1. Ukraine Sunflower Sector: 2004 Update
Presentation by David Jackson
LMC International
Kiev, Ukraine
March 2005

2. Outline of the Presentation
Current sector situation
Government intervention in sector
Export Tax and VAT issues
Conclusions

3. Current Situation - Field
Area is increasing
Yield is decreasing
Overall, production is increasing

4. Harvested Area, Yield and Production for Sunflower Seed, 1990/91-2004/05

5. Reasons for Low Yields Shorter rotations Declining inputs
Lack of finance
Low technological input
Land tenure uncertainties

6. Potential Solutions
Key:
Finance
Technology

7. Constraints On Credit Land as collateral Crop guarantees
Legal enforcement
Farm resources

8. Current Situation - Factory
Rapid build up of capacity
Rapid build up of crushing
Export tax of 2001 increased crushing domestically

9. Oilseed Crushing in Ukraine, 1992/93-2004/05 (‘000 tonnes)

10. 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

11. 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

12. Crushing Capacity Surplus Capacity = Closure of capacity
Increase domestic seed production
Import seed
4 mn tonnes seed = 14*1,000 tpd

13. Government Intervention
Border protection
Reduce agricultural tax burden
Agriculture VAT exemptions
Export taxes

14. Export Tax Impact Lowered domestic seed price
Increased seed availability
Raised capacity utilisation
Increased oil exports
Encouraged domestic crushing

15. 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

16. 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

17. 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

18. Crushing Margins for Domestic Market and Exporters of Oil and Meal, with and without VAT Reimbursements

19. VAT Refund Impact Export margins low Domestic margins healthy
Overall margins reasonable if VAT refunded
But - margins boosted by export tax and global market

20. Average Crushing Margins with and without VAT Reimbursements Versus Indicative Tax-Free Export Parity Crushing Margin

21. Conclusions Cautious reform to address: VAT Export tax
Direct support to farmers
Access to credit

22. Recommendations: VAT Reduce seed VAT to zero
Remove farm VAT exemption (but irrelevant at zero VAT on seed)

23. Recommendations: Export Tax
Remain at 17% while VAT reformed, then, if successful
10% in two years
5% in five years

24. Recommendations: Direct Support
Limited funding from:
Fixed agricultural tax reform
Subsidised interest reform
VAT exemptions reform

25. Recommendations: Access to Credit
Land ownership
Legally enforced warehouse receipts
Subsidised interest reform
VAT exemptions reform