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Ukraine: Low Grain Harvest Sparks Panic, Anger

Panic buying and criminal accusations have followed in the wake of announced estimates that Ukraine's grain harvest will be a third lower than last year.

Prague, 6 August 2003 (RFE/RL) -- Ukrainian Prime Minister Viktor Yanukovych, leader of a country that was once called Europe's breadbasket, has spent the last week traveling to Kazakhstan and Russia to buy 2.4 million tons of grain.

The grain is needed to compensate for the results of a year of rough weather that has sent Ukraine's predicted grain yield plummeting. Harsh winter frosts, drought, and a locust plague mean Ukraine this year will harvest between 25 million and 29 million tons -- a one-third drop from last year's 39 million-ton yield.

Last year's bumper crop allowed Ukraine to export large amounts of grain to the European Union. This year Ukraine needs to import large amounts, including milling grain -- the variety needed to make bread. Some analysts predict Ukraine will only be able to produce half of the 6 million tons it needs of this type of wheat.

The drop is not so steep as to raise fears of famine. But prices for flour and pasta have risen sharply, sometimes by as much as 150 percent. And both have been in short supply since June, when predictions of a bad harvest sent many Ukrainians scrambling to stores to stock up on supplies in anticipation of winter shortages.

The spate of bad weather and locusts have undoubtedly contributed to the poor harvest. But Ukrainians are questioning whether the explanation ends there.

Some critics say the government may be partly to blame for having done too little to support private farmers. Although some reforms have been introduced to help the transition from the collective and state farming of the communist era, some observers say much more remains to be done.

Volodymyr Chopenko, a journalist and commentator on the agricultural sector, told RFE/RL: "Unfortunately, Ukraine's agricultural sector was the last to be thrown into the whirlpool of market reform. Nobody really paid attention to whether it would struggle out of this whirlpool or not. Luckily it survived, clambered out onto dry land, dried itself off, and started to recover."

Private-sector farmers complain they are unable to secure loans to upgrade their equipment, particularly grain-storage facilities, which would enable them to sell profitably when market prices are high -- rather than quickly selling their entire yield each year and mostly at state-dictated prices.

Yevhen Panechko is director of Agrofirm Dobrobut, an agricultural trade firm based in Ukraine's Poltava region, southeast of Kyiv. He said it is essential for farmers to get long-term credits at reasonable interest rates. "The state should pay attention to the producer and give him the ability to take out [bank loans] not for one year but for at least five years," he said. "When you can take out a loan for a Mercedes at 5 percent but have to pay 21 percent interest for a tractor -- thank God it's at least not the 30 percent it used to be -- and you have to pay that loan back in half a year or within 11 months, that means the [farmer] has to wipe out his funds for operating costs. That means he has no money to cover his running costs. If he could rely on [loans] to pay for fuel and other technical needs, then he could store grain and thereby help to stabilize the market."

But other observers say there is more behind the current grain shortage than bad weather and under-supported private farmers. Blame has also been directed at politicians and businessmen involved in the grain trade.

Ukrainian President Leonid Kuchma has accused grain traders with deliberately using low yield estimates to cause a panic and drive up prices -- a sentiment echoed by other government officials, like Deputy Agriculture Minister Serhiy Melnyk. "This situation which we have recently experienced has been, to a great extent, artificially created, and there was no particular reason why it should have grown so," Melnyk said.

Various government agencies have stepped up investigations into whether politicians or trader manipulated the grain crisis for personal gain. The Prosecutor-General's Office says it has already opened 270 cases looking into the issue.

Some observers speculate that last year's massive harvest was exaggerated in order to depress grain prices and jack up profits in export sales.

Oleksandr Moroz, the leader of Ukraine's Socialist Party and a staunch Kuchma opponent, said his party last year warned that grain-yield figures were being deliberately distorted. "We were saying that there was great exaggeration in the [grain] statistics and that this was being done to create the illusion of a grain surplus in Ukraine in order to depress the prices on the domestic market to enable traders to gain at the expense of [farmers]. And that happened -- they approximately halved prices last year," Moroz said.

One of the most important officials accused of wrongdoing so far is former Deputy Prime Minister and Agriculture Minister Leonid Kozachenko, who was arrested in March but later released. The Prosecutor-General's Office is investigating allegations that Kozachenko arranged for traders to buy and export huge amounts of grain last year at low prices that lost the state hundreds of millions of dollars.

The Prosecutor-General's Office has said it may also investigate former Prime Minister Anatoliy Kinakh, who was in office during last year's harvest. Current Prime Minister Yanukovych last week secured an agreement from Kuchma to dismiss three regional governors accused of contributing to the crisis, and has warned current Agriculture Ministry officials that they will face a similar fate if the situation does not approve this fall.

Moroz, for one, is not impressed. "All of these things are PR moves," he said. "They have no relevance to actually solving the problems."