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Agriculture in Ukraine

Ukraine’s agribusiness sector remains the most promising sector of the economy. With 41.5 million hectares of agricultural land covering 70 % of the country and about 25 % of the world’s reserves of black soil, agriculture is Ukraine’s largest export industry. In 2020, Ukraine’s agriculture sector generated approximately 9.3% of GDP.

For centuries, Ukraine has been known as Europe’s food basket. But the importance of its contributions to the global food market came under the spotlight in the aftermath of Russia’s military campaign. Ukraine, the second-largest country in Europe (Russia is the largest), is a major exporter of grains and cereals, including corn.

As Russian shelling and airstrikes in 2022 damaged roads and cut off Black Sea ports, shipment of Ukrainian wheat was disrupted, leading to an immediate hike in the price of both wheat and flour. Flatbread, made from flour, is a staple for countries ranging from Egypt and Jordan to Pakistan. Ukraine alone accounts for nearly nine percent of the world’s wheat supply, and disruption in exports has already jacked up prices. Inflation was already causing headaches for policymakers before Russian troops crossed over into Ukraine on 24 February 2022.

As economies opened up after two years of pandemic-related lockdowns, problems with the global supply chains have provoked increased demand, inflating prices across the board. Global food prices were now at their highest since 1974 when adjusted for inflation, says the Food and Agricultural Organisation.

While dozens of agrarian economies have vast irrigation systems, few rival Ukraine’s agricultural produce. The country of 40 million is the world's largest exporter of sunflower oil and a major supplier of corn, barley and rye, among other grains. It consistently ranks as one of the largest grain exporters. What’s special about Ukraine is that it produces more than it needs to meet domestic demand, leaving a surplus of goods that can be sold on the international market. In fact, in 2019, Ukraine overtook Russia to become the largest grain exporter when it shipped close to 50 million tons to other countries.

At the heart of Ukraine’s agriculture is its highly fertile soil. Nearly a quarter of the world's most fertile soil, known as Chernozem, is located in Ukraine. Chernozem is black soil rich in organic matter called ‘humus,’ which is made up of decomposed plants. More than 65 percent of arable land in Ukraine is composed of Chernozem deposits, making it ideal for farming. Ukraine's surface area under cultivation is vast — so vast, that, at 32 million hectares, it's larger than Italy.

Ukraine has the capacity to produce a lot more grain if modern technology, finances and practices are used to supplement its nutrient-rich soil. But soil erosion is damaging Ukraine’s arable land. Every year around 500 million tons of soil are eroded mainly due to poor agricultural practices such as large-scale till farming. Climate change is also impacting “highly productive areas of the country, such as the Steppe area in the south, which currently produces 50 percent of the grain for Ukraine,” the World Bank said.

Production is primarily divided between two groups - agricultural enterprises and households. The former produces 55 % of gross output and consists of 45,000 enterprises. The second group consists of more than 4 million households cultivating on average 1.23 hectares of land each, generating nearly 45 % of gross agricultural output.

Crop farming, which accounts for 73 % of agricultural output, dominates Ukrainian agriculture. Corn, wheat, and barley are Ukraine’s main grain crops. For five consecutive years (2013-2017), Ukraine harvested over 60 million tons of grain and legumes annually. In 2018 and 2019, Ukraine continued increasing grain production volumes to 70 and 74 million tons respectfully. 2020 was a turbulent year for Ukraine in the context of the economic situation, constraints associated with COVID-19, and due to the atypical weather conditions. In 2020, the gross grain harvest amounted to 65.4 million tons, which was still three times more than the needs of the domestic market. With significant improvements in yields, many experts estimate that Ukraine’s total grain output potential is 140 million tons.

Oilseed is the second most important subsector in Ukrainian crop farming. The major oil crops are sunflower, soy, and rapeseed. In the mid-2000s, after implementation of export tariffs for unprocessed sunflower seed, Ukraine developed a leading sunflower oil industry and became the number one exporter of sunflower oil in the world.

In the context of a total export volume decrease, the share of agricultural exports is increasing. The share of agriculture in export revenues for Ukraine increased from 26 % in 2012 to 45 % in 2020 amounting to $22.2 billion. The basis of agricultural exports is still the export of raw materials, namely products of plant origin, including corn, wheat, rapeseeds, and soybeans. Sunflower oil is the second largest export product after corn, accounting for $5.8 billion or 7.6 % of all exports. It also produces significant volumes of poultry, forage and feed crops, potatoes, sugar beets, and a variety of fruit and vegetables.

Despite sitting on vast fertile soil deposits, the productivity of Ukrainian farm output in terms of yield per hectare is lower than that of other countries. Ukraine’s potential was hamstrung for years by lack of investments in modern technology due to landowners not having access to finance. Trade in agricultural land was banned in 2001 because of concerns that rich countries and large corporations would scoop up the precious farmlands.While farmers could lease their holdings, they couldn’t use them as collateral to borrow the money they needed to buy farming tools, like tractors, from banks.

“Limited access to finance, including bank loans, has long been a barrier for small and medium-sized agricultural producers, who produce more than 50 percent of Ukraine's total agricultural output,” a World Bank report said. Roman Leshchenko, Ukraine’s former agriculture minister, said that the moratorium on land sales became a means for corrupt officials to make money by illegally allotting farm plots to developers. “Ukrainians have not been able to fully capitalise on these agricultural riches during the thirty years since the country gained independence,” he wrote.

The moratorium on land sales of arable land was Ukraine’s gap between potential and actual production volumes. The moratorium on land sales meant that large farms depend on land leases, which hampers access to finance and discourages, for the most part, investment in irrigation and drainage. President Volodymyr Zelenskyy lifted the moratorium in 2021, hoping that the reforms would help shore up economic growth and attract foreign investment within a few years. The gradual opening of the land market effective in July 2021 will allow farmers to use land as collateral and, in a long-term perspective, will encourage them to invest more in equipment and infrastructure. Beginning in July 2021, agricultural land is available for sale to Ukrainian citizens (up to 247 acres per individual). Beginning in 2024, Ukrainian legal entities will be able to buy up to 24,710 acres. The World Bank estimates that the opening of the land market, together with better targeting of subsidies and other measures to improve land productivity and transparency in the sector, could lead to incremental GDP growth of over 2.0 % per annum over the next few years.

During 2016-2017, greater political stability, a stronger economy, a more stabile hryvnia (the country’s currency) and delayed demand enabled and encouraged Ukrainian farmers to resume badly needed capital investment, including in agricultural equipment. Farm machinery and equipment imports increased nearly 2.5 times in 2017 compared to 2015, returning to 2013 levels. In 2018 and 2019 the demand for imported machinery and equipment decreased at 11 and 12 % respectfully due to stabilization of the situation after a high increase in 2017. In 2020, import of agricultural machinery and equipment decreased dramatically at 33 % versus the expected decrease of 15-20 % due to constraints associated with COVID-19, limited access to credit and working capital, and transition to the open land market.

Demand for used agricultural machinery remains stable. Most of end users are medium and small agricultural producers. It is important to know that importers of used agricultural machinery and equipment do not have a large inventory level of equipment, but rather make purchases based on their customers’ demand. The major reasons for not having a large inventory are expensive domestic loans, fluctuating currency exchange rate, and variable demand.

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Page last modified: 12-04-2022 18:52:35 ZULU