Last week Ukraine appeared to be the first major exporting country in 2012 to officially stop exports of an agricultural commodity.  The Minister of Agriculture said a ban on wheat exports would take effect November 15, but existing contracts would be honored.  The latest media reports indicate the government has reversed that decision.

The Agriculture Ministry had earlier agreed with exporters that wheat exports would not exceed 5.0 million metric ton for 2012/13.  This has now been increased to 5.5 MMT making Ukraine the ninth largest exporter of wheat for 2012/13.  According to estimates from the Foreign Agricultural Service of USDA, in the previous four marketing years (July/June) exports ranged from a low of 4.3 MMT in 2010/11, when the Black Sea region had serious drought and Ukraine was the seventh largest wheat exporter, to a high of 13.0 MMT in 2008/09 when it was the sixth largest exporter.  Last year’s exports were 5.4 MMT, the world’s eighth largest.

According to a report from Reuters, the Agriculture Ministry reported that Ukraine has already exported about 4.1 MMT of wheat for the current marketing year.  Exporters have plans to load as much as possible by a revised December 1 deadline in case a ban is imposed.  Egypt’s Government Authority for Supply Commodities has 110,000 MT for loading in mid- and late-November that will be loaded early.  Egypt was caught short in wheat deliveries in late 2010 when Ukraine used unofficial restrictions to limit exports.  The 110,000 MT is just 1 percent of Egypt’s yearly imports of 10.0 MMT.

Ukraine’s wheat production peaked in 2008/09 at 25.9 MMT, declined to 20.0 MMT in 2009/10 and fell further in the drought of 2010/11 to 16.9 MMT.  Production recovered to 22.1 MMT in 2011/12 and dropped this year to 15.5 MMT.  Domestic consumption is much less variable ranging from 11.6 MMT to 12.3 MMT, except for 2011/12 when consumption was 15.0 MMT because 6.1 MMT were fed to livestock, twice the normal amount.  Exports take almost all of the adjustment in use when production declines.

Ukraine’s variability in production is a function of area harvested and yield per hectare.  The wheat yield in 2012/13 was the same as the drought year of 2010/11 at 2.7 MT per hectare, but area harvested was only 5.7 million hectares compared to 6.3 million hectares in 2010/11 and the lowest since 5.5 million hectares were harvested in 2006/07.  The large harvest of 25.9 MMT in 2008/09 was a combination of 7.0 million hectares harvested, the largest since 1990/91, and a yield of 3.7 MT per hectares, the highest since 1993/94.  The last five years have averaged 6.5 million hectares harvested and a yield of 3.1 MT per hectare.

Wheat in Ukraine competes with more profitable corn and oilseeds for land area planted.  Prior to 2008/09 corn area harvested was less than 2.0 million hectares per year.  In 2012/13 corn area is projected at 4.5 million hectares.  Oilseed area, mostly sunflowers and soybeans, is estimated at 7.9 million hectares in 2012/13, up from 1.1 million hectares in 2000/01 and 4.4 million hectares in 2005/06.

Ukraine joined the WTO in 2008 and is bound by WTO rules requiring countries imposing export restrictions to notify other members, except for developing countries that are not major exporters. Ukraine is clearly considered a major exporter of wheat, corn, barley and oilseeds, but is not in the same class as the U.S., the EU, Australia, Canada and Russia.  As of this writing no WTO or country official has indicated that Ukraine has submitted notifications to the WTO concerning export restrictions on wheat and no major wheat importing country has held consultations with Ukraine as required.

While the drought in Ukraine has attracted attention, much less has been said about Russia.  It imposed a ban on wheat exports in 2010/11 after its crop of 41.6 MMT was one-third smaller than each of the previous two years.  Exports declined from over 18 MMT in 2008/09 and 2009/10 to only 4.0 MMT in 2010/11.  Exports recovered to 21.6 MMT in 2011/12 and are now projected at 9.0 MMT for 2012/13, most of which has already been shipped.  Russia has allowed the price of wheat in the domestic market to rise and price itself out of the export market.  Russia’s wheat exports are normally strong in the summer and fall and slow down as winter weather stresses logistics.  The government is also selling government stocks where domestic supplies are short.  Russia recently joined the WTO and appears to have made adjustments in policies consistent with WTO commitments.

Ukraine has also become a large exporter of corn.  After exporting about 5.0 MMT per year in 2008/09-2010/11, exports increased to 15.0 MMT in 2011/12 and are projected by FAS to be 12.5 MMT in 2012/13, with 2.2 MMT already shipped.  It was the world’s third largest supplier last year after the U.S. at 38.5 MMT and Argentina at 16.7 MMT.  It will decline to the fourth largest this year as Brazil becomes the second largest exporter of corn.  Ukraine’s corn production is 21.0 MMT this year with domestic use of 8.5 MMT.  With the short U.S. crop, Ukraine is playing a larger role in the international corn market than in the wheat market.  Their projected corn exports of 12.5 MMT would be 13.4 percent of the projected 93.3 MMT of global corn exports.  Ukraine wheat exports at 5.5 MMT this year would be 4 percent of the 136.1 MMT of global wheat trade.

The wheat market is more politically and economically sensitive than the corn market with much of the imports used for human consumption.  Ukraine has been seen as a lower cost source of wheat meeting the needs of developing countries.  The list of countries importing wheat from Ukraine in the last three years includes Bangladesh, Egypt, Jordan, Kenya, Philippines, Tunisia and Vietnam.

Export bans should never be considered consistent with WTO policy.  Ukraine domestic users of wheat will not develop skills in futures and cash markets to protect their businesses from the supply and price uncertainties of their domestic wheat production if the government intervenes every time reduced yields squeeze the physical market for wheat.  Importers of Ukraine wheat should be aware by now that they must buy at a lower price consistent with the lower probability of delivery in a short crop year.  A Ukraine export ban on wheat wouldn’t mean much to the global wheat market this year, but it would be a bad precedent that others should not follow and Ukraine should be sanctioned by the WTO for doing so.

Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology