Agriculture is perhaps the last leg on which Ukraine’s economy has left to stand after Russia’s war in eastern Donbas disrupted the metals and mining industry, prompting a 17 and 22 percent drop in steel and coal production, respectively, last year.
Fortunately for Agriculture Minister Oleksiy Pavlenko, Ukraine already is a leading grower of sunflower, corn, wheat and barley. It just needs more working capital and cheaper financing to double harvests to 100 million tons in four years on the 32.5 million hectares available for crop production.
Since the land isn’t going anywhere, including 30 percent of the world’s fertile black soil known as chernozem, Ukraine can “move fast and quick” in this field, Morgan Williams, president of the U.S.-Ukraine Business Council, said at a public discussion with Pavlenko in Kyiv on May 13.
Following his appointment in December, Pavlenko moved to cancel 14 required licenses, 6 certificates and submitted a number of bills to Parliament meant to improve farming conditions, he told a group of investors at a separate event in Kyiv on May 13. The most notable bill passed so far extended the minimum farmland lease term to seven years, which should promote investment and more sustainable farming practices like crop rotation.
“We are fighting for business, our role is to interfere as less as possible with businesses,” Pavlenko said.
As a former manager at farming enterprise Rise, one of the first to use cluster farming techniques in Ukraine, Pavlenko told investors that now is the right time to invest.
“Look, you have a new government and parliament that was democratically elected…This is the first time you have the full productive cooperation of government,” he said.
The contrast with his Viktor Yanukovych-era predecessor, Mykola Prysyazhnyuk, is stark. Prysyazhnyuk is a fugitive linked to massive corruption schems, the extent of which Ukraine’s officials are still learning about.
To prepare the country for the sale of farmland worth an estimated $100 billion – currently there’s a moratorium in place so corporate farmers lease land from households – Pavlenko said an electronic cadaster is being drawn up with assistance from the World Bank that is 15 percent complete.
Because the issue of land is heavily politicized, his ministry is looking for a “hybrid” solution so that “we could meet the expectations of local society and foreign investors.” One legislative initiative is to allow leased land to be used as collateral.
One of the other steps he took was to sign a non-binding memorandum with grain traders, large farmers and industry groups to set informal limits on grain exports.
He was pleased with the outcome during the May 13 public discussion of not having to impose quotas as “90 percent are following the rules.”
Pavlenko is also for reinstating value-added tax refunds for grain exporters, one of the few subsidies that farmers enjoy. He said that, for each hectare, less than $50 comes in subsidies.
Parliament on May 14 adopted the first draft of a bill that reinstates the redemption of export of VAT tax, which was cut in January. Otherwise, “farmers will need up to Hr 16 billion in direct compensation next year,” the agricultural minister said.
He said he’s opening the market up to exporters, noting that 22 companies are in line to be licensed to send grain to China.
Lack of affordable financing is holding the industry back. He said, for example, there is pent-up demand for 4,000 tractors and 3,000 combines.
Investors are interested in developing river transportation, according to Pavlenko, which delivers less than 3 percent of grain internally.
Some $8 billion is needed to expand grain storage capacity near ports, the main avenue through which agricultural goods reach international markets.
Rail infrastructure also requires upgrading, notably modern train cars.
If this doesn’t happen soon, Pavlenko noted, there’s no sense in growing more food that can’t be brought to market during the peak harvesting season.
Agriculture is the only industry that was profitable and grew in 2014 amid a deep recession during which gross domestic product plunged by 6.8 percent to $131 billion. Also a major hard currency earner, the industry accounts for 26 percent of exports and contributes 17 percent to GDP.
“Ukraine is important for global food safety and security,” Pavlenko said. “We are the food basket of the world…by 2020 we shall double exports.”
Ukraine is slated to harvest 55 million tons of grain this marketing year, according to the U.S. Department of Agriculture. And 30 million tons of grain has been exported so far, and may reach 32 million, he said.
According to the agriculture minister, 83 percent of Ukraine’s farmland was seeded as of May 13. Seeding was 52 percent complete in Luhansk and 60 percent in Donetsk oblasts.
“We are controlling the situation, we have weekly conference calls with local governors and government officials in the regions,” Pavlenko said.
The two big fertilizer factories in Donbas, Stirol in Horlivka and Severodonetsk Azot, are standing still, however.
Pavlenko plans to lure investors to purchase state-owned enterprises belonging to the ministry. He wants to set a minimum price of $150 million for state alcohol monopoly Ukrspyrt. Only seven of the company’s 50 alcoholic spirits plants operate.
Only 20 percent of the 571 enterprises on the ministry’s balance sheet make a profit. “More often they become a cover-up for financial abuse and poor management,” he said.
Preliminary audits have been conducted and 254 companies have been chosen for the auction block. He said 101 are to be privatized through the division of shares, and 158 will undergo reorganization.
Plans envision leaving no more than 10 enterprises in state ownership.
