 Panic in Ukraine. But no Famine |
Panic. I am one of those who has seen and lived through it before in Ukraine. Panic creates disaster. And we now have such disaster.
There are natural disasters - floodings, fire, etc, but there are "disasters" caused by human behavior also. I would call panic the disaster of all disasters. Panic is when a level of horrified state caused by some circumstance is passed to someone else not only, as it seems, through words, but also through fluids and a certain energy itself. It happens when fear of something causes everyone "to run" in one direction. The whole population becomes infected. In such a way, a resonance effect appears as with a column of people that are marching in step on a bridge. Any given individual's separate reasoning and rationality is overcome by the mass of peoples less rational beliefs and reactions.
My generation has been eyewitness to two previous outbursts (or "epidemics") of panic: the first one occurred with the military defeats of the Red Army at the early stages of The Great Patriotic war in 1941; the second one happened with the explosion of the fourth power-generating unit at Chernobyl NPP in 1986.
And now again the people have begun to panic. This is particularly true of the people who live on low salaries and pensions - and such people constitute three fourths of the Ukrainian population. This time the panic is caused by fears raised over possible future bread scarcity. One-two hours before opening many buyers line up in front of shops that sell wheat and cereal products. Those people try to get enough supply of wheat because they are afraid of further sharp price increases. This fear isn't groundless. For the last two weeks of June prices rose from 30% up to two times and more as before. Observation of certain price instability began as early as February of this year when it became clear that December frosts of last year had substantially damaged the winter grain. There had not been sufficient snowfall to cover and protect the grain fields. Nevertheless, the extent of the damage remained unknown until the spring of 2003. News about the loss of 80 percent of the plantings on millions hectares of land began to create worry. Nevertheless, hope remained that in the spring there would be replanting of white straw crops and bean cultures. Winterkilling of winter crops is common almost every year, but previously it wasn't in such a scope as in last year. Anyway, before one didn't consider this as a big trouble since, usually, if the amount of winter wheat and rye decreased then supplies of corn, buckwheat, peas, barley and such would increase.
Last winter, however there were such frosts that no one would have expected.
More than 80 percent of plantings were lost in all the main "bread-making" regions of Ukraine. While there were fewer losses from winterkilling in the Western oblasts of Ukraine, those are not the main "bread-making" regions, and grain harvesting in them has never covered the needs of the people of that region. Thus, those regions have never played a crucial role in the bread balance equation. There the loss of winter crops has traditionally amounted to 10-12percent.
The farmers and peasants replanted most part of the lost winter crops plantings at great effort and expense. This process automatically increased the prices for grain at least by one third, and therefore no one should have expected cheap bread in the fall of this year. Worries only began to rise at the end of May and beginning of June of this year when it became obvious that one third of spring plantings was lost because of draught. Not a single drop of rain was observed in most bread-making oblasts of Ukraine. Such a draught had not been seen in the last 100 years in the main bread-making oblasts of Ukraine. The realization of the effects of this began generating more and more tension in the wheat, cereal products and sugar markets. Finally during a one to two day period the tension mounting broke and the result was panic. Like a dam suddenly bursting bread panic started to spread all over Ukraine like river reservoir waters flowing through the broken dam. The speed of the spreading panic was measured not in days, but in hours. Then a "winged" disaster was added - locusts. Heat provoked their abrupt and large-scale spreading and their gradual expansion from the Southern oblasts to the central and northern oblasts of Ukraine. Disaster struck and damaged more than 200 thousand hectares of plantings. Special forces for protection of plants started to fight the plague of locusts, but this was started somewhat late and without sufficient planning. Locusts were being exterminated but not actively and consistently enough. Discontent among population was thus further agitated because plantings that had not been lost due to frosts and draught were now disappearing.
The authorities failed to provide economic support and educational information to counter the panic among the Ukrainian population. On the contrary, even as many consumers started to line up in front of shops to buy wheat and cereal products, the authorities and mass media were continuing to talk of the dreadful consequences of the draught, dramatized as having never before been seen by the current generations of people. Everyday the Ukrainian population was seeing on their TV screens land with cracks because of heat, thin-sown wheat plantings burned by the sun. People were watching on TV stories about the dreadful famines of Bolshevik times (right at the time of the disaster this year events commemorating the victims of the famine of 1933 were taking place in Ukraine). Of course, all this deeply impressed, first of all, the oldest and older generations that still remembered the famine of 1933 and post-war draught in 1946 and the following famine of 1947. This though in the current circumstances the forecast of a decrease of the wheat harvest by approximately one third - from 38.8 million tons down to 25-27 million tons - did not promise famine. Nevertheless, fear, the mechanism for panic, was "launched".
Such behavior by the power structures and mass media, both dependent on oligarchs, provided grounds for many in Ukraine to think that all this "panic act" was well prepared with the goal of obtaining super-profits (and possibly political dividends) from panic actions in the wheat market. Such a view on this reason for panic might not be groundless. President Leonid Kuchma himself thinks that all this is "thuggery".
The authorities failed (or couldn't) influence the situation in the wheat market with economic mechanisms. Most likely they couldn't because they didn't have the state wheat reserve at their disposal. In a state of euphoria from very large harvest of the year 2002, the authorities had in that year directed all their efforts to export a maximum amount of grain abroad. Within a single year Ukraine had become one of the top five grain-exporting countries, though it had been seen necessary to dump prices sacrificing the profits of Ukraine's own grain producers. The latter had been encouraged to sell grain even lower than its prime cost by frightening the grain producers with dim prospective of further decrease of prices on the world markets. More than 6.5 million tons of grain, including 2.1 million tons of grain used for making bread products, had been exported very quickly from Ukraine. The "wake up" from this euphoria occurred only in March of this year when grain was already in the hands of traders, and world prices were continuing to grow. But it was too late. By the spring of this year several oblasts of Ukraine had to buy grain abroad - in Russia and Kazakhstan.
At first the Ukrainian population didn't have a clue that the state had no wheat reserves, and therefore the former believed that the authorities would influence the domestic grain market. But it wasn't too soon that it became clear that there was a lack of wheat reserves. Panic and a sharp increase of prices were inevitable.
All the above described reasons are real, obvious and the ones that "are on the surface". However, probably there are other factors that lie "deeper" that led to the situation. Economists couldn't but notice the general price increase in the country and speeding up of inflation, which within the last several months (yet before the "bread panic") surpassed the limit estimated by the state budget authorities. The condition of a higher tempo of GDP growth compared to the previous year, especially in industry (statistical data shows this) became apparent. Such inflation growth could have created a situation allowing for the emission of money unsupported by the economy. Under such conditions the threat of a bad crop could have become just a mere "trigger" to price growth, bread panic. Though weather conditions really caused the bad crop, the effects of its scope depended in many ways on the consequences of last year's activity on the grain market. Since it became a fact that farmers and peasants, having gathered a bumper crop- about 39 million tons, they hadn't received corresponding profits, particularly from grain. Grain traders took the profits in their hands. The amount of those profits is estimated at about one billion USD. Exactly such an amount of losses done to farmers and peasants is blamed on former Vice-Prime Minister Serhiy Kozachenko. In the parliament one states about the losses done in the amount of about seven billion USD. Farmers "responded" to such a policy by the authorities by planting fewer winter crops - by about one half less and, probably they put fewer fertilizers and used irrigation systems less. So the question becomes: what difference does it make to farmers and peasants who will take the fruits of their labor, the state - free of charge (as it was before during the times of collective farms), or one of about 600 grain traders, intermediaries which are mainly foreign - by half a price?
So, what will be the consequences of the current "bread" panic? First, there won't be any famine in Ukraine. Of course, less bread grain will be harvested. Therefore there won't be large-scale exporting, but at least two million tons of bread grain will be imported. Three to three and a half million tons will be harvested in the central and Western oblasts that suffered the least from bad crops.
Secondly. Prices for grain, wheat and sugar that jumped by one and a half to three times and will never drop to their previous level - to the level of prices in March and April of this year. Those current prices will not drop because before they were below the prime cost of production of those commodities and below the prices in the world markets. In the process of overcoming the panic in the bread market, the prices will only get leveled with the world prices. This will create a new situation for agricultural enterprises in Ukraine. Some of them will develop very quickly; some others will go bankrupt and become a problem for the authorities. This will lead to severe criticism of the policy of the government and especially the President and his administration because the new Prime Minister, Viktor Yanukovich, still doesn't bear responsibility for the actions of his predecessors. But the authority of Viktor Yanukovich can even increase if he succeeds in tackling the crisis in the food products market.
Thirdly. Political danger lies in the inevitable increase of prices for all food products (because ultimately all spheres of food product industry are related to grain). This will effect the social situation in the state in an extremely negative way since main expenses of most Ukrainians goes for food products. It's not difficult to comprehend that the decrease in living standards of the population can negatively effect the attitude of the electorate to the current powers and their supporters.
Under such conditions it is very important what next steps of the executive power will be in the center and in the regions of Ukraine. The government is directing its efforts as follows: lifting the custom limits for grain imports from abroad; introducing e state compensation for percentage on loans takes by farmers; extending the pay-back time of bank loans taken by farmers in the years of 2002-2003; conducting a large-scale purchase of grain of 2003 harvest to put into the state reserve; and is conducting several other measures.
Now very much will depend on how these governmental measures will work and what the actions of the opposition will be.
Only one thing is clear. The situation in Ukrainian society will be extremely tense, unstable, and different opposition forces can use this instability and tension when the opportunity occurs.
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Read also previous issue' articles:
The Herodotus of Ukrainian History
Ukrainians Want A Country That Respects Them
Ukraine's Brain Drain
Chauvinistic Smoke A Few Words on Russia
A walk on the underside
Re-inventing Production: Military Giants Discover Consumer Goods
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