Betting on Agriculture Ukraine's Green Shoots of Recovery

Despite conflict and industrial collapse, Ukraine's agricultural sector continues to perform well. But it urgently needs reform and investment to help it grow.
Why do I always have to go at the back?

The conflict in eastern Ukraine is raging more violently than a few months ago. The economy of Europe's largest country is shattered. Its heavy industry is being progressively destroyed.

The hard-pressed country has just one ray of hope: a rapidly growing agricultural industry.

Ukraine wants to use its thick carpet of rich, black topsoil to become Europe’s breadbasket again, but needs billions in aid from the West to do so.

“The new government in Kiev has now recognized that agriculture is one of the pillars on which the country can straighten itself out,” said Dirk Stratmann, sales manager of the farm equipment manufacturer John Deere. “Together with the energy issue, it is one of Ukraine’s key strengths.”

This assessment echoes that of Ukrainian Prime Minister Arseniy Yatsenyuk, who during a recent visit to Berlin said the agricultural sector is the only positive development in his country.

Kiev has now recognized that agriculture is one of the pillars on which the country can straighten itself out. Dirk Stratmann, Sales manager, John Deere

In fact, Ukraine’s gross domestic product shriveled by 7.5 percent in 2014 as the war in the east dragged on. One-fifth of the nation is occupied by Russia or Russian-backed rebels and exports to its powerful neighbour have effectively been severed. Industrial production, meanwhile, plunged by about 8.6 percent.

In contrast, agricultural production rose by about 16 percent in 2014. Grain production had already spiked upward in 2013 to 62.3 million tons from 36.3 million tons. In 2014, it rose again to 63.2 million tons, even without the harvest in Crimea, which was annexed by Russia, and the rebel-occupied eastern industrial belt of Donbass.

“Agriculture can be the spark that ignites the upswing for all of Ukraine’s economy and can become the driving force for the development of the entire region,” says Rainer Lindner, executive director of the Committee on Eastern European Economic Relations, an organization of leading associations representing German business. All it needs, he adds, are “courageous reforms in land laws and the introduction of modern technologies.”

The Ukrainian government, however, is not yet considering a broad sale of agricultural land.

“I am for land reform, and we need privately owned property as collateral for loans,” the country's new finance minister, Natalia Jaresko, told Handelsblatt, but she noted that the nation has “more pressing problems to solve.”

Yet during the Green Week agricultural trade show in Berlin this week, Ukraine’s minister of agrarian policy and food, Oleksiy Pavlenko, pledged to tackle the issue. “Agriculture is our top priority,” he said. “And that’s where we will make Ukraine the most investor-friendly country in the region.”

We want to send a clear message to foreign investors and provide them with certainty. Dmytro Firtash, Oligarch and investor

Considering Ukraine's poor sovereign credit ratings, one of the major problems is financing agricultural projects. To alleviate this, particularly for German investors and agricultural machinery manufacturers, the Ukrainian oligarch and investor Dmytro Firtash announced comprehensive aid.

“Together with Germany, we want to create a guarantee fund in which businessmen like Rinat Achmetov, Victor Pinchuk, myself and others invest their money,” said Mr. Firtash, president of the Federation of Employers of Ukraine. “We want to send a clear message to foreign investors and provide them with certainty.”

Meanwhile, Mr. Stratmann would like to see “a somewhat more spirited showing of the Germans, and also of the German government, in the agricultural economy in Ukraine.” So far, there have been about 400 German investors in Ukrainian agriculture, but 8,000 are invested in Romanian farming.

Mr. Stratmann is convinced that “now is the right time to invest. The prices are favorable. We are now just experiencing hard times. In the long term, however, there is no getting around that Ukraine will recover and become stronger.”

Ukraine has emerged as one of the world’s major exporters of wheat and supplies half the sunflower oil sold in Europe. Alex Lissitsa, chief executive of Ukraine's Industrial Milk Club and president of the Association of Ukrainian Agribusiness Club, hopes for more opportunities such as GMO-free soybeans and improved meat production.

But for this to happen, the European Union would first need to raise import quotas for the country.

 

The author is head of Handelsblatt's foreign affairs desk. To contact the author: brueggmann@handelsblatt.com

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