Ukrainian export potential on grain market



Export potential is the main characteristic of a country's economic strength and an indicator of its prospects and sustainability in the international arena. Export potential of grain market today is one of the few ways for Ukraine to provide its long-term economic growth and affect the currency revenues from exports. This paper studies the opportunity of Ukrainian economy to realize export potential on the grain market. Using Vollrath’s Relative Trade Advantage Index, the export potential of Ukraine on world grain market is assessed.

Keywords: export potential, grain market, trade advantage.

Introduction

At the global level, the volume of agricultural trade production increased in all regions of developing countries. This indicates that food production in these countries is increasing against the background of growing demand due to economic, social, and demographic factors. This fact confirms the hypothesis of a direct dependence of food production on income growth and population. Certain trends in world food trade are the defining conditions for the development of the agricultural sector of Ukraine's economy. Given the strategic nature of the grain market, it is necessary to study its main trends in Ukraine and outline opportunities for further development. The study of the export potential of agriculture on the example of the grain market, the constant improvement of its development directions and ways of their implementation is always a topical issue due to the presence of strong competition as a driving force from other countries.

Literature Review

The study of basic issues to determine the export potential of the country becomes more relevant with the growing need to introduce ways to lift the country's economy. The works of Ukrainian scientists as Baban T. [1], Begma V. [3], Bestuzheva S. [4], Burov M. [6], Druzhinina V. [7], Melnik T. [10], Zinoviev F. [14] define certain theoretical approaches to the definition of the essence and sources of the formation of export potential. The analysis of the scientific literature on the export potential indicates a different vision and definition of the essence of the export potential of the country.

According to Bibek Ray Chaudhuri Debottam Chakraborty [12] (2010), researching the export potential of Karnataka, they calculate Revealed Comparative Production Advantage Index of each product on state level as well as perform Shift Share analysis, using the export data to find out the potential export products from the demand side.

The paper by Nevzat Simsek, Dilek Seymen and Utku Utkulu [11] (2010) explores the competitiveness of the Turkish firms in the EU Market by employing different trade measures such as the Balassa’s Revealed Comparative Advantage Index (RCA), Vollrath’s Revealed Competitiveness Index etc. This paper focuses on each of indices but gives some additional and complementary information underlining different aspects/dimensions of these indexes. Two of mentioned indexes (Balassa’s Index and Vollrath’s Index) are used in the thesis as main approach to solving the problem posed.

Ukraine on the world grain market

Analyzing the data on the main countries that are leaders in terms of exports in the grain market, the United States, Ukraine, Russia, Argentina, and the EU should be singled out. In 2018/2019, Ukraine was among the five largest exporters, ranking 2nd in terms of grain exports (market share 11.6 %). The main competitors of Ukraine in the world grain market are the United States (market share 23 %), Russia (10.8 %), Argentina (10.3), EU countries (6.9 %).

There is a steady specialization in the world grain market: grain production is concentrated mainly in developed countries, and many developing countries are unable to solve their grain problems and are forced to import grain, in addition, in sufficient world grain production, the problems of grain supply will be especially acute for the poorest countries that do not have the funds to finance imported supplies: grain. At this time, the world grain market is undergoing changes and the following picture can be observed: crops in the United States and Canada have declined; transitional stocks in the largest exporting countries decreased; new exporting countries such as Hungary, Russia, Ukraine, Kazakhstan, and Turkey have entered the market.

Table 1

Leading countries in terms of exports in the grain market in million tons

Year	2013/ 2014	2014/ 2015	2015/ 2016	2016/ 2017	2017/ 2018	2018/ 2019
USA	82.02	83.09	80.27	100.97	89.76	95.78
Ukraine	32.59	34.85	39.64	44.67	40.07	47.91
Russia	25.52	30.75	34.71	36.79	52.93	44.5
Argentina	17.76	26.81	31.01	38.35	42.83	42.77
EU	40.48	48.59	47.74	35.22	30.41	28.82
Australia	26.23	23.93	22.18	32.5	23.71	16.86
Canada	28.07	29.08	26.34	24.48	27.75	30.09
Brazil	24.44	23.23	37.61	14.01	32.68	25.66
India	21.92	14.81	11.68	13.7	13.34	14.12
Thailand	12.06	10.1	10.25	12.36	11.38	9.57
Kazakhstan	9	6.36	8.44	8.26	10.05	9.64
Vietnam	8.17	8.17	8.61	6.23	6.53	7.01

Source: Developed by the author based on AMIS

Ukraine has gradually positioned itself as the world's leading supplier of grain. Evidence of this is also the structure of Ukrainian exports from 1996 to 2020. From Figure 1 we can note that in the period 1996–2019 there is a significant change in the structure of Ukrainian exports. Thus, from 1996 to 2004, it was dominated by products of the metallurgical industry: ferrous metals made a major contribution to export growth (during 1996–2004, their contribution was 39 %). In 2013, for a few objective reasons, the country gradually began to displace agricultural products in the country.

Fig. 1．Structure of Ukrainian exports 1996–2016

Source: Developed by the author based on State Statistic Service of Ukraine

Ukraine's active participation in international grain trade and its leading position among world grain suppliers are due to certain factors:

– Appropriate climatic conditions and rich in nature resources that allow you to grow and harvest most grains.

– Favorable geographical location and availability of sea routes, which gives an advantage and facilitates the process of transportation and export of grain products abroad.

– Low prices for Ukrainian grain as the main competitive advantage of domestic grain on the world market.

– Growing demand for grain in the world, a prerequisite for which is a gradual increase in population and the use of opportunities to address the problems of hunger in developing countries.

Ukraine's key positions on the world stage are consolidated due to the unrealized production potential of our country, which is determined by the yields of major crops, and the key production resource is land, which in Ukraine is characterized by some of the best indicators in the world.

Vollrath’s Relative Trade Advantage Index

To assess the role of Ukraine's exports in the grain market, it is necessary to study and characterize the Vollrath’s Relative Trade Advantage Index [5], which is calculated by Formula 1.

, (1)

— share of exports of the j group of goods of the i country in the total exports of the country;

- share of world exports of the j group of goods in total world exports;

- share of imports of the j group of goods to and from the country in the total imports of the country;

- share of world imports of the j group of goods in total world imports;

The calculated indices of relative trade advantages of RTA for cereals for 2011–2018 (Table A.1) indicate their competitiveness in international trade. RTA for 2018 increased to 26.42, which is 1 time more that the same indicator in 2017 year. Analyzing the obtained RXA indicators, or the index of relative competitiveness of a particular industry, we can trace the trend of positive dynamics of changes in the export advantage of cereals over a period of 2011–2018, namely increasing the level of competitiveness of cereals on the world stage three times.

The data of the index of identified import advantage prove Ukraine's ability to supply enough grain crops abroad without the need to import this type of product from other countries. RMA calculations indicate its relative stability, which indicates a low dependence of Ukraine on grain imports, except for the indicator in 2014, when it exceeds 1.

Note that RTA> 0 for the period from 2011 to 2018 and in the dynamics is experiencing a positive increase, an example of which is a fairly high value of the indicator, evidence of which is an increase in this index by 3.3 times over 8 years.

Thus, the absolute value of the identified trade advantages of grain, along with other calculated indicators, is also gradually increasing. That is, Ukraine has a comparative trade advantage over other countries and relatively greater competitiveness in trade in certain products, which ensures its leading position in the world grain market.

Conclusion

That is, today Ukraine has almost lost the metal market and retrained as one of the main suppliers of agricultural products to foreign markets. Analysis of the world grain market and trends in the domestic grain industry suggests that Ukraine is gradually strengthening its position in it, and grain is one of the main domestic exports. Nowadays Ukraine has significant potential for the development of the agricultural sector. This is facilitated by the fact that our country is the top ten countries exporting grain products. At the same time, Ukraine is one of the few countries in the world that can increase crop production, and hence the huge potential for export development. But given that grain production is the most profitable agricultural activity, which is an internal «financial donor” of the industry and allows maintaining the overall positive profitability of production, successful grain export expansion can provide significant growth in gross value added in agriculture in Ukraine.

According to the research, it was determined that Ukraine has an extremely high potential for grain exports to the world market. The Estimation of Vollrath’s Relative Trade Advantage Index allowed to prove that Ukrainian crops are competitive on international grain trade market. The results showed the ability of Ukrainian producers to supply a sufficient amount of grains to the world market without need of importing them. The calculations proved that Ukraine has a comparative trade advantage over other countries in grain trade.

APPENDIX A

Table A.1 Estimation of Vollrath’s Relative Trade Advantage Index

Indicators	2011	2012	2013	2014	2015	2016	2017	2018
Grain exports	3617122,2	6999871,0	6371325,6	6544127,6	6057490,0	5429870	6501048	7240571
Grain imports	219855,2	249132,5	306525,5	366626,8	154707,7	148817	176759	191120
Total export	68394195,7	68809810,6	63312022,1	53901689,1	38127149,7	36361032	43428391	47334680
Total import	82608240,0	84658059,9	76963965,4	54428716,9	37516443,0	39249626	49439156	57187093
World grain imports	117858927	120629693	119354012	119830334	102855888	96560615	104128608	112400317
World grain exports	122801673	124916347	125052195	122237279	108277288	66242430.81	101704487.1	113336900.7
World total export	18338967000	18497485000	18953465000	19006231000	16490373000	15993280648	17687818007	19414008004
World total import	18415633000	18625032000	18933692000	19004926000	16667840000	16100403680	17874023570	19670072293
The share of the country's grain exports in the country's total exports	0,0529	0,1017	0,1006	0,1214	0,1589	0.1493	0.1497	0.1529
The share of the country's grain imports in the country's total imports	0,0027	0,0029	0,0040	0,0067	0,0041	0.0038	0.0036	0.0033
The share of world grain exports in total world exports	0,0064	0,0065	0,0063	0,0063	0,0062	0.006	0.0059	0.0058
The share of world grain imports in total world imports	0,0067	0,0067	0,0066	0,0064	0,0065	0.0041	0.0057	0.0058
RXA	8,23	15,60	15,98	19,26	25,47	24.73	25.43	26.42
RMA	0,40	0,44	0,60	1,05	0,63	0.92	0.63	0.58
RTA	7,83	15,16	15,38	18,21	24,84	23.81	24.80	25.84

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