Ukraine may still be a breadbasket as a perennial leading grower of sunflower, corn and wheat, but the industry won't see significant new investment soon, according to business groups and big farmers. If there's a silver lining in this dismal forecast, it means that Ukraine's government and agribusinesses will have time to get their act together.
Another message, echoed repeatedly at economic forums, is that the
nation must focus on exporting finished, value-added agricultural
products – not just the raw commodities.
While Ukraine is blessed
with rich land and abundant labor, the nation still lacks the legal
framework needed for businesses to flourish – transparency, rule of law,
minimal regulations.
Agriculture Minister Oleksiy Pavlenko,
at the Kyiv International Economic Forum on Oct. 8, said that 45 million
tons of wheat will be harvested this year, just one example of
production totals that should make the nation a fertile magnet for
investment. “With new markets to China, Egypt, Bangladesh and Saudi
Arabia, we are giving opportunity for very serious economic growth,”
Pavlenko said.
Should, could, would – but Ukraine is not, attracting only $500 million in fresh investment to the industry this year.
However,
Morgan Williams, president of the U.S.-Ukraine Business Council, said
at the forum that Ukraine has got a lot of work to do in order to boost
exports. He emphasized that most of the value in the food system is in
its second half, value-added part.
“If you go and buy a box of
cornflakes at the grocery store, the farmer may get 10 cents and the
rest of the $2.50 is in the second half of the food system,” Williams
said.
He also cautions that Ukraine should not expect any new major investments soon.
“Most
of the investment in the agribusiness… in the next three years in
Ukraine will come from businesses that are already in Ukraine,” Williams
said. “Very few new companies are going to come in this kind of
environment until the companies that are here are ready to expand.”
Some
companies such as Monsanto, Cargill and Great Plains Manufacturing are
already putting money into Ukraine.
Their
international network gives them strength that many locals don’t have.
For example, they can borrow at international interest rates rather than
Ukraine’s inflated ones.
“We know of at least 15-20 other major
international businesses that are just standing at the border ready to
put a lot of money into here,” Morgan said. But they are waiting for
more stability, reforms and less corruption.
What Ukrainian
businesses can do is “be more efficient, tighten up their operations,
cut out corruption, be more transparent, have better records and
financial results,” Williams said.
Pavlenko wrote on Facebook on
Oct. 13 that during the first seven months of this year, Ukraine
exported $2 billion worth of agriculture products to the European Union.
Ukrainian exporters still have plenty of room to export to the EU,
since many of the quota limits have not been reached for such products
as sugar syrup, starch, lamb, mushrooms, and garlic.
Overall,
Ukraine is slated to export 15 million metric tons of wheat this year,
almost 4 million tons more than in 2014. The agricultural sector’s share
of gross domestic product reached 11.8 percent last year, up from 7.9
percent in 2008, according to the World Bank. That is about four times
the global average.
The management recipe that the minister has
been promoting consists of three main ingredients – deregulation,
business transparency and business-to-government conversation.
“This
is the most important approach which should respectively be in all
government branches and in all reforms,” Pavlenko said.
But Yuriy
Kosyuk, owner and chief executive officer of London-listed Mironivsky
Hliboproduct, Ukraine’s biggest poultry producer, said that the
government is still not making it easier for businesses.
“The
government didn’t help before… today it is still not helping, and in
some instances it is even in the way,” said Kosyuk, who advised
Ukraine’s President Petro Poroshenko.
Despite the war and the
high interest rates – the central bank lowered the key rate to 22
percent last month after keeping it at 30 percent for six months – it is
still possible to successfully farm in Ukraine. “If you are doing
business in the right way in Ukraine, if you are correctly investing,
correctly building a team, and motivating it, then everything will be
very good, or at least not bad,” Kosyuk said.
Williams’ advice to
the Ukrainian government: Focus on creating better conditions for
companies already working in Ukraine rather than fishing around for new
investors. “The future of Ukraine is already here,” Williams said. “Just
take care of what you’ve got and Ukraine can move forward.”
In the first nine months of 2015, Ukraine has exported some 11 million tons of grains, while total agricultural exports in the first eight months were worth $8.6 million.
Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected]
