EMERGING AGRICULTURAL SUPERPOWER: The legendary Ukrainian breadbasket and EU market access opportunities

Ukraine can feed Europe but rush to sell off fertile farmland may prove counterproductive

Agriculture fuels the Ukrainian economy, accounting for a 17%-20% share of the country’s GDP
Jean-Jacques Herve
Wednesday, 30 March 2016 01:22

Sixteen years ago in 2000, Ukraine returned to the global grain market. It was a development that few had anticipated, and it sent out a strong signal that Ukraine was ready to return to its past status as a major international grain producer – a status which had previously seen the country dubbed as the ‘breadbasket of Europe’.

The statistics connected to Ukrainian agriculture already demonstrate that Ukraine has the potential to become one of the world’s largest commodities providers. At present, Ukraine already ranks as the number three exporter of grains behind the US and Europe. It is globally the number one crop oil exporter, and the number one corn exporter to China. Despite this strong position, there is also agreement that Ukraine still has plenty of underexploited agricultural potential.

In 2015, in spite of rather unfavourable climatic conditions for agriculture, Ukraine harvested more than sixty million tonnes of grains and eleven million tonnes of sunflower seed. This impressive return provides evidence of the considerable improvements in knowledge, expertise and professionalism among the country’s agricultural managers in recent years. With roughly 40 million hectares of farmland, the theoretical potential yield of the country could be more than 160 million tonnes per year. In this context, the goal put forward by most experts of 100 million tonnes seems quite realistic and achievable, despite the still unstable political climate in the country.

Agriculture fuels the Ukrainian economy, accounting for a 17%-20% share of the country’s GDP. More than 30% of total exports are agricultural, while the sector also leads the way in the acquisition of hard currency – a crucial contribution as Ukraine defends against the risk of further currency devaluation and inflation. Agriculture is also a major provider of employment. This is especially important in the Ukrainian countryside, which would be deserted if the agribusiness sector were not so active.


Ukraine’s celebrated black soil

Talk of Ukraine’s exceptional agronomic potential is nothing new. When French literary legend Honore de Balzac came to the Ukrainian town of Berdychiv in the mid-nineteenth century to marry Countess Hanska, he wrote: ‘just after crossing the border with Poland, the (Ukrainian) land is so fertile that the peasants need only throw seeds to get a large harvest. Any crop grows naturally!’ The celebrated nineteenth century Russian geologist Vasily Dokuchaev, who laid the foundations for soil science and is regarded by many as the father of modern agronomy, did much to raise awareness of Ukraine’s unique fertility. Even with the limited scientific tools available in the late 1800s, Dokuchaev understood why soils differ in potential and stability, leading to breakthroughs in how farmland should be managed and protected from erosion. He introduced his new concepts during a famous session at the French Academy of Agriculture in 1900. This led to many cooperation projects that continued despite the instability of twentieth century Europe and the onset of the Cold War. Echoes of this agricultural cooperation abound. For example, a large sample of Ukraine’s celebrated ‘chernozem’ or ‘black soil’ was once transported from Poltava to Paris for an international exhibition, and can still be found at the French Soil Service. The connections between French and Ukrainian agriculture may even stretch back into the mists of time. French soil surveys conducted on the rich loams of the so-called ‘Bassin Parisien’ – one of the most fertile agricultural areas in France – have identified particles that appear to have been carried by the wind all the way from the boundless eastern steppes on the other side of Europe. 

The long rows of trees and drainage ditches delimitating geometrically large plots of land first promoted by Dokuchaev continue to play a key role in the fertility and stability of Ukraine’s black soil. Any farmer coming to Ukraine from France is simply amazed when he sees for the first time fields of two hundred hectares of deep black soil, with mechanization used at the lowest cost levels and minerals naturally provided to cover the basic needs of the crops. 


Large French presence in Ukrainian agriculture

Since 1991, France has been among the leading international investors in Ukrainian agriculture. Some French farmers have invested as shareholders in the AgroGeneration group that has recently merged with Harmelia group. Others have come to the country as a group of private family farmers in order to split their time between their French and Ukrainian farms. These French investment efforts have not always been successful – some have struggled to deal with challenging local conditions and have had to resign, sending negative signals to other potential investors. However, the French presence in the Ukrainian agricultural sector remains diverse and robust.  

With an eye on the vast potential of Ukraine’s black soil and the huge room for growth in exports, a number of large French companies, mostly cooperatives, have invested in Ukrainian agriculture. Ten years ago the French cooperative ‘Euralis’ entered the market. ‘Mais Adour’ followed withina few years, investing in the production of large modern plants focusing on seed production. This investment had the twin goals of developing local hybrid seeds and intensified Research and Development activity to adapt the next generation of seeds to Ukraine’s agro-climatic conditions. French agricultural groups including ‘Limagrain’, ‘Caussade’ and ‘RAGT’ are also very active in Ukraine.

The French seed industry is the world’s leading exporter, notably in the corn and sunflower segments. Industry representatives are currently developing active partnerships with French bank Credit Agricole in Ukraine in order to provide Ukrainian agricultural companies with both high performance seeds and alternative financing tools that aim to be less expensive than regular credit.

French milk processing and dairy produce groups including Lactalis, Danone, Bel and Bongrain have also invested in Ukraine. They continue to play an important role in support of the modernization of milk production in the country. Many other French companies involved in sectors such as genetics and agricultural equipment would also probably be more active in Ukraine if it were more stable and predictable. 


Ukraine can help feed the world

The growing global population demands that every hectare of farmland be cultivated. Nine billion human beings will soon require food at an acceptable price. The necessary quantities of food simply cannot be obtained if land resources are converted into roads and towns, and if yields are not considerably increased. Ukraine is one of the few countries capable of contributing positively to the world food balance. The country’s agriculture sector needs investment in order to move closer to its true potential, although the progress of the last twenty years demonstrates that impressive development is possible even in the absence of sufficient external financial resources. 

Ukraine must now make a range of strategic decisions that will shape the future of the agriculture sector. Some experts are supporting a rapid new wave of privatisation with an emphasis on the sale of agricultural land. This would bring immediate returns in the form of sales revenues, but it is difficult to see how it would support the longer-term development of the agriculture sector. Isn’t it paradoxical to call for farmland sales at a time when there is a lack of working capital? Who could realistically afford to pay 25% per year on a long-term credit loan to buy farmland without dramatically reducing capital available for the development and exploitation of the land itself?

There are also question marks over the need to own the land. In France, farmers typically only own half of their land. The regions where the net results are highest are actually those where the proportion of land ownership is under fifty percent. There is a strong argument for believing that Ukraine’s limited available investment capacities would be better employed if they were invested in logistics and the processing of commodities. Land lease revenues also represent several months of basic income for millions of residents of rural Ukraine. These revenues are a crucial element of the local economy and serve an important social function.

The Association Agreement between Ukraine and the European Union can probably open up all manner of opportunities for further agricultural cooperation. The top priority may perhaps not be increasing the tariff quotas. European countries are already importing more - in some cases much more - than the present quotas. I think the main topics for discussion should be vegetable proteins including peas and soya, and alternative sources of energy. Within the broader vision of a geographically united Europe, the black soils of Ukraine could offer a very substantial contribution to food security and biomass production, with important processing roles for both local consumption and export. 


About the author: Jean-Jacques Herve is a Board Member for agricultural issues at Credit Agricole Bank in Ukraine. He is also Vice-President of the France-Ukraine Chamber of Commerce and Industry and a member of the French, Russian and Ukrainian Academies of Agriculture

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