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. Last Updated: 07/27/2016

New Rules Likely to Strangle Free Trade in Ukrainian Grain

KIEV -- Ukraine's government plans to tighten its control of the country's grain and sunflower seed market amid fears this may undermine grain trade.

Roman Kushch, deputy head of the Agriculture Ministry's food department, said the government was preparing an order to local farms and grain traders to conduct and register deals in grain and sunflower seed only through special exchanges. "We are working on documents that will impose new rules on our grain and sunseed market," Kushch said.

He declined to give more details.

The planned new regulation has alarmed local traders and agricultural producers, who say this rule would mean an end to free trade in Ukraine. "Trade must be free, and any attempt by the government to change the rules will mean the destruction of the market," said Mykola Kompanets, president of Ukraine's Grain Association, the leading group of grain and sunseed exporters.

Kompanets said traders could not understand why they would have to pay more than 7 percent of the cost of the contract to the exchange, while over-the-counter deals would be banned.

"We are not against exchanges as such but we are against ... bans on free trade," Kompanets said.

Traders said that by using agricultural exchanges the government probably wanted to make grain trade more transparent.

The authorities are also afraid many farms will hide grain from this year's harvest, unwilling to use it to repay state loans issued for purchase of fuel, fertilizers and machinery.

Kompanets recalled that Ukraine had pledged to the International Monetary Fund, its major creditor, to scrap all limits on its exports, and the new rules would violate these obligations.

"Ukraine may just lose the vital support by the IMF if it imposes these restrictions," he said.

Most regional heads have already ordered local farms to suspend grain exports.