The evolution of grain logistics in Ukraine

1.1 Industry outlook

The principal grains produced in Ukraine are wheat, corn and barley; they take over 95%
of the total grain production of the country. Less important are rye, oats, millet, peas
and other pulses. Among oil seeds the most important for Ukraine are sunflower seeds,
rapeseed and soy beans, together these crops take over 99% in oil seeds production.
Sunflower alone takes two thirds in oilseeds production of Ukraine.
This report will consider the following four crops: we focus on – wheat, corn, barley and
sunflower seeds.
Production of main crops is well distributed on the territory of Ukraine; wheat, corn,
barley and sunflower seeds may be spotted in every region of Ukraine, but there are
regions of specialization where the density of particular crop is the higher than in the
other regions, which is explained first of all by climate conditions.

Wheat production

Wheat is the main food grain for the domestic market, covering 75-80% of domestic
food grain needs. A part of wheat production is used domestically for animal feed, part
is used as seeds, and the rest is exported. Wheat domestic price is the key element of
bread price, the key staple food of the country. Affordability of bread is a key food
security element and it is thus subject to hot political debates.
In the 2013/14 Marketing year (MY) domestic consumption of milling wheat (for human
consumption) was around 5.1 mln t. This volume is rather stable and does not vary

significantly year to year. Feed and seed consumption took another 6.0 mln t of wheat
(this volume is also quite stable).
Wheat is widely grown all over the territory of Ukraine, however it dominates in Eastern
and Southern regions: 9 regions from Odesa to Kharkiv took 60% in harvested area (55%
in production), while other 15 regions took about 40% of area (45% in production) in
The least important in wheat production are Volyn, Lviv, Ivano-Frankivsk, Zakarpattya
and Chernivtsi regions having less than 7% in harvested area and 7% in total production.

Corn production
Corn has shown the most significant increase in areas and production: after 2010 the
average annual growth in areas under corn was 22.5%, in production 43.5%. Boost in
production was a result of higher profitability of corn comparing to other grains, higher
per hectare yields, advantages in growing corn in different climatic zones and flexibility
in crops rotation. Alone with expansion of area, improved technology of production and
increased yields were the key contributors to the lifted production.
Corn is cultivated in every region of Ukraine, but within the country “Ukrainian corn
belt” spreads from Vinnitsya through Cherkasy and Kirovograd to Poltava region: these 4
regions take 34% in harvested area and 38% in production.
The least important in corn production are far Western and far Eastern regions that are
less suitable for corn cultivation due to climate conditions.

Barley production
Barley has been reducing importance. The harvested area from 2006 to 2013 reduced by
6.7% in average per year. Barley has been replaced with more profitable corn (in central
Ukraine) and oil crops (in the South-Eastern part of the country). At the same time
gradually improved technology of production and as a result, improved yields allowed to
increase gross production: seven years compound annual growth rate (CAGR) was
Barley is cultivated in all regions of Ukraine, but due to climate conditions and the
nature of crops rotation it is mostly spread in South-Eastern regions. Six oblasts –
Dnipropetrovsk, Odesa, Mykolaiv, Kherson, Donetsk and Kharkiv took 51% in areas and
40% in production of barley in 2013. On the other side ten Western and Northern
regions took less than 12% in area and 17% in production.

Sunflower production
Sunflower plays crucial role for Ukrainian oil processing industry. It supplies up to 90% of
row material for further processing into vegetable oil (the share of soy is around 10%,
while rapeseed is insignificant).
The highest density of sunflower appears in South-Eastern and Central regions of
Ukraine: 10 oblasts from Odesa to Kharkiv including Kirovograd and Poltava take over 80% of area under crop, and 78% in production volume. Ten Western oblasts amount for
less than 5% in area under sunflower and 5.2% in gross production.

Foreign trade

A large share of Ukrainian grain is strongly exported. Domestic consumption of grain
(excluding sunflower) slightly varies around 28 mln tons, and the rest is exported.
In 2013/14 MY Ukraine has exported 33 mln t of grain, which was all time record, it was
possible thanks to the biggest grain harvest Ukraine ever produced – 63.1 mln tons. As a
result in 2013/14 MY Ukraine became #3 largest world grain exporter following the USA
and EU.
Export of wheat, corn, barley and sunflower grew by 141% for the period of 2006 – 2013
(calendar years) from 11 mln t to 27 mln t. With an average annual growth of 13.4%. The
structure of grain for export in the reporting period changed significantly: the share of
wheat decreased from 42% to 29%, barley – from 41% to 9%, while the share of corn
grew from 15% to 62%.
In terms of geographical structure of export the most important markets for Ukrainian
grain are the Middle East, European Union, North Africa and South-East countries. CIS,
Americas and other countries take small share in grain deliveries from Ukraine.

The main buyer of Ukrainian barley is Saudi Arabia with 63.5% share in deliveries. The
top-5 buyers concentrated 88% of barley from Ukraine.
Export of sunflower seeds is mostly oriented towards one country – Turkey, that
consumes more than half of Ukrainian export of this oil seed. Top-5 countries received
82% of exported sunflower in 2013 including Turkey, Poland, Bulgaria, Germany and
China is becoming more important partner for Ukraine. In 2013 Ukrainian and Chinese
Governments signed a 15-years contract stipulating grain supply in amount of 4.5-6.0
mln tons annually. The subject of contract was corn with possibility to extend list by
wheat, barley and rapeseed in future. Although China is a promising market, the
contract suffered major drawbacks because the State Food and Grain Corporation did
not fulfill its obligations.
Detailed information on grain export is provided in the Annex II.

Grain import
Even though Ukraine is self-sufficient, small volumes of grain are imported to the
country. Seeds and malted barley dominate its import. Some wheat is imported from
Kazakhstan because of quality reasons (Kazakh heat is reach in gluten). On average from
40 to 100 thousand tons of corn, sunflower, wheat and barley are imported annually.
Imports grew by 92% from 2006 till 2013. The structure of import has changed: share of
wheat decreased from 4% to 2%, barley – from 48% to 12%, sunflower – grew from 11%
to 24% and corn also grew from 37% to 61%.
Key seed suppliers are European and North American countries.
In 2013 more than 80% of corn seeds delivered from the international seed companies
in France, USA, Hungary and Romania. Sunflower seeds have been supplied from the
USA, Turkey, France, Chile and Russia (top-5 countries took 79% share). Key suppliers of
wheat are Germany (46%), Czech Republic (25%), Serbia (10%), Austria (9%) and Russia
(8%). Barley is delivered from Russia (91%), Czech Republic, Germany and Moldova.
Detailed information grain import is provided in the Annex II.

Grain traders
Grain trading market in Ukraine is highly competitive, at the same time segment is very
concentrated, as top-20 traders took 68% of the export flow of wheat, corn, barley and
sunflower seeds.
Grain is traded by national and international companies, since there are no restrictions
for foreign entities. International traders take about one third part of grain export: in
2012/13 MY twelve foreign companies exported 7.6 mln tons of grain of the total 22.7
mln tons, which was 33.7%. Biggest international traders operating in Ukraine are called
ABCD (ADM, Bunge, Cargill, Louis Dreyfus) and Glencore.
The leading grain exporter in 2012/13 MY was Nibulon (a vertically integrated company)
with 10.3% market share and Kernel with 9.9%. Nibulon has been the leading exporter
for more than 5 seasons.

1.2 Agricultural logistics outlook

Grain storage
Grain storage is divided into two: certified and not certified. The latter are usually for
primary producers’ needs. Certified silos have prevailing market position as in most
cases they have better location and transport connection. There is limited information
about volumes and quality of uncertified storage. In particular there is no information in
terms of facilities such as loading and unloading, drying, testing, which are related to
uncertified storages.

The capacity of certified storage in Ukraine is 33.51 mln tons, as of April 2014 there were
790 storehouses certified by the State enterprise “State Registry of Ukraine”
subordinated to the Ministry of Agrarian Policy and Food of Ukraine. The estimate
capacity of non-certified silos is around 8 mln tons. This volume varies continuously
since new silos are continually constructed, while some old ones are decommissioned.
State owned companies (State Reserve, State Food Grain Corporation of Ukraine and
“Khlib Ukrainy”) operate 84 grain storages located in almost every region of Ukraine
with the total storage volume of 6.0 mln tons (19% of total certified capacity). There
were 706 private certified silos with total storage capacity of 28 mln tons as of April
2014 (84% of total certified capacity).
The central and southern regions of Ukraine have highest density of grain storages, in
particular Odesa, Poltava, Dnipropetrovsk, Vinnitsa and Mykolaiv regions, as visible in
the above map.
All elevators are connected to the road network, 630 of 790 (80% in number, and 91% in
volume) certified elevators are connected to the railway system, around 20 elevators
(with storage volume over 1 mln tons) located on the banks of Dnieper and Southern
Bug River and could have the potential to load grain into river vessels. However this
potential is at the moment significantly underutilized.