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Ukraine Sunflower Sector: 2004 Update
Presentation by David Jackson LMC International Kiev, Ukraine March 2005
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Outline of the Presentation
Current sector situation Government intervention in sector Export Tax and VAT issues Conclusions
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Current Situation - Field
Area is increasing Yield is decreasing Overall, production is increasing
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Harvested Area, Yield and Production for Sunflower Seed, 1990/91-2004/05
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Reasons for Low Yields Shorter rotations Declining inputs
Lack of finance Low technological input Land tenure uncertainties
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Potential Solutions Key: Finance Technology
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Constraints On Credit Land as collateral Crop guarantees
Legal enforcement Farm resources
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Current Situation - Factory
Rapid build up of capacity Rapid build up of crushing Export tax of 2001 increased crushing domestically
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Oilseed Crushing in Ukraine, 1992/93-2004/05 (‘000 tonnes)
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Diagram EXEC.2: Sunflower Seed Exports, 1992/93-2004/05
200 400 600 800 1,000 1,200 1992/93 1994/95 1996/97 1998/99 2000/01 2002/03 2004/05 Imposition of 23% export duty 17% Export duty on seeds '000 tonnes
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Diagram EXEC.3: Crushing Capacity versus Sunflower Seed Production, 2001/02-2010/11
2,000 3,000 4,000 5,000 6,000 7,000 2001/02 2003/04 2005/06 2007/08 2009/10 '000 tonnes Indicative Capacity Sunflower Seed Production
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Crushing Capacity Surplus Capacity = Closure of capacity
Increase domestic seed production Import seed 4 mn tonnes seed = 14*1,000 tpd
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Government Intervention
Border protection Reduce agricultural tax burden Agriculture VAT exemptions Export taxes
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Export Tax Impact Lowered domestic seed price
Increased seed availability Raised capacity utilisation Increased oil exports Encouraged domestic crushing
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Export Tax Impact Does it lower seed price? Extent depends on:
Seed surplus (2003/04) – 21% below export parity Seed deficit (2001/02) – 3% below export parity
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Sunflower Seed Prices in Ukraine (including VAT) Compared with Tax-Free Export Parity Price
100 150 200 250 300 350 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 US$ per tonne Actual Price Tax-Free Export Parity Price 23% Export Duty 17% Export Duty
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VAT Refund Impact Adds to business risk
300,000 tonnes of seed = VAT US$12 million When not refunded on exports: Export margins low or negative Adds to business risk Costs of accessing reimbursement
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Crushing Margins for Domestic Market and Exporters of Oil and Meal, with and without VAT Reimbursements
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VAT Refund Impact Export margins low Domestic margins healthy
Overall margins reasonable if VAT refunded But - margins boosted by export tax and global market
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Average Crushing Margins with and without VAT Reimbursements Versus Indicative Tax-Free Export Parity Crushing Margin
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Conclusions Cautious reform to address: VAT Export tax
Direct support to farmers Access to credit
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Recommendations: VAT Reduce seed VAT to zero
Remove farm VAT exemption (but irrelevant at zero VAT on seed)
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Recommendations: Export Tax
Remain at 17% while VAT reformed, then, if successful 10% in two years 5% in five years
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Recommendations: Direct Support
Limited funding from: Fixed agricultural tax reform Subsidised interest reform VAT exemptions reform
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Recommendations: Access to Credit
Land ownership Legally enforced warehouse receipts Subsidised interest reform VAT exemptions reform
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