE SAYS
Interfax-Ukraine, Kyiv, Ukraine, Tuesday, December 23, 2008
KYIV - Ukrainian companies are unlikely to perform public initial offerings (IPO) in 2009, the Ukrainian representative of Baker & McKenzie international law company stated.
“Today we do not know any company preparing for an IPO. At the best, one or two companies will perform an IPO by late 2009,” Mykola Stetsenko, the partner of the Kyiv office of the company, said at a press conference in the Interfax-Ukraine news agency. According to Stetsenko, Ukrainian issuers can renovate performing IPOs not earlier the third quarter of 2009.
According to Vitaly Shapran, the major financial analytic of the Expert-Rating agency (Kyiv) forecast the amount of funds attracted by Ukrainian issuers at public, private and repeated placements in 2009 will be $0.5 billion, which is 25.9% down compared to 2008. He said over 2008 Ukrainian issuers attracted $675 million, while the $3 billion amount was forecast.
“We know that there are small companies, planning to enter the capital market. Large placements will be postponed until 2010-2012,” he supposed.
Baker & McKenzie is an international law firm set up in Chicago. The company has offices in over 30 countries.
FOOTNOTE: Baker & McKenzie is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
12. AES KYIVOBLENERHO TO INVEST UAH 73.4 MILLION
IN DEVELOPMENT IN 2009
Ihor Yahkin, Ukrainian News Agency, Kyiv, Ukraine, Friday, December 26, 2008
KYIV - Kyiv-based AES Kyivoblenerho energy distribution company intends to invest UAH 73.435 million into its development in 2009, the relevant investments are envisaged by the investment program of the company endorsed by the National Electricity Regulation Commission on December 23.
In particular, the company intends to channel UAH 52.211 million for construction, modernization and reconstruction of electrical networks and equipment; UAH 12.462 million for million for the measures on reduction of the over-norm electricity expenses; UAH 0.741 million for deployment and development of the automated monitoring system.
Besides, the company intends to channel UAH 1.216 million for information technologies; UAH 3.537 million for the communication and telecommunication systems; UAH 2.535 million for purchase and modernization of the motor transport; and UAH 0.733 million for other measures.
As Ukrainian News earlier reported, AES Kyivoblenerho closed joint stock company ended 2007 with a net profit of UAH 62.753 million, having increased net revenues by UAH 28.02% or UAH 251.89 million, compared to 2006 to UAH 1,150.709 million.
In 2001, AES Washington Holdings B.V. (the Netherlands) purchased 75%+1 share in each Kyivoblenerho and Rivneenerho.
Later, the companies were renamed into AES Kyivoblenerho and AES Rivneenerho. AES Corporation runs 113 energy generating facilities and 17 energy distribution companies in 27 countries.
FOOTNOTE: AES is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
13. UKRAINIAN RADA DISMISSES SEMENIUK-SAMSONENKO
AS STATE PROPERTY FUND CHAIRWOMAN
Iryna Bilan, Ukrainian News Agency, Kyiv, Ukraine, Friday, December 26, 2008
KYIV - The Verkhovna Rada has dismissed Valentyna Semeniuk-Samsonenko as the chairwoman of the State Property Fund. A total of 259 of required 226 deputies backed the relevant draft resolution. Before taking this decision, Semeniuk-Samsonenko had not taken floor at the parliament.
As Ukrainian News earlier reported, in January, the Cabinet of Ministers suggested that the Verkhovna Rada appoint Andrii Portnov as the chairman of the SPF. In early June, his candidacy was replaced by the Yulia Tymoshenko Bloc faction for Andrii Kozhemiakin. Semeniuk has earlier said she wanted to report about the activity of the SPF at the Verkhovna Rada. She has headed the Fund since April 13, 2005.
FOOTNOTE: Valentyna Semeniuk-Samsonenko is a member of the Socialist Party. She has worked very hard since April 13, 2005 to block the privatization of all state-run companies. She even said at one time she did not want any state companies privatized and what she wanted was to have the government take back the companies that had already been privatized. Very few privatizations have taken place under her watch and thus (1) badly needed funds have not gone into the Ukraine treasury and (2) many very poorly run, under capitalized state companies with high levels of corruption have not been allowed to be sold and thus move into the private business sector. Thousands of new jobs, and millions in income and taxes have been lost to Ukraine.
14. U.S. AMBASSADOR TAYLOR DISAPPOINTED WITH YUSHCHENKO'S
AND TYMOSHENKO'S INABILITY TO COOPERATE
Ilona Yarmoliuk, Ukrainian News Agency, Kyiv, Ukraine, Friday, December 26, 2008
KYIV - United States Ambassador to Ukraine William Taylor said he is disappointed over the fact that President Viktor Yuschenko and Prime Minister Yulia Tymoshenko cannot arrive at an agreement. William Taylor stated this in an interview published in the Delo newspaper.
According to Taylor, earlier this year, he was alert with hope that the President and the Prime Minister will unite in their endeavors to cope with the challenges emerging in Ukraine.
"Now, at the end of the year, I am disillusioned about the fact that the President and the Prime Minister cannot arrive at an agreement," the US Ambassador said. Taylor went on to say that Ukraine is stronger when its political leaders are working as a team.
As Ukrainian News earlier reported, Ambassador of the United States to Ukraine William Taylor said the parliamentary coalition of the factions of the Yulia Tymoshenko Bloc, Our Ukraine — People's Self-Defense bloc and of the Lytvyn Bloc might work until and after the presidential election.
The Federation of Trade Unions demands that President Viktor Yuschenko, Prime Minister Yulia Tymoshenko, and the Verkhovna Rada consolidate their efforts in the work on an effective and clear program for overcoming the crisis, revival of national producers, and reliable provision of vital needs of Ukrainian citizens.
15. BLACK SEA REGION WHEAT EXPORTS SURGE
Russia, Ukraine Edge U.S. Farmers With Lower Prices, Bumper Crops
By Tom Polansek, The Wall Street Journal, New York, NY, Monday, Dec 29, 2008
CHICAGO -- The Black Sea region has muscled its way into the exclusive club of the world's top wheat exporters and is expected to continue stealing business away from its most prominent member, the U.S.
The U.S. won't lose the title of world's biggest wheat exporter, but countries such as Ukraine and Russia are expanding their influence on the world market, analysts said. The region is now one of the top-five world exporters, a group formerly limited to the U.S., Canada, the European Union, Australia and Argentina.
The U.S.'s share of the world export market already has declined amid stiffer competition from the Black Sea region, where farmers have benefited from low production costs and continued investments in the agricultural sector, analysts said. More market share may fall away.
"I think Russia and Ukraine will raise their share in wheat exports and the U.S. will decrease its share in world wheat trade," said Rudolf Bulavin, head of the analytical division at the Coordinating Analytic Centre of Agriculture Sector, in Russia.
In 2008, favorable weather lead to bumper crops in Ukraine and Russia, where production is expected to climb nearly 28% from last year to a record 63 million metric tons, according to the Agriculture Department. The countries flooded the global market with cheap wheat and have elbowed out pricier U.S. wheat for sales to price-conscious buyers.
Wheat produced in Ukraine and Russia is generally of lower quality than U.S. wheat, but it still usually meets the minimum standards of price-conscious exporters, analysts said. "As long as [Black Sea exporters] have wheat that they're willing to discount and the quality is acceptable from a milling standpoint, it's going to continue to be a problem for the U.S. exporter," said Shawn McCambridge, analyst for Prudential Bache.
Egypt, for example, is a major buyer on the world wheat market that is known to be price-sensitive. Asian buyers such as Japan and Taiwan, by comparison, are more concerned about quality than price, analysts said.
The U.S. in 2008 is projected to export about 27 million tons of wheat, accounting for 22% of world exports, according to the USDA. That is down from about 27% a decade ago. Exports from 12 countries in the former Soviet Union are projected to account for about 23% of the world's wheat exports this year, up from 3.4% in 1998, the USDA said.
Russia alone is forecast to export more wheat than Australia and Argentina, typically the powerhouses of the Southern Hemisphere, though they have been hurt by drought. Russia's exports are estimated at 14 million tons, compared with 13 million from Australia and 5.3 million from Argentina, according to the USDA.
The Russian government has said it plans to subsidize grain exports in 2009 to prevent excess supplies from depressing local prices, according to reports. Ukraine, meanwhile, is expected to export nine million tons of wheat in 2008, up from 1.24 million in 2007, when hot, dry weather slashed output.
"Unless we still have a [weather] problem with Russia [or] Ukraine ... then you have to state that Russia, Ukraine, Kazakhstan will be a major influence in the export market for years to come," said James Dunsterville, analyst at AgriNews, of Geneva.
A "significant recapitalization of agriculture" in the three countries in the past three to five years has brought professional crop-management practices and outside capital to Black Sea farms, said Bill Tierney, head North American research analyst for LMC International, a global agricultural analysis firm. The changes have had a marked effect on wheat production, with yields doubling in some areas, he said.
The modernization of the industry will likely slow because of the global economic downturn, Mr. Tierney said. However, improved management practices have proven themselves and shown farmers they must spend money to make money, he said.
As a result, the Black Sea region will remain a "real thorn in the side of the U.S. wheat exporter over the next decade and beyond," said Rich Feltes, senior vice president for research at MF Global.
Still, despite the Black Sea region's growing role in the world wheat market, production and export potential can swing greatly from year to year because of unpredictable weather. The winter wheat crop now in the ground looks fine heading into winter, but Mr. Dunsterville cautioned "we've got a long way to go" before harvest in the summer.
Even if production falls next year, the Black Sea may be able to maintain its expanded market share because wheat production is expected to fall world-wide, Mr. Tierney said. A decline in world wheat prices from record highs hit this year has reduced the incentive for farmers to plant wheat.
—Sarah McFarlane in London contributed to this article.
LINK: http://online.wsj.com/article/SB123050769734838177.html?mod=googlenews_wsj