Reuters | 9 March 2011
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 the 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 neighbouring 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.
EBRD AND INVESTMENT
Ukraine, the world's top barley exporter and a major wheat supplier, benefitted from around 170 million euros ($236.1 million) in EBRD investment in agricultural projects in 2010.
"I estimate that last year we could have financed an additional 50-100 million euros in the Ukraine if the political conditions were better," Mettetal said.
The EBRD is the largest single investor in agribusiness in Eastern Europe and Central Asia and invested around 800 million euros in the region in 2010.
Earlier this year the EBRD brought together Ukrainian government officials and private sector investors to discuss the challenges to developing agriculture in the region and address growing frustration from its private sector clients.
"We want to continue to support policy dialogue with the government, providing them with instruments such as pre-harvest financing as alternative market-oriented ways to prevent systematic state intervention," Mettetal said.
The draft law for the state grain export monopoly has already raised concerns among traders, who have invested millions of dollars in Ukrainian grain export terminals, silos and local farms.
"Russia, Ukraine and Kazakhstan could export half of the world's grain export needs, including 60 percent of the world's wheat needs. The potential is enormous," Mettetal said.
"Without private sector investment they will never be able to achieve progress."