Chemical dependence on Russia could become barrier to Ukrainian exports

Author : Pavlo Horin

Source :

By the end of 2016 Ukraine significantly increased the import of chemical products in comparison with the previous year. In particular, the import of mineral fertilizers from Russia has grown to almost 2 million tons. However, a small number of projects are being implemented in the chemical industry of Ukraine
19:46, 22 May 2017

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At the end of April in Hamburg, Ukraine presented the Export Strategy for 2017-2021. In Ukraine, the strategy was introduced at the end of March by the Ministry of Economic Development and Trade of Ukraine. According to the statements of Ukrainian officials, the main export indicators will be achieved through the supply of agricultural raw materials. Nevertheless, the text of the strategy says that its implementation will take place against the backdrop of ignoring other sectors of the economy, especially domestic chemistry. Such short-sightedness, according to experts, will lead only to a short-term success of the strategy and can provoke the loss of Ukrainian positions in other sectors of the economy.

The development of the Roadmap for the Ukrainian export strategy was part of the commitments we made in the framework of World Trade Organization. The document provides the fulfillment of 56 priority tasks and is focused, first of all, on increasing the export opportunities of domestic small and medium-sized businesses. The authors of the Roadmap include Ukrainian information and communication technologies, creative services, tourism, maintenance and repair of aircraft, production of spare parts and components for the aerospace and aviation industries, engineering and food industry to the export-oriented sectors of the economy.

Strategic sector, in their opinion, will be the agricultural sector of Ukraine. Exactly on the example of it the government wants to show the success of the innovation. The reasons are both the objective competitive advantages that Ukraine should use today, and the incredibly rapid development of this industry, says Olga Trofimtseva, one of the ideologists of the strategy, Deputy Minister of Agrarian Policy. According to her, the export of Ukrainian agrarian and food products has already exceeded $ 15.5 billion over the past year and amounted to 42.5% of the country's total exports. In addition, in 2016 we collected a record harvest of grain - 66 million tons, which exceeded last year's figure by almost 6 million tons. As of May of the current year, about 37 million tons of grain have already been exported. And before the end of the marketing year, according to the ministry's forecast, the export figure could increase 40 million.

Such statistics of the Ministry of Agrarian Policy proves the real priority of this sector for Ukrainian exports. At the same time, these indicators were achieved not at the expense of products of domestic agricultural processing, which could be exported abroad under the Ukrainian brand, but due to export of banal raw materials.

But even in this context, the prospects for Ukrainian exports are not as rosy as officials want. The level of our exports still does not reach the pre-crisis 2012, since over the past four years, the sale of Ukrainian goods abroad has almost halved (from $ 82.2 billion to $ 44.9 billion). At the same time, according to statistics, the previous export indicators were made not only by farmers, but also by metallurgy and chemistry.

Experts say that it is reckless to rely only on agricultural exports. UkrAgroConsult already predicts a decrease by 7.7% in 2017 yields in Ukraine. And the deputy director of the Association of Farmers and Private Landowners of Ukraine, Mykhailo Dankevich, declares an inevitable increase in the cost of agricultural production, and hence - of the internal price of grain crops, approximately 10-15%. In his opinion, this will be provoked by the abolition of a special regime for value added tax (VAT) for agrarians, a negative situation with fertilizers, higher tariffs for rail transportation, and the need to replace 80% of agricultural machinery in Ukraine since January 1, 2017.

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The productivity of the agrarian sector will not develop without the development of related industries. The further success of the export strategy implementation may depend from the stability of the development of Ukrainian agrochemistry and petrochemical industry. After all, our own fertilizers can increase yield, and cheap fuel - reduce the cost of production of agricultural products and improve its competitiveness. Meanwhile, these branches of Ukrainian economy remain without due attention of the government and are under the close attention of the Kremlin, and in the near future they can be monopolized by Russian producers.

Experts note that over the past 5 years the amount of fertilizers consumed by Ukrainian farmers has fluctuated between 75 and 82 kg per hectare, which allows us to maintain record harvests for the past two years. Ukrainian scientist Volodymyr Morgun said in an interview that it would be easy for Ukrainian farmers to achieve better results. For example, at the level of 80-100 million tons of grain annually, but for this they will need to use 240 kg of fertilizer per 1 hectare, which is about 6.5-7 million tons of mineral fertilizers per year. The domestic chemical industry is capable of providing 8.5 million tons if provided with normal working conditions.

Today's reality is completely different. The market of chemical fertilizers in Ukraine is on the verge of "extinction" and in the near future it may turn out to be monopolized by Russia.

So, the president of the Ukrainian Union of Chemists Olexiy Golubev says that in 2016 Ukraine paid 30 billion UAH for imported fertilizers, of which 21 billion could be provided by domestic industry. At the same time, 70% of imports came from Russia, which, having a cheaper gas - the main raw material for the production of nitrogen fertilizers - is able to attract Ukrainian farmers because of its price which is below market.

Since 2014, the Ukrainian authorities have attempted to protect the domestic fertilizer market from Russian producers. Then the Interdepartmental Commission for International Trade (hereinafter - ICIT) introduced protective duties on ammonium nitrate, the most popular type of fertilizer on the Ukrainian market. And as experience showed, the introduction of duties partly defended Ukrainian enterprises, and almost did not lead to a rise in price of the sowing campaign. But already at the end of 2015, Ukraine introduced the law "On Amendments to Certain Legislative Acts of Ukraine Regarding Deregulation in the Agroindustrial Complex", which opened market for foreign fertilizer producers. But instead of the expected supplies from Europe, this law was used, mainly, by Russian producers through the importation of various surrogates of ammonium nitrate under the guise of "new products", bypassing duties. Already by the end of 2016 Ukraine significantly increased the import of chemical products in comparison with the previous year. In particular, the import of mineral fertilizers from Russia has grown to almost 2 million tons.

On December 27, 2016, the ICIT established the fact of dumped imports from the Russian Federation, and also acknowledged that there is a causal relationship between the dumped imports of certain types of nitrogen fertilizers to Ukraine from Russia and significant damage to the national commodity producer. The Commission also found that the national interests of Ukraine require the application of final anti-dumping measures, after which it adopted Decision No.AD-363/2016 / 4411-05 of 27.12.2016 "On the application of final anti-dumping measures concerning the import of certain nitrogen fertilizers to Ukraine from the Russian Federation" before 01/07/2017.

But already on February 13 this year the commission headed by the First Deputy Prime Minister, the head of the Ministry of Economic Development and the main ideologist of the new export strategy Stepan Kubiv, decides to suspend the anti-dumping measures. This new decision had a brief explanation - to ensure the spring sowing of 2017 and provide alternative supplies of fertilizers from other countries. First of all - through the abolition of customs duties on these products. And if you take into account the fact that in March 2017, for the first time in history of the Ukrainian chemical industry, in the midst of preparations for sowing, the two largest producers of fertilizers of the country - the Rivne and Cherkasy "Azot" - were stopped, then such conditions became fortunate for Russians. Moreover, since 2015, together with its partners in the Eurasian Economic Community, Russia has made a significant breakthrough in the implementation of new projects in the chemical industry.

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In Ukraine, however, a small number of projects are being implemented in the chemical industry. Basically these are local status projects that are not of strategic importance, or projects related to the expansion of the product range (product line) of traditional products.

Another problematic issue on the way to implementing Ukraine's export strategy, according to experts, may be the increasing dependence of Ukraine on imports of foreign fuel. Its price for Ukrainian farmers will affect the cost of sowing, harvesting and delivery of finished products to foreign markets - and hence the competitiveness of domestic raw materials.

Above all, we are talking about the growing role of Belarusian and Russian exporters of petroleum products on the Ukrainian market.

So, in January-March 2017, Ukraine imported oil products by $ 869.8 million, which is 62.9% more than in the same period last year. According to State Statistics Committee, imports of petroleum products from Belarus in monetary terms amounted to $ 458.5 million (52.7% of the cost of imports of petroleum products), from Russia - $ 209.4 million (24%), from Greece - 56.6% million dollars (share 6.5%). Of the other countries, oil products were imported for $ 145 million during the reporting period. In 2016, Ukraine also imported most of all petroleum products, in particular gasoline, diesel fuel, fuel oil, jet fuel from Belarus (by 1.794 billion dollars) and Russia (by 542.755 million dollars).

The situation is aggravated by the fact that this is taking place against the backdrop of a general decline in industrial production in Ukraine.

In today’s circumstances when our country has to implement the new Export Strategy 2017-2021, the reasons for ignoring the Ukrainian sectors of the domestic economy, where previously we were able to compete with Europe, are not clear. And inattention to those sectors of the domestic economy, in which Russia has also traditionally been strong (chemistry, metallurgy, energy), gives a big advantage to the Kremlin. Moscow continues to seek solutions that in the medium term will expand its presence in Ukraine and keep Kyiv in the field of its interests.

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