Black Sea Grain: Development Drivers and Growth Limits Sergey Feofilov UkrAgroConsult 15 Th International Black Sea Grain Conference April 18-19, 2018 – К iev
Disclaimer Past performance is no guarantee of future results. The opinions expressed in this presentation are the opinions of the writer and do not represent the official position of UkrAgroConsult .
Black Sea Region in the Global Grain Trade
Growing Global Grain Exports, MMT
Black Sea Region: ANSWER to the CHALLENGES OF THE THE PAST 2003-2018 Key Factor of Competitiveness is Low Production Costs
Wheat: On-farm Production Costs USD per tonne • Ukraine - 133 • Russia - 121 • Australia – 216 Source: Australian Export Grains Innovation Center, estimates
Price Forecasts: growth, decline EU Ag Outlook World Bank OECD-FAO 2030 vs.2017 2030 vs. 2017 2026 vs.2017 Wheat 16.8% 7.0% 23.9% Corn 14.0% 5.5% 26.2% Soy -3.7% 3.6% 14.4%
Manufactures Exports (% to total merchandize exports) 2016 $ Bl 2000 2010 2015 2016 EU 1584.0 78.78 75.56 79.21 80.29 USA 968.0 81.76 66.16 64.19 63.38 China 2004.0 88.22 93.55 94.3 94.74 n/a Ukraine 69.4 64.64 50.12 n/a Poland n/a 80.2 79.1 78.9 80.3 Source: World Bank
Business View • We lose Natural Capital at very high rates. Private Profits often promote Public Losses • Water, Ozon Layer and other Problems • Usage of mineral fertilizers varies from 150 to about 500 kg per ha • Future of the World Food System – More Food at lower usage of inputs
Time of Uncertainty: Next 10-15 years ? Come on! …we can no longer depend on a societal model that was developed for a world of less than one billion people. Source: Come On! Report to the Club of Rome, 2018 To the Brink – and Back? The world, it seems, is becoming less liberal, less international, and less orderly. Source: To the Brink and Back? Munich Security Report 2018 P.8
The next 10-15 years: KEY GLOBAL CHALLENGE – COMPETITION Competition in the field of Grain Production/Supply
Black Sea Region: Expansion of planted area Forecast Ml ha 2010 2015 2017 2025 f + Ukraine 26.7 26.7 27.4 27.8 0,4…1.1 Russia 75.2 79.3 80.6 83-90 3…9 Source: UkrAgroConsult estimates
BRAZIL: CURRENT SCENARIO AND FORECAST FOR PLANTATION AREA (Ml ha) 2015/2016 2024/2025 expectations 33.3 52.7 Soybean 15.9 23.4 Corn Total 49.2 76.1 + 55% Source: Alphamar
Ukraine: Heavy Import of Agrarian Technology 1 200 000 70000 60000 1 000 000 50000 800 000 40000 KMT Th.$ 600 000 30000 400 000 20000 200 000 10000 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Crop Fertilizers Crop protections Seeds Combines Tractors Source: State Statistic Committee
Ukraine: Farmers’ Incomes as Key Source of Financing of Grain Production Source: State Committee on Statistics of Ukraine
Declining Farm Profitability 60 30 50,9 25,6 50 25 26,6 46 40 20 22 32,7 32,3 29,2 30 15 % 26,7 25,3 UAH/USD 22,3 19,6 16,9 20 10 12 11,3 11,1 5 8 8 8 8 10 5 7,9 8 5 5 5 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: State Statistic Committee
Source of Financing: Foreign Direct Investments Annual Growth in FDI (share Capital) in Ukraine, Bln. USD
Ukraine: Bank Sector as a Source of Financing Total Assets and Loans of Ukrainian Commercial Banks
Ukraine: Bank Sector as a Source of Financing National Bank of Ukraine Base Rate
Competition in the field of Demand/Consumption
Consumption: Declining Growth Rates of the Global Trade
Growing Protectionism in spite of General Global Expansion • 2017 – 642 Governmental acts from all over the world that could be considered as acts of protectionism • This is slightly less than record number of the acts in 2015 • But this is 95% more than in 2010 Source: Global Trade Alert, Swiss
WORLD population, 1950-2050 Bln people
World GDP by Region based on PPP, %
Competition Factor: New markets
Sub-Saharan Africa Drives Growth in Global Wheat Imports Source : USDA
Middle Class Developed Countries • Total number – less that 1 B people Asian Countries: China • Middle class doubled since 2000
Asian Countries: Middle Class India Good News: Indian Middle Class amounts to 300 Ml people according to HSBC Another News: India’s missing middle class Multinational businesses relying on Indian consumers face disappointment Source: Economist January 2018 • https://www.economist.com/news/leaders/21734454-should-worry-both-government-and- companies-india-has-hole-where-its-middle-class-should-be • https://www.economist.com/news/briefing/21734382-multinational-businesses-relying-indian- consumers-face-disappointment-indias-missing-middle
Black Sea Region of the 2003-2018: Key Factor of Competitiveness is Low Production Costs Black Sea Region: ANSWERS FOR THE CHALLENGES OF THE COMING 10-15 YEARS ?
Scenario 1 • Intensive Farming
Ukraine and Russia. Grain Production forecast , MMT 2013-2018 2026-2030 Ukraine 60-65 MMT 80-120 MMT 2000-2017 2026-2030 Russia 95-130 MMT 140-160 MMT 0 50 100 150 200
Yield Growth, forecast
Why the Prices Go Up: Weather Market ? Ukraine
Low Farm Production Costs – FOR HOW LONG? Farm Production Costs, 2018-2023 Forecast
Scenario 2 • The importance of being supported by Government
Level of State Support of Ag Producers % of gross revenue in agriculture (% PSE) 35 30 Е U 25 Russia 20 Ка zakhstan 15 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -5 Ukraine -10 Украина Россия Казахстан ЕС -15 Source: OECD
Scenario 3 • Switch to higher margin business patterns
Scenario 3 Active usage of instruments allowing farmers to switch from low margins to the best margin practices • Switching to more marginal crops • Expanding on-farm elevator construction. • To go to new business areas, not to increase production of the traditional goods • Organic Food, Niche Crops etc. • Better usage of professional independent market research and analysis • Other Instruments
Recommendations: agri market analysis and forecasts • Challenge - Too many facts too many info now • Answer - Real global advantage now is how effective is the information processing
THANKS FOR YOUR ATTENTION! Sergey Feofilov +380 44 451 46 34 +380 44 220 52 42 agro@ukragroconsult.org
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