Ukraine cancels VAT reimbursement for oilseed exports

Ukraine’s parliament voted on Dec. 7 for a tax code amendment
that eliminates VAT on the export of sunflower seeds, rapeseed and soybeans as
of March 2018, the epravda.com.ua news site reported on Dec. 8. Effectively,
the measures means oilseed exporters won’t be eligible to receive reimbursement
of the VAT that they pay when purchasing seeds at wholesale from domestic
producers.

Last fall, Ukrainian farmers harvested soybeans from
1.69 mln ha and sunflower seeds from 5.78 mln ha, and they have sown 0.87 mln
ha of winter rapeseed for the 2017/18 season. Ukraine usually exports more than
two-thirds of its soybean and rapeseed harvest and less than 1% of its
sunflower seed harvest.

Alexander Paraschiy: Our
understanding is that the amendment’s initiators want to eliminate incentive
for farmers to plant soybeans and rapeseed in amounts that exceed their
domestic demand. So in essence, the lack of VAT compensation is equivalent to
applying of up to 17% export duty, making the export of rapeseed and soybeans
not profitable as of March 2018 (the export of sunflower seeds is not efficient
anyway, as Ukraine has a special 10% export duty on that crop).

This measure should succeed in reducing soybean
planting next spring, most likely in favor of sunflower seeds, domestic demand
for which is high in Ukraine. Higher sowings of sunflower seeds, and therefore
boosted supply next year, will benefit large processing companies like Kernel
(KER PW, PERPW). If the VAT cancellation remains in place, it will become a key
driver for Kernel to improve its margin on sunflower oil production in the
mid-term, which in turn may help the company reach its targeted USD 500 mln
EBITDA in financial year 2021. That may be also beneficial for Astarta (AST
PW), Ukraine’s biggest processor of soybeans.

Meanwhile, those having already sown winter rapeseed
in 2017 will be in trouble next year, unless the tax code amendment is
repealed. Among the companies with the biggest exposure to winter rapeseed are
Mriya Agroholding (MRIYA, 11% of all its land bank sown with winter rapeseed as
of end-October), KSG Agro (KSG PW, about 14% of its total land bank was sown
with winter rapeseed this fall) and possibly MHP (MHPC LI, this year it
collected rapeseed from 9% of its land bank, with no data on rapeseed sown this
fall).