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Ukraine removes grain export quotas Add to ...

Ukraine, one of the world's top grain exporters, has removed grain export quotas that have helped drive up global food prices and hit domestic agribusinesses hard.

The move will ease concerns in the global wheat market about supplies in the second half of the year as western Europe and the southern U.S., two key producing regions, suffer a drought that is likely to reduce output significantly.

European wheat prices for the new crop, which will be harvested in the next three months, have surged to €245 ($345) a tonne, significantly above last year's prices.

Food company executives and traders fear further price rises unless it rains over the next three weeks in farming areas of France, Germany, the UK and Poland, which produce about 65 per cent of the European Union wheat crop.

Mykola Prysyazhnyuk, Ukraine's agriculture minister, said Kiev's cabinet had on Tuesday lifted the quotas introduced in 2010 to protect domestic food supply amid poor harvests in the Black Sea region following a drought.

But government officials and market insiders said Viktor Yanukovich, Ukraine's president, is likely to sign off on legislation adopted by lawmakers last week that will introduce export duties of 9-14 per cent until January 2012.

Export restrictions in 2010 by Russia and Ukraine, home to some of the world's richest farming soil, rattled global grain prices.

Global agribusinesses that have invested heavily in Ukraine, such as Cargill, ADM, and Bunge, criticized the restrictions, introduced in spite of a healthy harvest last season of nearly 40-million tonnes of grain.

Lobbyists representing grain traders described the quota system as "unjustified" and "non-transparent", arguing that Khlib Investbud, a quasi-state company, had received the largest share of quotas.

The previously little-known company also has exclusive contracts to buy grain for state reserves. It denies wrongdoing but declines to reveal who its majority private shareholders are.

Morgan Williams, president of the U.S.-Ukraine Business Council, described Ukraine's handling of grain exports as the "Great Grain Robbery."

On Tuesday, grain traders gave a lukewarm reaction to the government's decision. Mr. Williams said traders considered export duties "the lesser of two evils."

Traders said an export restriction-free window of several weeks could release millions of tonnes of stockpiled grain for export before duties are introduced and the collection of this season's harvest begins.

Jorge Zukoski, president of the American Chamber of Commerce in Ukraine, hopes Ukraine's government will postpone the export duties until July 1, instead of June 1.

Referring to hundred of millions of dollars that traders and farmers have lost since the quotas were introduced he said: "The damage is not irreversible.

"Allowing old stocks to be exported is a sign that the president understands market concerns and is moving towards a free market system.

"If this happens, Ukraine can attract more investment and foreign players that will help more than double harvests in the coming decade."

Despite the export restrictions, Mr. Prysyazhnyuk said Ukraine managed to export nearly 14-million tonnes of grain. He said plans envisage that up to 20-million tonnes will be exported from this season's harvest.

One trader said "uncertainty continues to loom" about government policy, its transparency and fairness.

"Government hopes these export duties will raise additional revenues for their cash-starved budget coffers. But the pockets of farmers, the most unorganized and cash-strapped, will again be hit hard."

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