Ukraine begins to reap fruits of change after early struggle

by Mario Sequeira

During the Soviet era, Ukraine was known as the bread basket of Europe, with Ukraine and Russia producing most of the food in Eastern Europe. All that changed in 1991, when the Soviet Union dissolved and Ukraine gained independence.

Ukraine has endured a rough ride during the transition to a market economy. Part of the reason, USDA analysts note, is the government’s unwillingness to implement complete reforms.

While the government has enacted reform to free prices and trade, it has been slow implementing reform in other areas, notably in the land market and in commercial law.

In 2002, Ukraine adopted a new land code giving citizens the right to sell, exchange, donate or mortgage land. The code is seen as a fundamental change in the land market, introducing new rights to private land ownership and acknowledging the principle that land can be freely bought and sold. Previously, land could only be leased and could not be used as collateral.

Despite these general reforms, agricultural land transactions will not be allowed until 2007. After that, transactions will be restricted to less than 100 hectares until 2015, when all restrictions on land transactions will end.

Of Ukraine’s 60 million hectares of land, 42 million hectares are considered agricultural land. Much of western Ukraine is agricultural. Average annual rainfall is 600 mm, including about 350 mm during the growing season of April through October.

The main grain crops are winter wheat, spring barley, rye and corn. Sunflower seed and sugar beets are the main industrial crops.

After independence, it took a while before privatization reached the farm. In 2000, the agricultural sector was restructured. State and collective farms were dismantled and farms were divided among farm workers in the form of land shares.

Most new shareholders leased their land back to the new private corporate farms, which tended to be run by the same people who ran the collective farms. Since then, there has been a consolidation as the corporate farms have absorbed small farms.

Corporate farms dominate agriculture, accounting for nearly 90% of arable crop land. Private subsidiary garden plots, which are attached to corporate farms, account for 5% of arable land. These are distinct from private farms, which account for another 5% of farm land.

Ukraine suffered severe turmoil in its transition to an open economy. With the end to state subsidies, farmers experienced increased input costs while higher prices for their end products hit demand. In 1990, farmers applied an average of 149 kilograms (kg) of fertilizer to wheat; in 2000, the figure fell to 24 kg. Between 1991 and 1999, GDP fell by 69%.

Among the reasons farms did not become efficient quickly were the state’s routine loan forgiveness, resulting in a lack of incentive to improve efficiency, diversion of inputs from corporate farms to garden plots, obsolete machinery and the lack of land reforms, stable legislative environment and a commercial law.

It wasn’t until recently that signs of recovery emerged. The idea of fiscal responsibility is taking root and farm managers are beginning to strive to make their enterprises more efficient. GDP grew at a rate of 12% in 2004.

Ukraine has a vast potential to increase its agricultural production if it can address certain issues. These include providing a sound credit market, reducing regulation, improving the sector’s competitiveness by cutting transaction costs in the form of tariffs and attracting foreign investment. There is also a shortage of storage, leading to farmers’ untimely sale of grain.

Banks are largely unwilling to make long-term loans. Most credit is extended in the form of seasonal loans (6 to 10 months) used almost exclusively for the purchase of inputs. This places severe constraints on farms’ ability to invest in long-term capital improvements, such as machinery or storage.

Ukraine applied for WTO member- ship in 1994 and is making progress toward accession into the organization. This year, as part of its program to meet WTO standards, the government cut import tariffs to a maximum of 20% on a variety of products. Previously, tariffs ranged from 10% on cereals to a maximum of 307% on uncooked pasta.

The positive signs are that local and foreign investment is continuing as the economic environment improves. In 2004, Bunge Limited, a global agribusiness company, announced a 50-50 joint venture with Estron Corporation to build an oilseed crushing plant in Ilyichevsk port, with a crushing capacity of 600,000 tonnes a year.

Private investors have built new grain terminals at the Black Sea ports of Odessa and Kherson.


Wheat is grown throughout the country, but the key production zones are in central and south-central Ukraine. About 95% of Ukrainian wheat is winter wheat, planted in the fall and harvested during July and August.

About 20% of Ukrainian wheat is of milling quality — No. 3 grade according to the Ukraine’s grading standard — with the remaining 80% graded No. 4 and mixed with other wheat to produce flour.

Ukraine has been averaging more than 15 million tonnes of wheat in recent years, with the exception of the drought-stricken 2003-04 season. The 2005-06 harvest is estimated at 18 million tonnes, compared to the 21.3 million tonnes produced in 2001-02.

Ukraine has been a major exporter for nearly 10 years. Exports in 2005-06 are forecast to be about 4 million tonnes. Its biggest years were 2001-02 and 2002-03, when exports hit 5.5 and 6.6 million tonnes, respectively.

About 40% to 50% of Ukraine’s wheat is consumed as food, while 30% to 35% is used as feed. Farmers use the balance as seed. Annual per capita consumption of wheat is about 130 kg.

The milling industry is made up of about 50 large industrial companies, the biggest of them being former state enterprises, and thousands of smaller private mills. According to Ukraine’s Ministry of Agriculture, most flour is produced in Donetsk, Kharkiv, Lugansk and Dnepropetrovsk oblasts.

Flour production in the past few years has been around 2.5 to 2.7 million tonnes. The industry is estimated to be working at 40% capacity.

In regards to the domestic market, flour is mainly used in bakeries for bread (52%), in pasta and confectionery industries and for the production of food concentrates and baby food (about 19%). Households in which members get paid partly in grain use a significant amount of flour, an estimated 650,000 to 700,000 tonnes or about 10%, to make bread.


The end of the Soviet era caused a downward spiral in the red meat industry that continued until 2000. The industry slumped mainly because production costs rose after state subsidies stopped, leading to price rises which drastically cut demand. Large enterprises got rid of cattle herds because they were not profitable. This left smaller, private producers and household farms as the main suppliers. These are farms with two to three head of cattle. The freefall in livestock inventories has slowed since 2000, but a recovery in beef production is not likely.

The hog industry is stabilizing, and only the poultry industry has experienced growth. Demand for poultry, which is cheaper than red meat, rose at the expense of beef. In 2005-06, the poultry industry announced plans to increase production by 30%.

The plight of the beef industry is expected to worsen. Private households, which raise most of the country’s cattle, run dual purpose herds, more for milk than beef. Beef cattle make up just 0.7% of the cattle population and the number is shrinking.

Pork production, however, is expected to experience continuing growth. In 2005, production grew 10% to 12%.

Barley surpassed wheat in the early 1990s as the top feed grain in Ukraine. Maize, the third largest feed grain, is used mainly for poultry and swine feed. Production and consumption have risen since 2000 as the poultry industry has expanded.

Annual feed use amounts to about 30% of the production of the five grain crops (wheat, barley, maize, rye and sunflower seed). Feed use for 2005-06 is estimated at 12 million tonnes.

The production of compound feed is forecast to increase to 2.4 million tonnes in 2005-06, 30% more than 2004-05, mainly to meet poultry industry demand.