Cherniy V.M.
Adaptation to External Risks
of Cereal Exporters
In the article the features of the risks of exporting enterprises in the
conditions of output of grain to European markets, the directions of adaptation
to external risks companies exporting grain.
Keywords: adaptation, external risks, export, grain products,
agricultural production.
І. Introduction
World economy globalization, a structural change at global markets,
political integration processes and other factors have unveiled wide opportunities
for Ukraine to engage domestic natural resources in food expansion at foreign markets.
The given conditions of foreign and domestic factors effect give rise to the necessity
of foreign-trade export-oriented adaptation of domestic agricultural production
as an important resource that provides for the economic safety of the country. The
process of agricultural products export development is led by grain crops that occupy
one of the leading places at global food markets due to their high quality and well-balanced
price. Yet, in terms of integration of Ukraine in the European society, export-oriented
companies face a number of external risks that reduce export potential of foreign-trade
companies and threaten their profitability. In such conditions, the search for the
directions and trends of adaptation of grain crops export to external risks is a
relevant problem of the economic safety of the country.
The researchers of problems faced by domestic exporters of agricultural products
regarding their adaptation to risks and threats, also born by the European integration
processes, note the need to improve the effective legislation of Ukraine on quality
of grain crops production quality. These aspects have been presented in the works
of Humeniuk H.D., Kaitanskyi I.S., Moroz N.V., Rozputenko I.V., Slyva Yu.V., Stoliarchuk
P.H., Scherbyna S.V. and others.
At the same time, the above-said research lacks specific trends of adaptation
to foreign risks for companies exporting grain crops after signing of the Economic
Section of the EU Association Agreement between Ukraine and the European Union on
June 27, 2014, containing Section IV "Trade and Trade-Related Matters"
regulating simplified procedures of foreign-trade relations between the parties.
ІІ. Defining the problem. The aim of this article is to analyze the characteristic peculiarities of
prospects and risks of grain crop exporters in the terms of entering European markets.
The task of this article is to determine trends of adaptation to external risks
of grain crop exporters. Achievement of the specified aim and task shall be fulfilled
by means of applying such methods as analysis and synthesis (when determining conditions
and factors of development of foreign-economic activities of agricultural companies),
deduction method (when developing recommendations on adaptation) and extrapolation
(when forecasting indices of development of foreign-economic activities of grain
crop exporters).
ІІІ. Results. The factors that establish external risks of Ukrainian agricultural export
growth, according to Kaitanskyi I.S., are: enhancement of international competition
and growth of state support of its export in the leading foreign countries; complicated
terms of entry to global markets due to protectionist measures applied by other
countries; low competitiveness of a major part of the Ukrainian agricultural products;
underdevelopment of certification systems and export product control quality systems;
absence of experience and special knowledge regarding entry to global markets, low
level of marketing activity, absence of coordinated actions at state level; severance
of traditional productive and cooperative ties with companies of countries in various
regions; low level of cooperation with developing countries; and poor investment
into export-oriented projects [1, page 172].
Considering all of the above-said, we believe that the main risk of grain
crop exporters is quality and cost of products, which are interdependent factors.
On our opinion, quality of products and safety of their production, storage, transportation
and sale are the main factor comprising the risks at entry of Ukrainian grain crops
to foreign markets, especially the EU markets.
Agricultural products [2] are one of the key positions in the foreign-trade
turnover of Ukraine which made USD 140.3 billion according to the results of 2013.
Compared to 2013, in 2014 foreign-trade turnover between Ukraine and the EU countries
grew by 2.5% (or $156.6 billion) and made up $6.473 billion. Positive balance grew
2.1 times and made up $1.918 billion. The share of the EU countries in the foreign-trade
turnover between the EU and Ukraine is distributed as follows: Spain – 14.3%, Netherlands
– 13%, Poland – 12.8%, Italy – 11.2%, Germany – 10.6%, France – 8 1%, Great Britain
– 4.5%, Belgium – 4.7%, Portugal – 3.2%, Hungary – 3%, Romania – 2.3%, Lithuania
– 2.2%, Greece – 1.9%. Also, it should be noted that the export of Ukrainian agricultural
products to the EU countries in 2014 made up $4.196 billion, which is 16% (or almost
$580 million) more than in 2013. At the same time, import reduced by 15.7% (or $423.4
billion) and made up $2.277 billion [3].
Besides the EU market, WTO membership of Ukraine acquired in 2008 opened
access of domestic agricultural product complex to great opportunities to enter
the unified European market, but these prospects cannot be implemented fully due
to non-conformity of the national system of technical and sanitary regulation of
food products with requirements introduced in the European Union [4, page 127].
Due to adaptation of the domestic regulation system, the agricultural complex of
Ukraine could acquire the following positive consequences in case the signed Economic
EU Association Agreement enters into force:
1) Ukrainian manufacturers of agricultural food products shall be able to
export products to one of the largest and most solvent markets of the world. The
indices of agricultural product export shall grow significantly, as the EU would
cancel import fees for 83% of domestic agricultural products after signing of the
agreement. Today, over one third of the foreign-trade turnover of Ukraine is covered
by the European Union;
2) the EU Association Agreement shall facilitate investments into the agricultural
complex of Ukraine. Namely, the investments into the development of the agricultural
market, renewal of irrigation systems, bio-fuel production, agricultural machine-building,
cattle breeding and food industry will grow;
3) signing of the EU Association Agreement shall facilitate the increase
of competitiveness of the agricultural sector, growth of labor efficiency and resolution
of social problems in the rural area [5].
Meanwhile, to fulfill this potential provided for Ukraine by the EU Association
Agreement, the agricultural manufacturers have to resolve the task of adhering to
the EU requirements regarding quality and safety of agricultural products. It should
be noted that, among the agricultural products eligible for export to the EU markets,
grain crops occupy the first place and are a strategic export product of the Ukrainian
agricultural sector influencing the economic safety of the country in full. That’s
why the risks present in the export of this product could be, first of all, minimized
within the frameworks of ensuring standardization of grain crop production. Adaptation
of this product to the EU requirements is a key factor to increase export potential
and maintain competitive pricing policy at other foreign markets.
It should also be noted that lately Ukraine has been performing active work
in the sphere of adaptation and aligning national standards with international ones.
At the same time, the level of conformity of several national standards with the
EU legislation is insufficient (for instance, state standard DSTU 3768:2004
"Wheat. Technical Conditions" does not conform to requirements determined
by respective European technical regulations and Regulation (EU) No. 1881/2006 of
December 19, 2006, which established requirements regarding maximal acceptable levels
of certain pollutants in grain crops [6], and Regulation (EU) No. 687/2008 of July
18, 2008, establishing procedures for acceptance of grain crops by intervention
agencies and methods of grain quality assessment [7]).
Considering the matter of safety and quality of grain crops, one should stop
and take a look at the problem of using genetically modified organisms (hereinafter
referred to as "GMO") in the process of grain crop production. GMO are
more and more often used in Ukraine. Yet, the world does not provide any univalent
approach to this matter: on the one hand, products with genetic mutations have already
acquired the necessary signs and features in laboratory conditions which crop
breeders have tried to achieve for decades and even centuries (increased crop capacity,
draught and pest resistance, high content of useful components); on the other hand,
scientists still have no uniform opinion about physiological consequences of consumption
of such products. States also have different opinions regarding this matter, as
the usage of GMO could ensure leadership at the global food market. There are the
American position (positive attitude to GMO use in agricultural products and food
products) and the European position (negative attitude, restriction of GMO use in
the specified products, special marking etc.) [8].
Regarding requirements to genetically modified grain crops, in 2007 the Law
of Ukraine "On State System of Bio-Safety at Creation, Testing, Transportation
and Use of Genetically Modified Organisms" of May 31, 2007, No. 1103-IV [9]
was adopted, establishing general principles of GMO treatment and meeting the EU
legislation in general. This law permits usage, industrial production and introduction
of GMO into circulation, as well as products made with the use of GMO, only after
state registration. The procedure of state registration of GMO-sources of food products,
as well as food products, cosmetics and medicines containing such organisms or obtained
with their usage, is established by Resolution No. 114 of the Cabinet of Ministers
of Ukraine of February 18, 2009 [10].
Informing consumers about the content of GMO in products shall be performed
according to Resolution No. 468 of the Cabinet of Ministers of Ukraine "On
Approval of Procedure of Labeling Food Products Containing Genetically Modified
Organisms or Produced with Their Use and Being Put into Circulation" of May
3, 2009 [11]. This Resolution stipulates that labeling of food products containing
genetically modified organisms in the amount of over 0.9% or produced of agricultural
products containing over 0.9% of genetically modified organisms shall be performed
by their manufacturer (supplier) with specification of respective information on
the label [12, page 203].
The specified basic regulatory legal acts create a platform for adaptation
of product quality of domestic grain crops. Considering the incredible capacity
of the EU market, following the given and other trends would provide for prospects
for penetration of domestic trade companies into the given market, facilitated by
implementation of the EU Association Agreement signed between Ukraine and the European
Union.
Meanwhile, in the text of the Agreement, the main restrictive instrument
in agricultural trade is the tariff quotes which ensure duty-free access of goods
to the markets of the EU countries. It should be noted that all free-trade zones
created between the EU and other countries and country groups contain provisions
concerning agriculture. At that, regulation of trade in the most sensitive agricultural
goods by the European Union, where protection of national manufacturers from import
increase is a top priority task when free-trade zones are established, shall be
performed at the expense of the following:
– exclusion of such goods from tariff offer;
– deferred liabilities on reduction of tariffs till the transition period
deadline;
– establishment of tariff quotas;
– taking special protective measures [13, page 101].
The task of the Ukrainian State and trade companies specifically includes
establishment of a system to overcome the specified mechanisms of the EU market
import restrictions.
Increasing the quality of grain crops, it is necessary to regulate those
quality indices which would demonstrate its consumption value, specify and clarify
requirements to quality considering its further target use. The number of indices
for an objective quality assessment being standardized should be optimal, be substantiated
in terms of science and practice, have normative basis and reflect the main properties
of products. With the help of the complex standardization method, it could be possible
to ensure a systematic approach to increasing the quality of finished products.
Low efficiency of out-of-date and obsolete interstate and regulatory documents restrains
the introduction of new technologies, use of top quality elite and original seed
material, quality of grain production and application of other material and technical
resources. That’s why we need research, analysis of grain quality indices in terms
of improvement of regulatory basis for high-quality grain crops to ensure domestic
needs of the state and transform Ukraine from a grain importer to a grain exporter
[14, page 112].
As reported by researchers, the quality of Ukrainian
wheat varieties meets all the requirements set by all the above-mentioned standards.
Such wheat could easily satisfy the most demanding consumers of European and global
market in terms of various quality indices. Notwithstanding the high potential capabilities
of Ukrainian varieties, the quality of actually grown wheat is much lower. Among
all varieties grown in the territory of Ukraine lately, about 30% of varieties are
strong wheat, and about 40% are valuable wheat. Albumen content in strong wheat
is over 14% and gluten content – over 28%, for valuable wheat – 13% and 25% respectively.
In production terms, varieties don’t often implement their characteristics due to
a number of objective reasons: failure to adhere to the growing technology, insufficiency
and non-balance of micro- and macro-elements, essential damage by pests and diseases
etc. To improve this situation, additional financial expenses are necessary [14,
page 113].
For example, we could show the data presented by
N. V. Moroz regarding competitive quality of Ukrainian wheat compared to French
wheat (Tables 1 and 2).
So, it would be expedient to say that the EU standard
contains three indices, just like the domestic standard, namely: albumen content,
falling number and grain unit. The difference in these indices is allowed to be
deemed unimportant. Yet, there is a difference in albumen content. The French standard
contains a dominating index acknowledged globally: wheat strength (W). Ukraine replaces
it with three other indices: gluten quality group, gluten content and GDI index
(gluten deformation index) which are less known across the globe, are not acknowledged
and never used anywhere except for the CIS countries.
Table 1
Requirements to quality of wheat according to state
standard DSTU 3768:2009 [14, page 113]
|
Class |
Protein content,
no less than,% |
Crude gluten
content, no less than,% |
Group by gluten
quality |
Units of GDI |
Falling number,
over, seconds |
Grain unit,
no less than, g/l |
|
1А |
14.0 |
28 |
І-ІІ |
45-100 |
220 |
760 |
|
2А |
12.5 |
23 |
І-ІІ |
45-100 |
180 |
740 |
|
3А |
11.0 |
18 |
І-ІІ |
45-100 |
150 |
730 |
|
4B |
12.5 |
Not specified |
Not specified |
Not specified |
150 |
710 |
|
5B |
11.0 |
Not specified |
Not specified |
Not specified |
130 |
710 |
|
6 |
Not specified |
Not specified |
Not specified |
Not specified |
Not specified |
Not specified |
Table 2
Requirements to quality of bread-making wheat in
France [14, page 113]
|
Class |
Albumen content,% |
Flour strength,
W |
Falling number,
seconds |
Grain unit,
kg/gl |
|
Е (extra) |
=,> 12 |
=,> 250 |
=,> 220 |
=,> 76 |
|
1 |
12.5-11,5 |
250-160 |
=,> 220 |
=,> 76 |
|
2 |
11.5-10.5 |
Specification
under contract |
=,> 180 |
=,> 76 |
|
3а |
< 10.5 |
Not specified |
Not specified |
=,> 74 |
|
3b |
< 10.5 |
Not specified |
Not specified |
< 74 |
So we agree with the opinions of such researchers
as Moroz N.V. and Stoliarchuk P.H. who believe that the index of wheat strength
(W) is mandatory for the assessment of wheat quality, and it is expedient to introduce
it in the domestic standards as it would allow Ukraine to enter the international
market and become competitive in the grain crop sector. Also, in this wheat strength
index it would be important to approve quality classes [14, pages 113 – 114].
Despite the high quality of domestic grain crops, for the purposes of adaptation
to external risks at the EU market, the domestic manufacturers need to do the following:
– to revise harmonized standards effective in Ukraine, as many of the international
standards approved as national in the past have already been abolished and replaced;
– out of currently effective ISO standards, to choose those not harmonized
yet (there are 24 of them) and study the expediency of their approval as national
standards;
– to revise and choose standards of the Codex Alimentarius Commission (CAC)
for their introduction in Ukraine, as well as standards of the International Plant
Protection Convention (IPPC), International Scientific and Technological Association
of Cereals (ІСС), determined at international level (standards, recommendations,
guidance on hygienic and sanitary requirements, control methods, glossaries, methods
of pest fighting, cereal growing technology etc.); to monitor and track approval
of new and abolishment of old standards of international organizations and make
decisions on expediency of their use in Ukraine; when planning development of national
standards, priority should be given to introduction of international and regional
standards as the procedure of development of harmonized standards is much simpler
and twice as cheaper than development of a national standard [15, page 310].
IV. Conclusions. Thus, adaptation to external risks of grain crop exporters means adherence
to production and sanitary norms established for grain products. It should be noted
that the economic and food safety of the EU is oriented at two main trends: 1) food
safety; 2) import limitation. That’s why, for Ukrainian exporters, food safety is
a system of production norms and standards laid out in regulative acts of the EU,
a lot of which are implemented in the national legislation of Ukraine. The second
trend of economic and food safety of the EU for the Ukrainian grain exporters is
ensured by the validity of the Association Agreement signed between Ukraine and
the EU. At the same time, despite the relatively high quality of domestic grain
crops, external risks for trade exporters are minimized due to the introduction
of the specified standards, which would increase competitiveness of grain crops
as well as products of their processing at the EU market and other promising foreign-trade
markets.
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