29 Jun 2022 14:57

Ukrainian farmers ask govt not to raise rail cargo transportation tariffs

MOSCOW. June 29 (Interfax) - The Ukrainian Grain Association (UGA) has asked the government to impose a moratorium on hikes in tariffs on cargo transportation by rail during the martial law period and 3-6 months after it is lifted and to overturn a recent decision of JSC Ukrzaliznytsia (Ukrainian Railways) to increase these tariffs by 70% from July 1.

An increase in these tariffs may result in farmers' additional expenses of around $120 million a year, according to the UGA's address to Ukrainian Prime Minister Denys Shmyhal, the Ukrainian media said, citing the association's website.

"A growth of tariffs on grain transportation by rail will entail catastrophic consequences for the agrarian sector, thus even further adding to the already deplorable situation. According to UGA estimates, this increase in the cost of rail logistics for grain cargoes will lead to agrarian companies' additional expenses, which have been estimated at $120 million a year," it said.

Since the blockade of the Ukrainian seaports began, logistics-related costs within exports have grown by 5-7 times, to $180 per tonne of grain, causing farmers to start selling goods at prices below their cost price, the UGA said. The latest estimates show that the price of a tonne of wheat in the field has had to be reduced to $90 per tonne, while its cost price is at least $160 per tonne.

Taking all of these factors into consideration, the increase in rail cargo transportation tariffs may result not only in a reduction of grain transportation by Ukrzaliznytsia, but may put a stop altogether to grain transportation by rail.

"Experts' varying estimates indicate that 50% of grain producers are expected to go bankrupt before the end of 2022, and another 40% by April 2023. This is the reason why the UGA again underscores the importance of state support for agrarian producers and partial compensation for their logistics-related expenses," the association said.

The director of the Kyiv School of Economics' Center for Food and Land Use, Oleh Nivyevskyi, has also offered his opinion on risks that stem from the rise in cargo transportation tariffs.

Ukrzaliznytsia's decision to hike these tariffs by 70% from July 1 will dent Ukrainian agricultural producers' incomes, will cause product consumers' expenses inside the country to grow and will become an additional factor that may prompt agrarian enterprises in Ukraine to go bankrupt as soon as the fall of this year, Nivyevskyi said.

Meanwhile, the Ukrainian media said on Wednesday, citing the press service for Ukrzaliznytsia that rail cargo transportation tariffs will be increased by 70% on June 29,2022, under the Ukrainian Infrastructure Ministry's executive order, which has already been agreed with all ministries and agencies concerned, fine-tuned and published.

It is the minimum possible indexation of tariffs, which will ensure a collective and fair burden on business, the state and international partners in overcoming the aftermath of the crisis, Ukrzaliznytsia said.

"At the same time, this increase will not be critical as export prices are formed: the price for ferrous metals and grain will grow only by several percentage points, which will be fully offset by positive price tendencies on foreign markets," the company said.

As reported, the Ukrainian Infrastructure Ministry on June 28 agreed to a proposal put forth by Ukrzaliznytsia to increase cargo transportation tariffs by 70%

Unlike several previous hikes last year, this time the coefficients have been increased equally by 70% for all 20 types of cargo.

The Ukrainian Grain Association incorporates producers, processing enterprises and major exporters of grain, which account for around 90% of Ukraine's annual grain exports.