Within a short span of time, Ukraine has become a key player in the international agricultural market. Its meteoric rise raises important questions, including, was its growth too fast? Is its “exports or nothing” strategy sustainable in the long run? The ground reality is that, Ukraine still needs to attract a lot of investments.
True. Ukraine has succeeded in its quest to emerge as a significant international player. Its strategy seems efficient, statistics wise. But the strategy has inherent limitations… as the proverb goes dont put all your eggs in one basket. Chipping in, Nicolas Perrin, an advisor in Agrarian Affairs at the French Embassy in Kyiv, says, “Ukraine is doing its best to develop its exports in order to promote its products and contribute to the fight against hunger in the world. But exports are too often presented as a panacea: companies are becoming too dependent on these exports. It is possible to rebalance the situation by encouraging agri-food processing and this high-quality sector to meet domestic demand. The needs of the Ukrainian population are probably not sufficiently taken into account, which may lead to opportunities in the Ukrainian market.” Aka the Ukrainian paradox.
To bet on an exports-only economic model is probably not the best idea. Retail sales in the domestic market should also be developed.
On the flip side, this can be viewed as a weakness in the country’s economy. An export driven economy certainly has its benefits, but a balanced approach, which develops the domestic market along with international markets would be more intelligent.
Ukraine’s exports need to be more diversified.
Fact is, “We are working on a double strategy for Ukraine exports”, says Bohdan Shapoval, General Manager at the Ukrainian Food Export Board (UFEB).
There are two points to be noted here:
- “We want to diversify our export channels and find new markets. Before 2013, Russia was our main market. We exported more than 70% of our dairy products to Russia, more than 80% of pork, 98% of beef… Similarly, in the other direction, we have to find new suppliers. For example, we started working with Egypt, Azerbaijan, Kazakhstan, Uzbekistan…”
- “We want to develop ‘ready-to-eat’ products: the Ukrainian agricultural sector is not sufficiently focused on the processing industry. We are only starting and we have had very good results, for example for the transformation of sunflower seeds into oil. Ukraine therefore has great potential for this.”
Summing up the Ukrainian agriculture market at the export level would be reductive, since a lot of work still remains to be done in that area. For example, investments are still hampered by protectionist laws that we have inherited from the 1990s, which continue to remain in force.
Lifting of the moratorium on the sale of lands
The opening up of Ukraine’s agriculture to foreign investments could be the next major logical step in the government’s playbook. As a first step in this direction, it should lift the controversial moratorium on the sale of agricultural lands. And this old story should come to an end soon as President Zelenskiy recently announced, on July 10, that he would push for this reform in order to get IMF loans.
Everyone is in favor of it other than those from rural areas who have a vested interest in maintaining the status quo. Corruption is still filling some pockets in local governance and the government’s willingness to move closer to European standards is similar to a new threat against traditional systems of bribery, cash still changes hand for getting a certificate or a missing document.
“However, as of April 2019, the decision to prosecute the Ostchem Group for consideration by the Antimonopoly Committee of Ukraine was not taken. According to the results of the investigation carried out by the Committee, unfair competition qualified as a violation of the legislation on the protection of economic competition in the form of abuse of a monopoly the dominant situation on the market of the main types of nitrogen fertilizers by establishing excessive prices for the sale of goods that could not be established in the conditions of competition in the market,” she adds.
In the past, Russia provided Ukraine its gas requirements. According to the Institute of Agrarian Economics, Ukraine now has to buy Russian gas, which passes through European countries such as Switzerland (35.5%) and Germany (34.2%).
As a result of intermediaries, Ukrainian farmers have to shell out a higher price for gas for their fertilizer usage. But since Ukraine has plentiful Chernozem, its import of fertilizer, from Poland (38.6%), Tunisia (25.3%) and Turkey (21.8%) is very much limited.
“Seven regions of Ukraine have an average phosphorus content in the soil,” says Khodakivska. “The remaining regions are characterized by high content of phosphorus in soils. Seven regions of Ukraine have an average phosphorus content in the soil. The remaining regions are characterized by high content of phosphorus in soils.”
This is a real wealth for Ukraine.
As discussed in our earlier report, within 5 years, a very short span of time, Ukraine has managed to build an agricultural empire and has developed an agricultural export economy. This has triggered many questions vis-a-vis the sustainability and the need to diversify and make robust its economic model.
Although the former Soviet state, is surging ahead to with developing its economy and is eager to shed being a vassal of the Russian state, Russia’s illegal annexation of Crimea – where the vineyards were well known in Ukraine – is indicative of the geopolitical risks facing the country.
Ukraine will have to find the necessary resolve to pursue much need reforms, including in its land holdings; even in the approaching dark clouds, Ukrainians will cling on to the ray of hope, for every cloud has a silver lining.