Grain export curbs scare off investors in Ukraine, Russia

Many Ukrainian farms still depend on inefficient Soviet-built harvesting tractors and other farming technologies. Experts say that if the country removed protectionist export restrictions, more investment would flow into the nation's promising farming sector and cash-strapped farmers would earn more from their crop. The country has in the past decade harvested between 25 and 50 million tons of grain each season. Experts say that if Ukraine's government cancels damaging grain export restrictions and drops plans to introduce monopolies in the market, investment could help Ukraine double or triple its crops within decades. This, in turn, could turn Ukraine – already one of the world's top 10 grain exporters – into a geopolitically powerful global food supplier.

Grain export restrictions in Ukraine and Russia to address food security concerns are making investors re-think their commitments in these regions, the European Bank for Reconstruction and Development (EBRD) said.

"There's been more downscaling and taking more time over investment decisions," in light of the policy decisions in Ukraine and Russia, said Gilles Mettetal, director of tine EBRD's Agribusiness unit.

Ukraine's government is considering a draft law that would allow only the state-run grain company and producers, not private traders, to export agricultural commodities. It already had introduced export limits this season after a drought last summer, and neighboring Russia has also banned grain exports. "Export quotas have damaged the confidence of investors already. Now this new law will do even more damage, and it will take a long time to ever regain that confidence," Mettetal said. The EBRD sent a joint letter with the IMF and World Bank to Ukraine's Prime Minister three weeks ago airing concerns that a proposed state-controlled grain export monopoly could deter future private sector investments in the country's agricultural industry, but no response has been received, Mettetal said. "I spent half an hour on the phone yesterday trying to reassure a private sector investor, who is reconsidering an investment in a (agricultural) processing facility in Ukraine," Mettetal said.

High grain prices are a global concern, which helped fuel protests that toppled the rulers of Tunisia and Egypt earlier this year and have spread through North Africa and the Middle East. "Politically the (Ukraine) government wants to reassure the population that these (private) traders are not going to export grain while the population starves," Mettetal said.