Agriculture in Ukraine: a growth sector even in times of crisis

By Prof. Dr. Rainer Lindner, Chairman of the German-Ukrainian Forum e.V.

Agriculture is one of the most important sectors for the country. In 2019, agricultural goods and food accounted for almost 43 percent of Ukraine's exports. Plant production is the focus of agriculture in Ukraine. As an exporter of grain (mainly wheat, corn and barley), the country ranks third in a worldwide comparison with 60 million tons of production, just behind the United States and the European Union. More than half of the goods go abroad. Ukraine is even the world leader in oilseeds (sunflowers, soybeans, rapeseed). The country ranks among the leading producers and exporters of many other agricultural goods.

In Ukraine, 35 percent of the total agricultural area is managed by private households. Overall, they represent 44 percent of the country's agricultural production. Around 45 percent of the land is accounted for by around 45,000 farms that lease their land mainly from private landowners, but also from the state. Some of these companies are large agricultural holdings that are oriented towards the world market and focus on the cultivation of cereals and oilseeds as well as poultry farming. A significant proportion of agricultural exports consists of raw materials and products with low added value. The export of processed food has so far remained underdeveloped. The reason for this is the lack of investment due to the investment climate and high financing costs. However, the government is making progress on reform.

On 30 March, 2020, the Ukrainian parliament passed a long-debated and controversial law regulating business transactions in agricultural soils, which will enable land trading from 1 July 2021. The law was signed on 28 April 2020 by President Zelenskyi. This was a prerequisite for the release of an important IMF loan. The law allows land to be pledged as collateral, which makes financing easier. Investments in agriculture mostly flow into modern technology, digitalization, the expansion of logistics, the construction of new grain stores and in biogas plants. This development will be supported i.a. by the EBRD, the Worldbank and numerous cooperation projects of the German Federal Ministry of Food and Agriculture.

Significant investments (approx. USD 200 million each) flow, for example, in the expansion of a poultry farm in Vinnytsia by MHP, in the construction of a vegetable oil plant in the Khmelnytskyi area of Kernel and in the construction of a corn processing plant in the Ternopil area, which is financed by Chinese investors. The field of agricultural engineering offers interesting project opportunities, in which Ukraine depends on imports, Germany being the leading supplier country. Agricultural holdings in particular have high demands for modern agricultural technology.

According to the Worldbank, the Ukrainian agricultural sector remains below its potential and could make a much larger contribution to economic growth with higher exports. A 30 percent increase in agricultural productivity could lead to GDP growth of 4.4 percent over five years and 12.5 percent growth over ten years. Exports, especially of high-quality agricultural and food products, also remain far below their potential.

Why is the agricultural sector particularly interesting now?

The agricultural sector is usually less affected by crisis situations than other branches of the economy. The positive development of agriculture in recent years has helped stabilize the country. Ukrainian agriculture has considerable potential to continue growing in the coming years.

Sources:

Der Agrarsektor der Ukraine und Deutschlands: Fakten und Kommentare, Ausgabe 6 (ADP, 2019)
Ukraine könnte zur Kornkammer für die Welt werden (GTAI, März 2018)
Ukraine hat hohen Bedarf an moderner Landtechnik (GTAI, Juni 2018)
Branche kompakt: Ukrainische Nahrungsmittelindustrie wächst schwach (GTAI, März 2020)
Landreform: Kauf von Agrarland ab Juli 2021 möglich (AWÖ, Mai 2020)
Accelerating Private Investment in Agriculture Program (WB, Mai 2019)