The State Railway Administration (Ukrzaliznytsia) has stated again that the proposed increase of freight rates by 12.5% is stipulated in the macroeconomic indicators of the development of Ukraine's economy and that it is line with pricing policy for 2014. Ukrzaliznytsia said that the rate of increase of freight rates significantly lags behind the rate of increase of grain prices. Ukrzaliznytsia explained its position in response to the Ukrainian Agrarian Confederation’s appeal to Prime Minister Arsenii Yatseniuk in which it states that it is unacceptable to raise freight rates, the Interfax Ukraine news agency reports.
According to experts with Ukrzaliznytsia, the macroeconomic indicators for 2014 assumes an average annual increase of 7.3% in freight rates, which contributed 0.06 percentage points to the increase of the producer price index. However, given that rates are not indexed timely, the average annual increase in freight rates is 5.2% - the impact on the rise of the producer price index is only 0.04 percentage points.
Indexation of freight rates is necessary to improve the financial and economic state of the railway sector and implement investment programs, Ukrzaliznytsia emphasized.
Regarding the planned elimination of the imbalances in the current freight rates for grain, Ukrzaliznytsia said that this meets the requirements of the WTO and the 1994 General Agreement on Trade in Services (GATS).
According to Ukrzaliznytsia, trains transported 0.763 million tons of grain cargoes domestically in 2013, including 0.403 million tons of wheat, rye, and barley. The impact of the proposed changes in freight rates on the price of a kilogram of wheat and barley will be only about 4.6% and 2.9%, respectively.
At the same time, taking the leveling of freight rates for grain into account, the rate of increase of freight rates will be 46.9%, compared with 2008, while the price of Class II wheat increased by 104.9% during this period. Transportation accounted for 6% of the price of this cargo in 2008, and it will constitute only 4.4% after the proposed leveling of freight rates.
Ukrzaliznytsia added that more than 96.5% of grain cargoes transported are export cargoes and that the prices of these products are set in foreign currencies while freight rates are in the Ukrainian currency. The influence of freight rates on the price of a product (even taking the indexation of prices into account) will remain unchanged compared with 2008, according to Ukrzaliznytsia. Thus, according to Ukrzaliznytsia’s data, the freight rate per ton of export grain has reduced by 22.9% from USD 15.3 to USD 11.8 while the transport component in the cost of grain has remained unchanged at 5.1%. According to Ukrzaliznytsia, the data cited above once again demonstrate the insignificant influence of freight rates and the fact that the rate of increase of freight rates significantly lags behind the rate of increase of grain prices.
Recently, the Ukrainian Agrarian Confederation called on the Cabinet of Ministers to abandon plans to raise freight rates for grain because this would reduce the competitiveness of Ukrainian grain and lead to a drop in the purchase prices of grain, resulting in lower revenues for farmers.