Agribusiness giants may become kings of farming

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Ukrainian farm

Kyiv Post | 10 June 2010

Mark Rachkevych

A new class of farmers is on the rise in Ukraine. They’re fast gaining the moniker as the new kings of agriculture among experts, insiders and investors. Agribusiness holdings are driving output and growth by leasing and cultivating huge swaths of farmland, vertically integrating their operations and applying modern farming techniques.

International agribusiness giants like Cargill and ADM of the U.S. and Hamburg-based Toepfer International have made a big market investing billions of dollars into Ukraine’s agribusiness sector since entering in the 1990s. Following in their footsteps are domestically-owned agribusiness holdings that only started to sprout up around 2003-2004, growing up from the pieces of collective farms that collapsed after the breakup of the Soviet Union.

Some are modernized Soviet enterprises like London-listed poultry giant Mironivsky Hliboprodukt, while others started almost from scratch like Mriya Agro Holding, the Ternopil-based farming titan which has over recent years quadrupled in size to include nearly 200,000 hectares of farming land.

They are setting a standard as “more efficient than your average and other smaller farms,” said Oleksandr Paraschiy, senior analyst with investment bank BG Capital. “They have large growth prospects, better cash flow and they can sell their goods at higher profit margins. This means they can use these proceeds to invest in infrastructure and boost their efficiency,” he added.

Still, there is much room for growth and new companies to develop yet untapped opportunities. Agriculture experts estimate that the 30 largest agribusinesses control less than 10 percent of Ukraine’s 32.5 million hectares of arable land. But they’re expanding and the trend is region-wide.

The Institute for Economic Research and Policy Consulting, a Kyiv policy center, estimates that in four to five years more consolidated agribusiness holdings will cultivate at least 50 percent of arable land in Ukraine.

As they grain strength and market share, the farms’ harvests and nations’ harvests will growth, possibly doubling in size within a decade or so. Similar processes are at play in regional markets. Larger agribusiness companies control an estimated 40-50 percent of grain production in Russia where farmland has been sold since 2006. They also control 80 percent of grain production in Kazakhstan, according to experts.

Ukraine still has a moratorium on the sale of farmland in effect until 2012 but that hasn’t stopped the industry from being one of the few economic sectors to grow during the recession-plagued year of 2009 and for being the second largest contributor to Ukraine’s gross domestic product.

Many budding agribusiness groups are backed by foreign capital as investors are drawn to the long-term prospect of strong agriculture and financial yields. They hope to cash in on the vast long-term agribusiness potential in Ukraine, home to a fertile soil, diverse climate for crops and close proximity to import markets.

Already two domestic groups have held initial public offerings this year: AgroGeneration, a grain and oil seed producer, and Avangard, an egg producer.

“Investors are interested to put their money into big companies that have huge growth potential,” said Anna Dudchenko, deputy chief executive officer of Sintal Agriculture, an agribusiness holding that controls nearly 100,000 hectares.

“In Ukraine, the growth potential of agriculture is almost unlimited thanks to rich land resources. A big company can, with investments, increase its land assets and business dramatically. These are all the factors that make Ukraine’s agriculture sector so attractive for investors,” she added.

And more, smaller farms are popping up. Ukraine’s largest soybean producer, Soyeviy Vik located in Kirovohrad region, started with only hundreds of hectares in 2001 but now farms thousands.

While land is still in abundance and there is little competition to lease more land, agribusinesses have encountered other growth impediments. They include problems accessing capital. Lending rates are still too high. There is also a shortage of qualified labor versed in modern farming techniques and the know-how to operate newer equipment as well as entrepreneurship, according to Roman Makukhin, a partner with Ethnoproduct Group, which engages in organic livestock.

Additionally, agribusinesses, the majority of which export a sizable portion of their produce, have problems getting value-added tax refunds from the government.

Yet the rise of domestic agribusiness groups isn’t a welcome sign for everyone. According to Makukhin, the organic farmer, large agribusiness holdings sometimes economically aggravate the small rural communities where they lease.

They cut down on jobs when scaling up on economies of scale. They are often registered in larger cities, meaning the tax revenue doesn’t end up in the rural areas.

“While economically justified, this trend raises concerns about the social and environmental implication of such land redistribution and about the possibility to reform agriculture in a pro-poor manner,” said Elena Voloshina, country manager in Ukraine for the International Finance Corporation, the private sector financial arm of the World Bank.

Makukhin expressed concern about the tradeoff and potential imbalance between the interests of large and small farms arising from agribusinesses accumulating more farmland.

Makukhin also said agribusinesses often chemically saturate the land to obtain higher yields, and this further damages soil. He it is often a toss-up as to how socially responsible they are when operating in villages to improve infrastructure, schools and other socially added benefits.

Although the prospect of Ukraine turning into Argentina or Brazil where 50 large hacienda farms dominate agriculture is real, BG Capital’s Paraschiy said that is only a long-term possibility and belongs to the sector’s different development cycle.

Staff writer Mark Rachkevych can be reached at [email protected]

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Kyiv Post | 10 June 2010

Experts say moratorium on land sales stifles production

Mark Rachkevych

Experts say the biggest obstacle to development of Ukraine’s promising agriculture sector is the continuing moratorium on the sale of farmland. The enduring rationale for the ban is that the nation’s land should belong to all the people – perhaps a holdover from the era of Soviet collective farms. Many also don’t want foreigners to be allowed to own any of the soil.

However, the ban on land sales is curtailing much-needed investment. Investors, naturally, don’t want to sink a lot of money into developing land that they don’t own.

Critics say that parliament is delaying passage of two laws needed to lift the moratorium, as many influential businessmen and politicians profit from a land market that is kept in the shadows and rife with corruption and manipulation. For instance, land not used for agricultural purposes can be bought and sold.

Extended last December through 2012, the farmland moratorium prevents the soil from being used freely as commodity and collateral. Farmers, therefore, find it difficult and costly to borrow.

Investors in Ukraine’s agricultural sector also find the ban a disincentive to commit, blocking millions of dollars of investment. “Many traditional multinationals are afraid of moving into the [Ukrainian] market because of the risk involved with leasing land and having it possibly revoked for unknown reasons,” said Jens Bruno, business controller for Grain Alliance, a Swedish company that operates 40,000 hectares in Ukraine.

At stake are 32.5 million hectares of highly fertile arable land, equivalent to one-third of the European Union’s arable land stock. With demand for food on the rise, the value of farmland in Ukraine continues to creep up, although it remains below European levels as the absence of a land market makes pricing difficult.

Land could sell for about $500 to $1,000 per hectare once the moratorium is lifted, according to Roman Fedorowycz, chief executive officer and land acquisition manager for Ukrainian Agrarian Investments, a private company.

Prices in Romania and Poland, Ukraine’s neighbors, range from $4,000 to $5,000 per hectare, according to Fedorowycz. “Although prices for land here are heading in that direction,” he added.

But without a properly functioning land market based on rational market principles, the playing field for farmers and investors is murky.

“There is no database on current landowners and hence no information on how immense the areas of reserve lands are being allotted. It is unknown today who has the seal and the right to sign documents determining ownership,” said Leonid Kozachenko, president of the Ukrainian Agricultural Confederation, a non-profit that services the sector. “Worse yet, there is no legislation to transparently and clearly monitor the land market when it appears.”

It takes just a 16-kilometer drive along the Boryspil highway from Kyiv to see the adverse effects of the moratorium. Here picketers have been stationed for three years holding banners and waving flags that say: “Give Our Land Back!”

They’re from two nearby villages that, in 2007, discovered that a Boryspil city district judge had approved the transfer to land developers of 599 agricultural land deeds belonging to them involving 1,041 hectares.

This thriving black market for agricultural land is “wild, unregulated and in the shadows,” said Our Ukraine parliamentary deputy Kseniya Lyapina. She believes it’s the reason why her colleagues in December 2009 extended the moratorium until 2012.

“Land speculators have a vested interest in the [land] moratorium. They have no desire to see a transparent land market. These people have relations with local governments. One scheme they use is by first registering [agricultural] land to themselves, changing its land classification and then selling it to completely legal companies,” she said.

After land reforms stopped in 2001, following the distribution of land deeds to former collective farm members, two key laws remain to be adopted before the moratorium is lifted: the land market law, which will determine how the land market will function, including the rules and regulations; and the law on land cadastre, which focuses on the organizational functioning of the cadastre, including establishing boundaries and a single land registry.

The Ukrainian Center for Independent Political Research estimates that it will be two years before the land cadastre system starts working, as an index of aerial maps will have to chart Ukraine’s 58 million hectares of territory and set up a modern computerized information tracking system.

The World Bank is assisting Ukraine in setting up a cadastre, but the project is slated to end only in 2012.

Some are optimistic that things could move fast. Alex Frishberg, founding partner of Frishberg and Partners law firm, said that, with President Viktor Yanukovych consolidating power, one political group can benefit from lifting the moratorium sooner than 2012.

“Now that Yanukovych has galvanized power vertically throughout the country, we could see the moratorium being lifted much sooner than 2012,” Frishberg said. “It could happen in a year.”

Frishberg also added that, in the most likely scenario, Ukrainians well get first dibs on land before allowing foreigners to scoop up land. Agriculture Minister Mykola Prysyazhnyuk said on June 1 that the moratorium could be lifted as of Jan. 1, 2011, provided the relevant legislation was approved by the end of this year.

Others are more skeptical. “The top politicians...are not ready for a transparent system. Many are big landholders and they’ll have to explain how they obtained some lands in huge amounts,” said Oleksandr Polivodskiy, legal adviser to Ukrainian Agricultural Confederation, alluding to the incomplete land cadastre which would show who owns what land and where.

As for the picketers along the Boryspil highway, they’re still there, despite visits from former President Viktor Yushchenko, former Prime Minister Yulia Tymoshenko and other politicians who promised help.

Their lawyer, Oleh Sheremet, was shot to death on the doorstep of his own home in Boryspil on Nov. 30, 2007. The case remains unsolved.

The judge who approved the transfer of the land deeds, Mykola Korniyets, was arrested by the Security Service of Ukraine following a three-year manhunt.

Korniyets, 51, went missing on Oct. 13, 2007, in Yalta, after he learned investigators were looking for him. In 2009, 412 members of parliament voted to strip him of his judicial title and immunity and ordered his arrest on charges of corruption and fraud. State security officers detained him in Kyiv on April 23, as he was preparing to descend an escalator in the Khreshchatyk metro station.

Staff writer Mark Rachkevych can be reached at [email protected]

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Kyiv Post | 10 June 2010

Far from thriving, small farmers merely surviving

Mark Rachkevych

VILLAGE OF STINKA, TERNOPIL OBLAST, UKRAINE — “One good day of spring planting can feed you for a year,” Volodymyr Darmohrai yelled above the rumbling sound of a planting machine sowing seeds along a freshly plowed field.

“But this isn’t happening because our villagers don’t have the means to invest in modern farming inputs,” Darmohrai lamented on this April visit, as spring planting season was well under way.

Darmohrai heads Stinka, a secluded hamlet of 2,650 residents in western Ukraine’s Ternopil Oblast, which is intersected by the Dniester River. Stinka’s residents inherited 750 hectares from the now-defunct Dniester Collective Farm, under a government program in 2001 that parceled out plots to villagers across the country.

But despite this step forward, Ukraine hasn’t been able to regain its place as the “breadbasket of Europe,” despite having the most fertile farmland in the world, being close to import markets and enjoying a climate where a great diversity of crops can be grown.

A handful of larger farms backed by big business or foreign investment have doubled or tripled yields in recent years, boosting Ukraine’s annual harvest to record volumes in the 50 million ton range, or higher. Experts said that such results could be reproduced nationwide – more than doubling annual harvests – if the country’s agriculture sector is opened up to investments. Sanctioning the sale of agriculture land could be the trigger needed to diversify Ukraine’s economy away from steel exports, turning the country into an agriculture superpower.

But the big drag holding it all up is the condition of most of the country’s farms, which -- like in Stinka – are small, cash-starved and inefficient. If villagers can’t sell or use their land as collateral at market rates, they will remain cut off from long-term loans, struggling to survive in a capital-intensive farming business with outdated, wasteful farming techniques and equipment that keeps productivity unnecessarily low.

“Successive governments have extended the destructive moratorium on selling agricultural land [until 2012] and continue preventing farmers from using land as collateral on loans thus depriving many from accessing capital needed to improve efficiency and productivity on farms,” said Andriy Yarmak, an independent agribusiness expert. “Governments continue to defend this position ‘to protect poor rural landowners and farmers.’ This costly position prevents billions of dollars of investments into Ukraine’s agriculture, infrastructure and rural areas, keeping millions of Ukraine’s poorest citizens poor.”

Years of other ineffective, ad-hoc government policies haven’t helped the situation, leaving rural communities deprived and forcing many to abandon homes for seasonal jobs abroad or in larger cities.

Stinka epitomizes this situation. It has no local economy while its aging residents mostly engage in subsistence farming as their new land deeds have- changed little to their relationship with the land.

Mykhailo Opansky in Stinka is one of them.

A father of three, he has the right to use nine hectares through his extended family, seven of which he leases out, and two of which he farms, bringing $3,000-$5,000 annually in net profit.

But Opansky doesn’t have ambitions to scale-up. “Why? The government doesn’t stimulate demand; there’s no reason why I should make more than I need and sell the rest at local village markets,” he said.

Farmers like Opansky said that to really make a profit and benefit from economies of scale, they’d need between 1,000 and 3,000 hectares. They lack organizational planning needed to merge their land into bigger farms, as well as marketing skills to access markets. And because land can’t be used for collateral according to current legislation, long-term loans are difficult to receive to purchase farming machinery and other inputs like fertilizer, chemicals and seeds.

During the recession-pinched 2009, lending to Ukraine’s farmers plummeted by at least a half, to Hr 5.79 billion. And long-term loans – land only provides high yields to farmers who cultivate it for years – only accounted for 8.6 percent of the total volume of loans, according to Ukraine’s Agriculture Ministry.

There’s also a chronic shortage of storage facilities to preserve their perishable goods when prices are low.

That’s why 25 percent of arable land lies fallow, according to agriculture experts. As a result, instead of feeding itself and the rest of Europe, Ukraine still imports fruits and vegetables it grows itself.

Ukraine has 32 million hectares of arable land, compared with the European Union’s 100 million hectares, and 70 percent is humus rich black soil, one of the most fertile in the world. Its moderate continental climate makes it very conducive to crop production.

Unlike other areas, Stinka’s new landowners didn’t reform their collective farm as equal equity partners or form cooperatives, which enable groups of small farmers to buy and sell in bulk.

Darmohrai said persuading villagers to form cooperatives is difficult since they’re risk averse and want guaranteed crop prices, up front start-up capital and other assurances. “People mainly farm their own land plots,” he said.

But leasing is tricky in the checkerboard way in which land was distributed during land reform. A farmer wishing to scale up on operations and lease more land will find it inefficient to bring in more machinery to cultivate land in a zig-zag manner to avoid other people’s land, or burning gas to traverse fields just to get to another patch.

Ninety percent of Ukrainian farmers farm less than 1,000 hectares. According to the Agriculture Ministry, there are 4.6 million household farmers working on 6.5 million hectares.

Still, global investors are eying Ukraine for its rich land, grain and crop yield potential, which is still 30-60 percent below those in the European Union for most crops, according to BG Capital. Already, 10 percent or 3.2 million hectares is operated by large efficiency farms that have introduced Western management practices, farming techniques and equipment and are vertically integrating their operations.

Ternopil-based Mriya, a family-run business that has raised millions through initial public offerings of its stock, is one of them, with 190,000 hectares under its control in the region. Having recently secured more than $200 million from the International Finance Corporation to increase capacity and land holdings, its productive farms stand out like an oasis in a desert, when compared to small farming operations in the region.

Some hope that Mriya and other domestic and foreign entrepreneurs will in coming years take less productive farms under their wing. But leasing is the only option. And raising equity is much more costly and difficult if creditors and investors don’t see a company’s top assets on the books.

Agriculture and food-related products are the second-largest export item for Ukraine after metals. It was the only sector to show positive growth during the global meltdown in 2009.

“Land is the crown jewel of Ukraine,” Paul Ivanytskiy said, an agribusiness consultant who has worked on U.S. Agency for International Development projects and in the private sector since 1996.

With global population slated to grow to 9 billion by 2050, according to the United Nations, productivity will have to increase by 50 percent as arable land becomes increasingly scarce.

Ukraine is in the right place to capitalize on this. It has arable land that still needs development and room for boosting productivity.

“Every continent is eyeing Ukraine, the world’s capital will mobilize really fast when the time comes,” Ivanytskiy added.

But farmers like Opansky will have to look beyond their backyards if they want to move from survival to successful agribusiness entrepreneurs.

Kyiv Post staff writer Mark Rachkevych can be reached at [email protected]
Original source: Kyiv Post
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3 Comments


  1. the honorable mac kelly
    27 Feb 2012

    so sad to see people starve and a country import what it grows already...sounds like Canada

  2. Henk S
    10 Nov 2010

    We think that the time of Green gold in agriculture is started, Kings I do not know if this is the best name for it, most agri holdings are owned by investors from all around the world, that give more investments in technology, what ends in better productions. Large farms can survive better in the international food markets price fluctuations. We are as well busy with rigging up Agro Holdings 120.000 hectare cropland, as well a better certification system and better logistic and storage's, no more sickness in crops by better monitoring of the fields. This story is a interesting part of the whole food movements, but still there is a lot to do, farming and trading is good but logistics need more investors, we offer as well good possibilities in investments, silos / elevators and better Logistic systems, in Ukraine and Russia. Small farms have no credits, a special farm loan bank will be the best solution for all, EU start this in the years 60, why not again, farmers need more info and more back up, on this moment they need more credits and a better cooperation in the whole circle in a B2B with end users, special in oilseed crops, both food and Biofuels need it. We need more fin. participation groups in agri commodity logistics/storage, or all will end at the gates of a farm, if there is no good cooperation in whole world wide circle of food and biofuels from agriculture products. [email protected]

  3. K S Raajasekar
    09 Nov 2010

    It is quite informative to read such articles and learn status of government policies and farming fraternity voes. I represent a potential investor in this agro industry globally and request that daily weekly updates on state policies and proposals from farmers individually or through cooperatives are invited for potential investment. I can be reached at [email protected]

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