Abstract
Agriculture in the Ukraine, once the bread basket of Europe, has fallen on
sorry times since the collapse
of the Soviet Union and independence in
1991. Now, however, in some sectors, a recovery is under way.
In BMI' s new
Ukraine Agribusiness Report for Q309, we examine how agriculture in Ukraine
can
retrieve its former status, even though in the short term this will be
difficult. Ukraine has been hard hit by
the global recession (BMI is now
forecasting real GDP to contract by 14.7% in 2009) and its neighbours,
potential export markets, are cutting back too. Falls in production and demand
are forecast across the
agricultural sector for 2009/2010.
After
government subsidies and guaranteed markets fell along with the Soviet Union,
Ukraine' s
agriculture went into a long decline through the 1990s. By the
end of the decade, production volumes had
collapsed, agricultural GDP had
fallen by half and more than 2mn jobs had been lost in rural areas. Since
2000, however, the sector' s prospects have improved and a nascent recovery has
begun. This has been
driven by the development of a small number of
larger, profitable operators, though production in most
sectors is still
dominated by inefficient, loss-making farms.
The emergence of a new class
of efficient farms can most clearly be seen in the poultry sector, which
we
forecast to grow 2009-2013 by 47.1%. Despite the recession growth is
still expected, if at a slower rate,
partly because poultry' s relative
price advantage over other meats will continue to attract customers. Two
large, profitable firms account for more than 70% of production.
We also
expect grain production to retake lost ground over the medium term, and, by
the end of our
forecast period in 2013, we expect Ukraine to be firmly
established among the world' s top wheat
exporters. With yields far below
the potential of Ukraine' s fertile soil and much arable land lying fallow,
there is plenty of room for production growth. Some agricultural companies,
seeing this potential, are
capitalising on the opportunity.
There are,
however, a number of challenges that must be met if this recovery is to
continue. Recent
government interference in the form of export quotas on
grain have starved the industry of much-needed
funds for investment. A ban
on the sale of agricultural land has hampered the expansion of profitable
farms, forcing them to lease land instead of owning it outright. This has
served to discourage investment
in land improvement. A drain of workers
from rural areas into the cities also threatens to derail the
recovery of
the agricultural industry. Some sectors, such as beef and veal production, are
in perpetual
decline.
Ukraine' s former agricultural success may also
come back to haunt it if measures to preserve the
environment are not
taken. The intensive agriculture introduced to Ukraine when it was part of the
Soviet
Union and the rapid expansion of area under agricultural harvest
have put pressure on natural resources.
This has led to falls in the
fertility of the soil and declines in water retention. As agriculture in the
Ukraine
redevelops, more attention will have to be paid to the environment
if the recovery is to be sustainable.
However, despite the above and the
recession BMI agrees with the views of a growing number of experts
who
believe that investing in Ukraine' s agricultural industry during the current
turbulent times, while
undoubtedly a risk, could provide savvy
entrepreneurs with strong gains and a marked competitive
advantage before
global economic health returns. The major potential lies in grains where
Ukraine has
done much to improve production methods and a growing
sentiment for mechanised commercial farming
has helped to foster
increasing efficiency gains. This view is expanded upon in the Business
Environment
Overview section.
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