AGRIBUSINESS

BUILDING THE BREADBASKET: Agricultural infrastructure investment opportunities

Ukraine’s booming agriculture sector attracts interest but international investors seek greater state assurances

BUILDING THE BREADBASKET: Agricultural infrastructure investment opportunities
About the author: Olga Kopiika is Deputy Legal Director at Bunge Ukraine and an Expert of the Agricultural Committee at the American Chamber of Commerce in Ukraine
Olga Kopiika
Saturday, 24 June 2017 18:53

Ukraine has one of the most attractive and impressive agricultural sectors on the planet. It possesses one-third of the world’s black soil and over 41 million hectares of arable land. There is huge potential for the development of agribusiness in Ukraine and massive scope for further international investment into the Ukrainian agriculture industry and a range of agriculture-related infrastructure.

When it comes to analyzing the economic importance of Ukraine’s agriculture industry, the country’s current grain production surplus is particularly significant. Out of the 60 million tons of grain produced by Ukraine in the 2015/2016 growing season, the country exported over 38 million tons. Meanwhile, in 2016 Ukraine ranked as the world’s number one exporter of sunflower oil. This is in addition to its role as a leading grain supplier to key global markets. Ukraine’s strong agricultural export performance is strategically important for the country as it generates crucial foreign currency revenues at a time when other mainstays of Ukraine’s export economy are suffering from falling global commodities prices and domestic instability.

 

Investing in the Breadbasket

Ukraine is currently in the middle of a major reform period while also navigating its way through a difficult political and economic environment. Despite these historic challenges, it is possible to identity broad positive trends in the country’s development over the past few years. This is good news for agricultural companies who are considering investment in Ukraine, and equally encouraging for those that have already demonstrated a long-term commitment to the market.

Global agribusiness and food giant Bunge first entered the Ukrainian market in 2002. In Ukraine, Bunge currently exports grains, meal, soybeans and rapeseed, and produces sunflower oil for domestic and export markets. The company continues to expand its presence in the grain and oil trading sectors. In 2011, Bunge Ukraine invested USD 100 million into the construction of a modern transshipment terminal at the Mykolaiv Sea Port with an annual throughput capacity of 3 million tons, making it one of the most efficient grain terminals in Ukraine. This asset footprint aligned with Bunge’s global strategy, enabling the company to connect Ukrainian farmers to the global marketplace.

In June 2016, Bunge unveiled a USD 180 million state-of-the-art multi-seed crushing plant at Mykolaiv Sea Port. At present, it is one of the biggest in Ukraine and creates the necessary preconditions for an annual increase in the export potential of the country by one million tons of oil and meal. The presence of Ukrainian President Petro Poroshenko at the official opening ceremony of the facility served to underline the national significance of the investment. President Poroshenko claimed that Bunge’s investment was a “vote of confidence” and an example of investor faith in Ukraine’s future economic development.

This most recent port project changes the structure of Ukraine’s agricultural exports. It allows the country to shift from the export of basic agricultural commodities to the export of value-added agricultural products. It took Bunge Ukraine 11 years to strengthen its financial and agro market positions sufficiently to be able to launch an investment project on this scale in Ukraine and to operate a state-of-the-art facility.

 

Infrastructure Opportunities

We believe that, in spite of the challenges Ukraine faces, the government of the country is committed to creating the best economic environment and establishing long-term cooperation with foreign investors by forming transparent and sustainable terms of public-private partnership. As a global company, we are ready to advise and assist in the development of better regulation and public-private partnership mechanisms, bringing our best practices to the table.

We would like the government of Ukraine to focus on preparing for the privatization of state-owned enterprises in agriculture and infrastructure (i.e. state stevedoring companies). This would bring positive structural change to the Ukrainian economy and create additional investment opportunities, while eliminating corruption and other abuses that we currently observe in the ports.

We fully support the infrastructural reforms of the Ministry of Infrastructure and expect them to be well thought-out, balanced, and planned in advance. This should boost the competitiveness of the Ukrainian grain market. With further investment in infrastructure, the resulting lower logistics costs for export from field to vessel will improve the margins that help to determine the attractiveness of the industry.

In order to retain Ukraine’s leading positions in the world markets of grain commodities and agricultural products, Ukraine needs to improve its logistics significantly. This means updating railway infrastructure (improvement of operations along with the construction of new locomotives and railway trucks) and inland waterways (adoption of the appropriate laws and the introduction of economically justified river charges). These measures will help to boost Ukraine’s export capabilities.

The other major impediment is the ineffective and excessive level of current port fees. This significantly undermines the competitiveness of Ukrainian ports compared to other Black Sea cargo destinations. We have high hopes that in the coming year, Ukraine will see new rates of port dues established on the basis of economic feasibility and transparency. This will create the long-term competitive foundation for Ukrainian ports.

As companies like Bunge look to plan our further investment into Ukraine’s infrastructure, we need to be sure that we have a mutual understanding and commitment from the government of Ukraine over long-awaited public-private partnership (PPP) regulation. We realize that the success of our company encourages other investors to consider investment opportunities in Ukraine. At the same time, we would like the government of Ukraine to hear the voice of investors who have already demonstrated their commitment and invested in the Ukrainian economy during challenging times.

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