You're reading: Nation could profit big amid surging global food demand

Billions of dollars in fresh investment could help Ukraine boost crop, export earnings.

As the world population surges along with demand for food, Ukraine is positioned to not only feed more hungry mouths, but also to profit from it greatly.

The global spotlight, including investor interest, is aimed at agriculturally under-developed countries like Ukraine for increased production.

If ban ends on buying and selling of land, will foreigners be excluded from taking part?

On the one hand, Ukraine is home to some of the world’s richest and most under-cultivated land. But on the other, farming technologies are outdated.

As a result, Ukraine’s farming countryside lags behind in yields – 30 to 60 percent below European Union averages for all crops.

Many say that if the nation adopts the right policies – opening up the market to competition and billions of dollars in fresh investment – harvests could surge, and Ukraine could double its hard currency earnings from grain exports to $8 billion in five years while developing value-added food production industries, investment bank BG Capital said.

If Ukraine achieves such a goal in the next decade or so, then the nation could become a geopolitical food superpower.

By the end of this year, the world’s population will reach 7 billion people as water supplies are imperiled, glaciers are melting, fish stocks are vanishing and soil is eroding.

“Ukraine is and will continue to be a major beneficiary over the next few years from this trend,” said Anton Khmelnitski, director of Kyiv-based Elbrus Capital, which invests into Ukrainian agriculture companies.

A growing number of investors have snapped up shares in a handful of promising Ukrainian agribusinesses that have started listing their stocks on international exchanges.

“Moreover , the equity story is the most attractive to capture the growth aspects of agri-businesses today as well as land reform which is expected to be activated on July 1, 2012,” Khmelnitski added.

The potential buried in Ukraine’s rich black soil has been long recognized by multinational agribusinesses which have invested billions into farming, food production and grain trading since the 1990s.

But before it starts feeding the world, experts say Ukraine must boost production and end protectionist barriers that drive up the cost of food for its own population.

Increasing global food prices might hasten development of the agricultural sector.

SigmaBleyzer, the equity investment group, said year-end inflation is forecast at 12 percent on the back of rising fuel and food costs.

Greater production of food will require increased use of fertilizer and modern farming machinery, experts said, at a cost of billions of dollars in needed investment.

Although 15 agricultural and food processing companies are publicly listed, experts say the government still needs to do more to promote investment – or simply get out of the way.

How rich is Ukraine in potential?

It possesses 32.5 million hectares of highly fertile arable land, about one-third of the 27-nation European Union’s stock.

Besides room for production growth, the nation is close to attractive export markets with numerous Black Sea ports and railway connections.

Ukraine could even be well-positioned to export more than 100 million tons of grain annually, said John Shmorhun of Sigma Bleyzer, a huge jump from current levels.

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As food demand rises, the value of farmland in Ukraine should also increase if government develops a transparent market for the purchase and sale of agricultural land.

The moratorium on such land sales is dampening investment among farmers who could be using the earth as collateral for loans.

According to Kyiv investment bank Dragon Capital, land leasers annually pay on average $40-$50 per hectare, well below the $200 to $800 per hectare in the European Union.

If the current moratorium on the sale of agricultural land is lifted, farmland owners could receive $1,700-2,000 per hectare, said Dragon Capital.

“The issue of selling farmland has ripened, in fact, it ripened a long time ago,” said Volodymyr Lapa, director general of the Ukrainian Agribusiness Club.

“The significant investment, which is coming to agribusiness now, is incomparable with the sums of money that could come if farmland issues were rationally solved.”

President Viktor Yanukovych’s administration claims it is acting fast to create a transparent agriculture land market.

But many experts and opposition lawmakers fear that restrictive conditions could keep foreign investors out, allowing domestic oligarchs to monopolize yet another sector of Ukraine’s economy.

For now, however, Ukraine’s small and struggling farmers are unable to take advantage of rising food prices.

Small farmers have limited access to water and fertilizers.

For their produce, many also have a single buyer who dictates the price.

Farmers are extremely vulnerable to changes in the weather and many are not able to store their harvests for long.
Poor roads and other weak infrastructure also block them from markets.

Better days may be coming – eventually. According to the U.S. Department of Agriculture, Ukraine will become a major agricultural player by 2020 – if the right policies are adopted.

“If the heads of states and governments will not undertake the necessary measures, the cost of grain crops in the next 20 years will increase by 120-180 percent,” Oxfam, the anti-poverty organization, reported.

And, if Ukraine doesn’t improve its harvests, it could find itself a net importer of food – a cruel reversal

of fortunes for the “breadbasket of Europe.”

Kyiv Post staff writer Mark Rachkevych can be reached at [email protected].

Staff writer Oksana Grytsenko contributed to this story.