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Agrarian Great Silk Route of Ukraine
10 November 2015
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In the joint project of LatifundistMedia and TopLead and with the support of FUIB, we continue to look for new ideas for business development for Ukrainian agricultural enterprises. Today's topic is devoted to China - one of the main strategic partners of Ukraine in the agricultural sector. During the seven months of this year, exports of agricultural products of Ukrainian production to China amounted to $889.7 million. In comparison with the previous marketing year, the exports grew by 103%. On the agenda is the main issue - whether our country can meet the growing appetite of the Chinese dragon?

Increase of Export

Analysts of the Ministry of Agrarian Policy estimated that in 2014 the trade of agricultural products between China and Ukraine reached the level of $ 931.9 million (an increase of 36.6% in comparison with 2013). The statistics show that over the six months in 2015 China's share of total agricultural exports in our country is 11.8%. Thus, the Celestial Empire for a short time was able to fill the economic gap after Russia and become the largest importer of Ukrainian agricultural products.

Leaders of Ukrainian agricultural export include grain cultures and sunflower oil (86.5%). According to the data of the Center for Development Research at the State Council of China, it is predicted that in five years, taking into account the sustainable growth rate of China's population of 1.43 billion people and consumption of grain amounting 409-414 kg per capita, the total demand for grain in China will be 584 - 592 million tons by 2020. It turns out that the deficit of grain cultures, excluding soybean, is forecast at the level of 40-50 million tons.

I would like to recall that in the current difficult marketing season the grain harvest in Ukraine is estimated at 60 million tons. This is sufficient for preserving our food security and for export of over 36 million tons. In addition, experts are talking seriously about the potential of harvesting 100 million tons of grain by 2020. Such an increase will allow Ukraine to build up the grain exports by half and triple the production of value-added products.

Promising project

In terms of other commodity items of the 2015, the delivery of Ukrainian alcohol to China increased 6 times, delivery of chocolate increased 2 times and delivery of confectionery products - 1.2 times. Recently, a Ministry of Agrarian Policy delegation met with leading government agencies of the agricultural complex of the PRC. The parties agreed for Ukraine to be able to supply sunflower oilseed meal into the Asian market. The organization AQSIQ will provide a corresponding resolution in the near future. The Chinese are also interested in supplies of Ukrainian sugar confectionery product and wine.

Earlier, the Ministry of Agricultural Policy noted that for the sugar trade with the Chinese, Ukraine needs to find a reliable partner from the PRC. Within the framework of joint projects, the construction of plants for pulp granulation, as well as exports of organic soybeans, fruits and berries (sweet and sour cherries, blueberries) is considered. According to the concluded agreements, breeding material for the development of the fishing industry will be imported from China to Ukraine.

Also, representatives of the PRC received interesting offers concerning the export of certified poultry products. At the current moment it is successfully exported to the EU. The Ministry of Agrarian Policy informed that Chinese investors are ready to invest $2.5 billion in the construction of a port grain elevator with capacity of 50-100 thousand tonnes.

Yu Ge, Head of the European Center for International Economic Cooperation of the Ministry of Agriculture of China, refers to the work of companies CNADC and Shandong Shangshi Ecological Agriculture Technology Co. Ltd. as an example of a successful Ukrainian-Chinese cooperation. Chinese partners appreciate Ukrainian products for the absence of GMOs and for high quality. Analysts believe that China's demand in fats and oils of animal origin is constantly growing. China can not fully meet their needs, so this is a chance for Ukraine to occupy a profitable niche.

We should also mention the Ukrainian-Chinese cooperation in the scientific and technological field of agricultural complex. As of June 1, 2015 about 20 agreements on mutual scientific cooperation programs were being executed. Most of the projects focus on the selection of promising agricultural crops.

Government regulation

For our country, the experience of state regulation of agriculture in the PRC can also be useful. In 2005, the government submitted a "Proposal of CPC Central Committee and State Council of the PRC on certain plans for further strengthening of the work in rural areas and increase the total power of agriculture." The document foresees a course for a dynamic support of agricultural producers. Let's consider the main aspects of this program.

Direct payments and subsidies. Depending on the areas under ​​grain crops, farmers receive payments from the budget and subsidies for the purchase of high-quality seeds, modern agricultural machinery and breeding animals.

Improving market infrastructure. This includes a variety of government measures aimed at establishing and supporting the wholesale agricultural markets. Also, these measures allow one to monitor the work of commodity exchanges and futures markets, to ensure efficient transportation of products and their safe storage.

Lending to rural producers. For this reason the Chinese government provides the allocation of subsidized loans for farmers, supports the creation of credit cooperatives.

Price support. Prices are constantly monitored in major agricultural areas for certain types of grain crops. The balance of supply and demand is held by the administrative requirements for the growth of the production of certain crops.

The current system of state regulation and support of agricultural complex of China is based on the advanced standards of developed countries, taking into account the specifics of the state. The main efforts are directed at improving the quality of life in rural areas of China and providing a competitive level of local agricultural products. Analysts argue that the export potential of Ukraine in the Chinese direction is realized only by 7.5%. We have possibility to grow and we have what to learn from China.

Olexiy Volchkov, FUIB's Deputy Chairman of the Board of Corporate Business and Member of the FUIB's Board

Export to China is interesting not only because of its potential of Ukrainian products consumption, but also because of the fact that the exporter can keep their trade receipts in currency. In early 2015, the Ukraine and China have agreed on the implementation of a swap line amounting to $2.4 billion. A swap line is an agreement between two central banks of different countries on the mutual exchange of currencies at fixed rates. What are the advantages from it to our agrarian manufacturers? As it is known, according to the requirements of the National Bank of Ukraine, all exporters must sell their currency earnings within 3 working days. Due to currency fluctuations, many exporters lose part of their income. However, not everyone knows that the requirements of the National Bank do not apply to export earnings received in the Chinese national currency – Yuan. In the external economic settlements Chinese companies usually use the US dollar, but thanks to the opening of the swap line, now settlements for Ukraine can also be performed in the Chinese currency. If your bank has a correspondent account opened in Yuans, you can receive payments in Yuans. FUIB, for example, has such a correspondent account. This allows our customers to sell their goods for Yuans, leave them on their accounts and then buy any currency for them at the right time, and thereby minimize their risk in currency exchange transactions.

Source: Portal Latifundist


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