UKRAINIAN AGRICULTURE SECTOR

UKRAINIAN AGRIBUSINESS: Innovative insurance initiative seeks to boost domestic agriculture investment appeal

New insurance service to mitigate risk and boost agribusiness growth by encouraging investment

UKRAINIAN AGRIBUSINESS: Innovative insurance initiative seeks to boost domestic agriculture investment appeal
About the interviewee: Larysa Bondarieva is Head of the Corporate Business and SME Department and a Member of the Board at Credit Agricole Bank in Ukraine
Business Ukraine magazine
Tuesday, 06 December 2016 00:39

Over the past three years of chronic domestic instability, Ukraine’s agriculture sector has been one of the bright spots on an otherwise troubling economic map. Agricultural exports have risen and global market share has expanded as Ukrainian farmers seek out new clients to replace traditional reliance on Russian buyers. An innovative crop insurance program launched in September 2016 by Credit Agricole Bank and partners now aims to maintain this momentum by reducing the risks faced by farmers and giving Ukrainian agribusinesses the confidence to invest in essential upgrades.

 

Insuring future Ukrainian agriculture growth

“Now is the right time to demonstrate to the market that the future has arrived,” says Credit Agricole Board Member Larysa Bondarieva. She sees the insurance initiative as a reflection of the renewed sense of confidence currently in evidence across the Ukrainian agriculture sector, and says it is very much in line with the France-based bank’s traditional focus on supporting market innovation. “Risks will always exist, but they can be mitigated. If agriculture companies have the added assurance of a guaranteed income at the end of the season, they will continue to invest. We want to insure the growth of investment in the Ukrainian agriculture industry.”

Launched jointly by Credit Agricole Bank, IFC, Syngenta and AXA Insurance, this new insurance product offers coverage for wheat crops and marks an important expansion of the underdeveloped agro-insurance market in Ukraine. At present, the level of crop insurance in Ukraine is around 5%, compared to approximately 80% in the US, despite the fact that both nations are leading global wheat and corn producers. “The main reasons for this current difference include a previous lack of confidence in the limited number of available insurance products, and the negative experiences of many individual Ukrainian agricultural companies. Our goal was to create a really efficient insurance product that mitigates risks for both the clients and the bank,” explains Ms. Bondarieva.

 

Creating collateral confidence

Ukraine’s agriculture industry is currently attracting admiring glances from many within the international investment community, but it remains a necessarily inexact science dependent on such notoriously unpredictable elements as crop failures and the weather. The country’s famed ‘black earth’ makes it one of the most attractive agricultural options on the planet, but the domestic infrastructure requires modernization before Ukraine can make the most of its international agribusiness appeal. Ms. Bondarieva believes innovation begins at home, and says offering credible insurance services is one way of bolstering internal investment in the Ukrainian agriculture sector. Credit Agricole’s experience in other international markets has shown that such services encourage local farmers to invest more in their own development, while also providing sources of financing with added confidence in the market. “One of the problems facing Ukrainian farmers is restricted access to capital due to limited collateral. Around half of agricultural equipment in Ukraine today is outdated – we cannot consider 30-year-old tractors as good collateral. However, if crops are insured, this makes the sector more attractive to banks while also protecting farmers.”

 

Support for SMEs

Improved agricultural insurance options will be particularly welcome among Ukraine’s agribusiness SMEs – a sector both Ukrainian Agrarian Policy Minister Taras Kutoviy and Ms. Bondarieva identify as a priority for the further development of the wider market. As if to illustrate the point, Ms. Bondarieva says many of Credit Agricole’s major multinational partners have asked how the bank can help support the growth of their local Ukrainian partners. “Small and medium-sized Ukrainian agricultural enterprises are often currently underfinanced,” she confirms. “We try to support their development as part of our broader efforts to contribute to every stage in the value chain.”

This often means providing financing for infrastructure and equipment upgrades – a process that has gained noticeable momentum over the past eighteen months. Ms. Bondarieva says the Ukrainian agriculture market experienced an understandable freeze throughout 2014 and during the first half of 2015, but points to a significant subsequent upswing in activity. “There has been a return to optimism and a growing sense of confidence among Ukrainian agricultural companies since summer 2015. We have started to see a greater readiness to invest and upgrade. Banks have also become more willing to take risks on Ukrainian agribusiness companies.”

 

Optimistic IT outlook

This sense of optimism is partially the result of attractive forecasts predicting a growing share of global markets for Ukrainian agribusiness companies. Speaking to Bloomberg in October, Cargill representative in Ukraine Martin Schuldt said that by the mid-2020s Ukraine could become the world’s number three food producer after the US and Brazil, while former US Ambassador to Ukraine Steven Pifer referred to the country as, “A big answer to the question of how you feed the world.” Ms. Bondarieva is in general agreement with these positive long-term assessments, and believes the challenging economic and geopolitical environment of recent years has actually played a key role in forcing Ukrainian agribusinesses to become more internationally competitive. “The difficult recent situation has pushed more and more Ukrainian agriculture companies to think about investing in upgrading equipment and has made them understand that they must diversify their markets globally,” she says.  

One of the most promising trends identified by Ms. Bondarieva is the growing role of IT innovation in the Ukrainian agriculture sector. “Our Ukrainian clients are very open to new technologies and are always studying the latest international innovations. The control centers at many Ukrainian farms now resemble space stations,” she reflects with a smile. This adoption of digital solutions owes much to Ukraine’s own booming IT industry, with the process benefiting from the marriage of the country’s programmer and farming communities. “The innovative approaches we are seeing in the agriculture sector are often home grown, with an increasing number of in-house solutions created by Ukrainian IT specialists,” shares Ms. Bondarieva. “The stereotypes of old-fashioned Ukrainian agriculture have themselves become outdated. Agriculture now offers very attractive and interesting career opportunities for ambitious young Ukrainians. It is fashionable and offers Ukrainians the chance to build an appealing future.”

 

Breadbasket of the world

Like many specialists involved in Ukrainian agribusiness, Ms. Bondarieva sees the agriculture industry as one of the cornerstones of the country’s future economic growth, and says farming could play the same role for Ukraine as oil did for the Middle East in the second half of the twentieth century. While admitting that much more is required to promote Ukrainian agriculture as an international brand, Bondarieva says recent experiences at international business forums have convinced her that word of Ukraine’s legendary fertility is spreading to ever-wider audiences. “For the past 25 years we’ve been calling Ukraine Europe’s breadbasket, but I am now hearing this more and more often from other sources. During a recent forum in Paris, numerous representatives from the French business community said to me, ‘we know that Ukraine should be the breadbasket of Europe.’ This is real progress, but it is no longer only a question of Europe. Ukraine can now aim to become the breadbasket for the Middle East, Africa and Asia as well.” 

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