Grain exports from Ukraine in 2024 are becoming even more important in light of global challenges and changes in the agricultural market. Ukraine, as one of the leading grain producers and exporters, not only ensures food security for many countries, but also constantly improves its regulatory requirements and standards.
In this context, it is important to take into account new legislative initiatives aimed at optimizing export procedures and ensuring high quality products. In this article, we will analyze the main changes in grain export requirements, their impact on the market, and the prospects for the Ukrainian grain sector in 2024.
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Ukraine’s role in the international grain market
Ukraine plays a key role in the international grain market, consistently ranking among the world’s five largest exporters. Due to its large production volumes, the country exports about 75% of its grain, making it one of the main guarantors of food security in the world.
Outside of Ukraine, Ukrainian grain feeds more than 400 million people, which is three times the population of our country. The main markets are North Africa, the Middle East, South and Southeast Asia, and Europe. In particular, China has significantly increased its imports of Ukrainian grain, and today it is one of the largest buyers of Ukrainian agricultural products.
In addition, Ukraine not only exports raw materials but also plays an important role in international food security initiatives. In particular, one of its priorities is to create an Organization of Grain Exporting Countries, which could bring together key market players such as Ukraine, the United States, Australia, the European Union, Brazil, and the United Kingdom. This organization is designed to coordinate grain supplies and promote free trade, which will further strengthen Ukraine’s position on the global market.
Ukraine is a strategic player in the global grain market, ensuring stable supplies that are critical to global food security. In terms of grain exports, our country is one of the top 5 largest exporters in the world, with about three quarters of its grain production being exported. This allows us to provide food to more than 400 million people outside the country.
Ukraine’s main export markets cover several regions of the world. About 30-35% of supplies go to North Africa and the Middle East, 30-35% to South and Southeast Asia, and another 35-40% to Europe. In recent years, China’s position on the Ukrainian grain market has significantly strengthened. In just 4 years since 2018, China has increased its imports of Ukrainian grain by 5 times, becoming one of the leading consumers of our agricultural products.
In addition to traditional grain exports, Ukraine is developing new formats of international cooperation to ensure stability in the global food market. One of these initiatives is the proposal to establish the Organization of Grain Exporting Countries, which was supported by President Volodymyr Zelenskyy.
This organization, following the example of OPEC, could bring together the largest grain producers, such as the United States, the European Union, Australia, Argentina, Brazil, and the United Kingdom, to coordinate production and ensure fair and free trade in grain crops on the world market. This initiative will help not only to maintain stable supplies but also to ensure food security in the face of global challenges, including military action, climate change and economic crises.
According to the Ministry of Agrarian Policy and Food of Ukraine, in the 2021/2022 marketing year, Ukraine’s grain and flour exports showed a significant increase compared to the previous period. This was made possible by an increase in the production of major crops such as wheat, corn, and barley.
The following figures confirm Ukraine’s important role in the global agricultural market.
| Indicator. | 2020/2021 MY (thousand tons) | 2021/2022 MY (thousand tons) |
| Cereals and pulses, total | 39 649 | 46 168 |
| Wheat | 15 289 | 18 532 |
| Barley | 4 125 | 5 676 |
| Rye | 1,7 | 161,1 |
| Corn | 19 614 | 21 495 |
| Wheat flour | 106,5 | 68,6 |
| Other flour | 1,0 | 1,5 |
| Flour together | 107,5 | 70,1 |
| Total exports (grain + flour) | 39 792 | 46 261 |
According to the above data, Ukraine’s exports of grains and flour in the 2021/2022 marketing year significantly exceeded the figures for the previous period. The exports of wheat, barley and corn increased especially, which emphasizes the important role of Ukraine as one of the key suppliers of grain to the global market.
Changes in Ukrainian legislation on grain exports
In 2023, Ukraine launched an active legislative reform aimed at improving the rules for grain exports. On November 21, 2023, the Verkhovna Rada adopted draft laws No. 10168-2 and No. 10169-2, which provide for amendments to the Tax and Customs Codes, as well as other regulations. These innovations are aimed at replacing the existing dysfunctional export security regime with a more transparent and efficient system that meets modern requirements.
On May 9, 2024, after significant adjustments, the draft laws were approved in the second reading and were soon signed by the President of Ukraine. The changes introduced, together with the Resolution of the Cabinet of Ministers of Ukraine of October 31, 2023 “On the Implementation of a Pilot Project on Verification of Agricultural Entities under Martial Law,” lay the foundation for a new regulatory system.
The main purpose of these legislative initiatives is to prevent black export schemes, which often lead to loss of foreign exchange earnings. In this article, we will analyze the key legislative innovations, their impact on the export market, and the prospects for Ukrainian agricultural producers in the new environment.
Export security mode
Since March 2023, the Cabinet of Ministers of Ukraine has been authorized to introduce a special export regime for certain categories of goods, known as the “export security regime”. During the year, the government did not use this right due to the controversy and lack of elaboration of the mechanism.
Draft Laws No. 10168-2 and No. 10169-2 initially provided for the abolition of the concept of the export security regime. However, as a result of discussions, the Parliament decided not only to preserve this regime, but also to provide it with new opportunities.
The basic idea of the regime remains unchanged: during martial law, the Cabinet of Ministers of Ukraine has the right to decide on the introduction and abolition of this regime. It provides for special conditions for the export of certain types of goods, such as:
- natural honey (code 0409 00 00 00);
- walnut in the shell (code 0802 31 00 00);
- walnut without shell (code 0802 32 00 00);
- wheat (code 1001);
- rye (code 1002);
- barley (code 1003);
- oats (code 1004);
- corn (code 1005);
- soybeans (code 1201);
- Rapeseed (code 1205);
- sunflower (code 1206 00);
- soybean oil (code 1507);
- sunflower oil (code 1512);
- rapeseed oil (code 1514);
- cake (code 2306).
This regime is designed to control the export of important agricultural goods in the face of instability caused by the war and to guarantee stability in the domestic market.
Registration of a tax invoice
One of the most significant innovations in the grain export process is the obligation of exporters to draw up and register a tax invoice before the date of submission of the customs declaration. In the absence of a registered tax invoice, the customs declaration will not be processed.
VAT in the tax invoice may be charged at the 0% “export” rate or at the “domestic” rate 14%/20%, depending on the exporter’s history of refunding foreign currency earnings over the previous 12 months. In order to apply the 0% rate, the exporter must comply with the condition that the unreturned foreign currency earnings during the year do not exceed 20% of the total amount of exported goods subject to the export security regime.
The Cabinet of Ministers of Ukraine is obliged to develop a procedure for calculating the share of unreturned foreign currency earnings and determine the list of taxpayers that will meet the criteria for applying the zero VAT rate. This will allow to create a list of “bona fide” exporters who can enjoy this preferential treatment.
Exporters who do not meet these requirements are required to register a tax invoice at the 14% or 20% VAT rate by the day of filing the customs declaration. After returning the foreign currency proceeds, they can make an adjustment calculation by replacing the domestic rate with the export rate.
However, the risks of corruption remain, as the tax authorities are authorized to suspend the registration of tax invoices based on decisions of the Cabinet of Ministers. This further complicates the existing process of controlling grain exports.
It is also planned to develop the criteria for unconditional registration of “export” tax invoices and adjustment calculations. The Cabinet of Ministers will have the right to introduce the export security regime after all the necessary bylaws are adopted. However, the regime cannot be implemented until these criteria are defined, which creates some uncertainty about the functioning of the agricultural origin traceability system.
Budgetary refund of VAT
For exporters who are included in the special list of “bona fide” exporters and are entitled to a zero VAT rate on grain exports, the VAT refund procedure will remain unchanged. It is important to note that grain export transactions will now be reflected in the tax return for the reporting period corresponding to the customs declaration. Previously, the registration of the export tax invoice was automatic upon the execution of the customs declaration, but now the invoice must be registered prior to its execution, which may cause difficulties in case of delays.
For exporters registering tax invoices at the 14% or 20% VAT rate, there is a possibility of a VAT refund from the budget in case of a negative value after adjusting tax liabilities. This means that the time for such exporters to receive a budgetary refund will be extended by the period of return of foreign currency proceeds under the contract, as well as by the period required to register the adjustment calculation.
An important point is that before the adjustment calculation is registered, the exporter may have a positive VAT value, which will require replenishing the electronic account in the electronic VAT administration system to pay the tax liability to the budget. This may lead to a situation where the exporter will first have to pay the VAT liability and then, after the return of foreign currency proceeds, deal with the issue of refunding the VAT overpayment. It is important to note that the overpayment can only be refunded to an electronic account in the electronic VAT administration system.
Minimum allowable export prices
Ukraine retains, albeit in a slightly amended form, the provisions stating that the VAT base for export transactions involving goods subject to the export security regime is the contractual value, but not lower than the minimum allowable export prices.
Under the new amendments, the issue of determining minimum export prices has become more detailed. Thus, the Cabinet of Ministers of Ukraine will approve the procedure for determining the minimum export prices for certain types of goods, which are calculated in US dollars. The calculation will take into account the terms of supply, market conditions, price information, forecasts of price fluctuations and contractual practices.
Amendments to the Tax Code provide that minimum export prices will be applied at the time of registration of the tax invoice. Under the new Customs Code, the invoice value of goods declared in a customs declaration cannot be lower than the estimated value based on the minimum export prices at the time of filing the declaration.
Importantly, the customs authority may refuse customs clearance if the invoice value is below the minimum allowable value. This means that an exporter will need to check the minimum allowable export prices three times: when registering a tax invoice, filing a customs declaration, and crossing the customs border.
The introduction of minimum export price requirements at the legislative level is a positive step. However, the methodology for their calculation remains unclear. The draft Procedure stipulates that minimum allowable prices for certain types of goods are calculated based on the terms of supply with the largest export volume over the past five years, using impersonal information from the State Customs Service and a 10 percent discount from the reference minimum export prices. The reference prices will be calculated using the quantitative method, which will ensure objectivity and transparency in the price setting process.
Rules for forward contracts
Under the new rules, special VAT rules have been introduced for forward contracts. The tax base for export operations based on a forward contract is the contractual value of the goods, but it cannot be lower than the minimum allowable export prices at the time of signing the contract. It is important to note that the tax invoice must indicate that the goods are exported under a forward contract.
If the minimum export prices have not yet been established at the time of signing the forward contract, the tax base is determined according to the general rules. This means that the minimum export prices at the time of registration of the tax invoice are taken into account.
To determine the invoice value of goods exported under forward contracts, the minimum allowable export prices as of the date of signing the contract are also used. If such prices are not available, the prices as of the date of submission of the periodic customs declaration (PCD) and the date of crossing the customs border of Ukraine are taken into account. This ensures stability and predictability in settlements when exporting goods under forward contracts, particularly in the context of dynamic market conditions.
International standards for grain exports
Grain trade internationally is focused on product quality, which is greatly facilitated by the use of standards. A standard is a norm, pattern, or criterion that helps both parties evaluate products. However, it is worth noting that there is no unified global commodity classification for grain. Therefore, when trading in grain, it is necessary to take into account the specifics of the standards in force in both selling and buying countries.
There are many quality indicators, norms and standardization systems that classify grain around the world. In particular, in Europe, rules approved by the European Commission are applied, including regulations, directives and decisions. Their main characteristics are:
- Regulation: has general application and is binding on all EU member states. This means that the provisions of the Regulation are directly applicable in all EU countries.
- Directive: is binding only with respect to the result to be achieved, leaving Member States free to choose the forms and means of achieving that result.
- Solution: Similar to a regulation, as its provisions are binding, but not always for all countries.
EU rules set biochemical quality indicators and permissible levels of impurities that divide all grain lots into two main groups: food and feed grain. If a batch has deviations in at least one indicator, it is automatically classified as feed grain. For example, the quality requirements for wheat in the EU rules are much higher than those in Ukraine.
These features indicate the need for a clear understanding of quality standards in international grain trade, as compliance with these standards is key to successful exports.
Basic EU rules for grain exports
In the international market, grain exporters use contracts that serve as standards, defining minimum key quality indicators. These contracts specify in detail the conditions under which the components of the grain and its value are determined, taking into account the established requirements.
Laboratory assessment of grain quality is important in global trade. Analyzes are carried out both during loading and unloading of the goods. The results of laboratories that are internationally certified in accordance with the requirements of organizations such as GAFTA, ICUMSA or FOSFA are officially recognized.
The main purpose of state standards is to encourage farmers to produce high quality grain that can compete on the international market. For this purpose, the criteria for grain grading are established: the higher the grade, the higher the market price. Another important function of state standards is to regulate relations between producers and buyers within the country. After that, international contracts and documents that define product quality come into force.
It is worth noting that most of the technical standards (DSTU) in force in Ukraine were developed before 1992. Since the beginning of 2019, many of them have lost their validity, and it is now important to periodically update the regulatory documents on the quality of grain and grain products. On average, these standards are subject to revision every 5 years. Many of the documents have already been repealed, and a significant part has been standardized in accordance with the requirements of the European Union. This helps to improve the quality of Ukrainian grain on the international market.
Conclusion
In general, significant changes in the grain export process can be expected in the near future. However, the exact date of implementation of these changes remains uncertain, as the implementation of the new export security regime depends on the adoption of a significant number of bylaws and the adjustment of information and communication systems of the relevant government agencies.
Active preparations are underway, and soon we will be able to assess how effectively the updated export security mechanism will work, or whether it will repeat the fate of previous attempts to implement similar changes.
