Ukraine To Be Firmly Re-established Among The World's Top Wheat Exporters By 2013

Aug. 1, 2009 - PRLog -- 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 the 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 (the report 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, the report 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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