Black Sea Grain Pool Challenge
31 October, 2013
Black Sea Grain Pool Challenge
Russia, Ukraine and Kazakhstan - all three major bulk wheat suppliers to Georgia - discuss an idea of uniting their corn resources under the single umbrella of a regional organization to get a leading position at the global grain export market. Some European experts fear that these three grain producers together may undermine price competition and influence global export through tariff regulation. Georgian analysts expect no serious risk of monopolization to the corn market in the region as they believe
that out of the suggested three allies the creation of this organization cuts much ice with Russian interests rather than with Ukraine and Kazakhstan and they will never agree to make it functional and give levers to Russia to dictate its terms and pricing policy on the corn market of the region.
On 17 October 2013, Ukrainian and Russian Prime Ministers declared that they achieved an agreement on setting up the Black Sea grain pool that will be completed in six months and be opened to other countries too to join [implying Kazakhstan]. Sector pundits, including the Ukrainian analysts and grain producers do not take the single pool idea seriously as far as it affects the economic interests of Ukraine and Kazakhstan alike.
The issue to create a Black Sea grain pool was initiated by Russia in 2009. The reason behind it is that there is a strong cross-country competition in the Black Sea basin and countries in the basin lose some USD 10-20 per ton of grain. However, the idea faced strong resistance from the allies. Ukrainian side believes Russia and Kazakhstan both need free access to Ukrainian Black Sea Ports. Ukrainian private sector also strongly opposed the idea that the possible establishment of the state monopoly on grain trade in the country would impose a state dictate on prices and scare off the large-scale companies involved in Ukrainian grain trading industry off. Ukrainian grain producers and analysts still remain hostile to the idea and believe this was just a tactical trick of Ukrainian PM.
Georgian analysts expect no serious price monopolization risk to the grain market if the projected pool emerges in the neighborhood. According to Levan Silagava, Head of Association of Georgian Wheat and Bread Producers, on the one hand if the putative pool is to have only monitoring function [as Ukrainian side trumpeted] rather than duplicate the powerful mechanism of the OPEC, the international oil producers amalgamation, by setting quotas and dictating demand and supply trends, neither Ukraine nor Kazakhstan will ever agree on this. “Russia, the major player among the supposed three allies, produces 90 million tons of grain against 50 and 20 million produced by Ukraine and Kazakhstan respectively and will be an apparent controller of quotas and prices thanks to its bigger production volumes. It needs Ukrainian ports because unlike them the Russian Black Sea port in Novorossiysk is not available in winter. With the access to Ukrainian ports, Russia could become more competitive to Ukraine. As to Kazakhstan, Russia always harvests crops in June whereas Kazakhstan does it in September. So, Russia will always use this privilege to block Kazakh export until it sells its own export completely. Kazakhstan which is closed by Russia geographically has already witnessed this and seeks other partners including Georgia to get an access to ports. Therefore, I believe they will never agree to have a single pool with Russia,” Silagava said.
On the other hand, economic analyst Soso Archvadze believes that even if the grain pool blueprints OPEC mechanism, it will be unable to dictate its policy to the global market as far as total capacity of all three allies that makes up less than 25% of the world market, is not sufficient for that. “To regulate global price policy, a producer must have at least one-third of the market,” he said.

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