Ukraine, Russia and Kazakhstan talks on grain pool continue

Two processes are taking place simultaneously, although they would appear to be unrelated: prices for Kazakh grain are falling and a major breakthrough in the formation of a Customs Union. Together, the two could lead to the birth of a third idea. Talk is that Kazakhstan, Russia and Ukraine might form a three-way grain pool.

Although Ukraine does not belong to the Customs Union, the evolution of that entity is showing promise and providing benefits as an economically motivated association of post-soviet countries. As never before, a quarter of the world’s grain production was based in three countries: Ukraine, Kazakhstan and Russia. By comparison, the US produced only 20% of world grain this year.

And all three countries are hoping to reach even greater heights. Kazakhstan says it could increase exports to 10 million tonnes, while Ukraine talks of exporting 40mn of an overall harvest of 80mn t. Meanwhile, Russia’s gross crop intake is expected to reach 90mn t this year, with a matching rise in export capacity.

Setting up a grain pool would combine competitive strengths to the advantage of all three countries. Moreover, for objective reasons, they are not likely to compete with each other: each country specializes in different cereals from its neighbors. In Kazakhstan grows mostly high-grade food grain, while Russia mostly grows somewhat lower quality mid-grade grains and Ukraine focuses on feed grains.

Joint work on common markets will make it possible to prevent speculative price fluctuations, making the entire process more transparent and predictable. This, in turn, should make the grain-growing sector much more attractive to investors in all three countries.

Moreover, a grain pool will improve opportunities not only to develop grain exports but also exports of flour. And this means exports of a product with the high added value that the government and economists have been struggling over for all the years of independence.

The possible risk that a grain pool of three countries could be seen as a cartel that will dictate prices on world markets experts so far do not take seriously. Control over a quarter of the world market is not enough for this. What will matter, most of all, is joint development and joint use of infrastructure.