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Russia/Ukraine: Sugar Accord May Be Too Little, Too Late

  • Stefan Korshak

Kyiv, 26 November 1997 (RFE/RL) -- Ukrainian sugar industry leaders say they doubt that a Russia-Ukraine sugar trade accord signed last week in Kyiv will help their industry substantially or soon enough.

Ukrainian Prime Minister Valery Pustovoitenko and Russian First Deputy Prime Minister Anatoly Chubais agreed Friday on an annual quota for tariff-free imports of Ukrainian sugar to Russia of 600,000 tons.

The sugar protocol compromises between a completely open Commonwealth of Independent States (CIS) sugar market, favored by Ukraine, and broad tariffs to protect Russian sugar manufacturing supported by the Russian industry. A 600,000 ton quota suggests that half of Ukraine's' yearly sugar surplus of 1.2 million tons could go to Russian markets without customs tariffs.

Vladimir Gamalevich, director of the Klembovsky Sugar Factory, says the agreement would have been more helpful if it had come at the beginning of the year.

"I don't have time to wait around for the government to give me an order. If I don't find some one to sell sugar to now, I'll get my electricity cut off," he said.

The agreement is unpopular in Russia also. Sergey Andreev, secretary of the Union of Russian Sugar Producers, has said it creates an undesirable precedent. He predicted that Russia would wind up importing 2.4 million tons of sugar this year as a result.

Eduard Maltsev, financial director of an Odessa-based trading firm, and other industry professionals believe that once the agreement becomes national trade policy, most of the tariff-free Ukrainian sugar will be sold through a newly-formed Ukrainian governmental sugar export company.

He said that theoretically the quota would be positive for Ukraine. Sugar that sells now for the equivalent of $481 a ton on the Russian market could be priced at $380. But the actual impact has yet to be seen, he said.

The Ukraine-Russian common interest in sugar marketing stems from a basic difference in the two countries. Sugar production depends heavily on electrical engergy and raw materials like sugar beets. Russia generates lots of electricity. Ukraine grows lots of beets.

In 1996 Ukraine produced 23 million tons of sugar beets, refinable into 2.7 million tons of sugar. Ukraine consumes only about 1.5 million tons of sugar yearly, creating a 1.2-million-ton-surplus. Russia typically generates a sugar deficit of a similar amount.

Ukrainian sugar beets are available for almost six months of the year and Ukrainian labor costs less, assuring that Ukrainian sugar is cheaper than Russian sugar, even when transportation costs are factored in. In May, Russia imposed a 25 percent duty on imported sugar to assure that domestically-produced sugar could find a market.

Russia's Chubais told journalists after last week's Kyiv talks that the issue of sugar supplies had to be solved quickly because it was becoming a political matter.