Development of Agricultural Commodity Exchanges in Ukraine

Topics: Agriculture, Commodity, Commodity market Pages: 14 (4586 words) Published: December 5, 2005
The paper presents analysis and assessment of the current situation with Ukrain-ian agricultural commodity exchanges and their development prospects. Today, there is a need for an efficient market infrastructure, capable of ensuring trans-parent sales of agricultural commodities. In the developed countries, exchange trading in agricultural commodities is the most efficient way for determining market prices. However, most Ukrainian exchanges function as superstructure at the spot agricultural market. The government does not actually participate in the exchange trading. Because of relatively small sizes of exchanges, they are not able to create the material basis, necessary for implementation of progres-sive technologies of exchange trading. Forward and futures transactions are not popular, because they are associated with collateral, which should be provided by the supplier (producer) in case it fails to honor its obligations. In general, development of agricultural commodity exchanges is related to the institutional setting of agricultural market. Keywords: commodity exchange, agricultural market, market infrastructure, market transparency 1INTRODUCTION

With elimination of the state system of contracts for sale of agricultural commodities, the old marketing infrastructure became unable to provide effi-cient functioning of agricultural market. Though many commercial intermediar-ies appeared, they did not possess any material and technical basis, and they also used non-transparent schemes of trade in agricultural commodities. So, the need arose for an efficient market infrastructure, capable of ensuring transparent sales of agricultural commodities by agricultural producers. The problem of market non-transparency became very acute in the mid-1990s. In order to solve it, in 1995 President's edict introduced the agricultural commodities exchange trading, which became the main reason for positive grain price index in 1995. However, later on the activities of commodity ex-changes have been cut down. In 1999, the volume of trade at agricultural commodity exchanges was four times less compared with that of 1995. The price fluctuations strengthened. Right after harvesting, grain prices equaled UAH 300-350 (USD 56-66) per ton, and in spring 2000 grain prices skyrocketed to UAH 600-700 (USD 113-132) per ton. In developed countries, the seasonal difference equals 20-30%. The fluctuations in trade volumes were even stronger. During the period between harvesting and the end of the year, 11 million tons of grain had been sold. As a result, in spring 2000 the food market came under intense pressure, the bread prices and inflation rates increased, while the purchasing power of the population decreased. Now the Ukrainian agricultural market eventually functions according to the liberal market model, from which all CEE countries started their transition to the market economy. However, these countries rejected this model in the early 1990s and started to implement governmental regulation of agricultural market, creating necessary institutions. 2DEVELOPMENT OF AGRICULTURAL MARKET IN UKRAINE AND CURRENT SITUATION ANALYSIS In 2000, President's edict set up two main tasks – creation of market infra-structure, forms and mechanisms of organized wholesale trade and channeling of agricultural commodity flows through transparent procedures of agricultural market. As a result, in 2003 the market witnessed the same situation as in 1999-2000. This situation had been caused not just by decrease in crop yields, but also by serious deficiencies in the functioning of agricultural market, including miscalculations concerning formation and use of the state grain reserve. Wheat prices increased by 2.4 times, while the prices of bread (the main "social" prod-uct) increased only by 20-60% (Figure 1). Figure 1: Dynamics of Prices of Bread and Related Products, 2003 (UAH per ton)...

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