Ukraine's golden harvest
From agricultural collapse to global powerhouse, the country is on course to register record grain production numbers
Ukraine's grain harvest in 2016 is forecast to exceed previous records. This is a considerable achievement considering that seeded areas across Ukraine are down about 2.5 million acres due to conflict and occupation in the south-east of the country and Crimea.
According to the latest figures from Ukragroconsult, this year's grain harvest is expected to exceed 60m tonnes.
Oilseeds are also expected to perform well this season with an expected yield of 17m tonnes (13.5m tonnes of sunflower seed, up 15pc, soybean harvest is static at 4m tonnes, and rape seed back 34pc at 1.2m tonnes).
Breadbasket of Europe
Ukraine is now a top-three global exporter of agricultural commodities, with 34.8m tonnes exported last year. Agriculture production accounts for 16pc of Ukrainian GDP and the sector provides jobs for 3.5m people. Twenty six of the largest 100 Ukrainian companies are in the agricultural sector.
It is easy to see why Ukraine has long been known as the breadbasket of Europe. The country has over 100m acres of agriculture land, over 75m acres is classified as arable land. This arable area is close to one-third of the equivalent arable coverage within the EU.
Ukraine's legendary agricultural capability is aided by the fact that it holds one-third of the world's fertile 'chernozem' soils. This black coloured soil contains up to 15pc of humus. The thickness of this soil layer runs as deep as 1.5 metres in parts of Ukraine. Accompanying good soil is adequate precipitation, a long growing season and enough heat to grow everything from subtropical to continental crops.
Market evolution and growth potential
Despite the annexation of Crimea in 2014 and the on-going turmoil in south eastern Ukraine, the agri-sector has continued to evolve and grow. Today only 10.2pc of agricultural exports go to CIS countries and Russia.
Asia is now the dominant export market, absorbing 45.1pc of Ukrainian exports last year. Ninety seven per cent of sunflower oil imported into China and 90pc of Chinese corn imports during the first half of 2015 were produced in Ukraine.
Whereas the EU accounted for only 4pc of Ukrainian agricultural exports in 2015, exports to EU countries have increased tenfold over the past 15 years. Ukraine's signing of the EU Association Agreement in 2014 provides further opportunities with export quotas allocated for 36 commodity positions.
According to published CSO figures, Ukraine accounted for over 40pc of Irish maize imports for the first five months of 2016. Overall, Irish imports of Ukrainian corn increased from 25,800 tonnes in 2011 to 277,833 tonnes in 2015.
From agricultural collapse to global agricultural powerhouse
The collapse of the USSR in 1991 resulted in a sharp decline of agriculture production in Ukraine. By 2000, Ukraine's grain harvest was half of what it was in 1990 and sugar production was only a quarter of its output during Soviet times.
Renewed interest, abolition of collective and state farms, investment and land leasing mechanisms brought a new lease of life to the sector in the 2000s.
Land use also evolved. Sugar beet acreage has reduced by 85pc since Soviet Union times to just 237,000 hectares today. Conversely though, sunflower seed acreage is up 212pc to 5.1m hectares.
Grain acreage has also evolved, with a greater emphasis on maize production. Corn exports have grown exponentially, up from 4m tonnes in 2010 to 18.5m tonnes in 2015. Grain yields in Ukraine have grown by 70pc over the past decade.
A quick glance at world agricultural rankings demonstrate that Ukraine has recaptured its status as a global agricultural player:
* #1 producer of sunflower seeds and oil;
* #2 exporter of grains;
* #3 exporter of corn and producer of barley;
* #4 exporter of barley;
* #5 producer of corn;
* #6 exporter of wheat;
* #7 exporter of flour;
* #8 producer of soy bean;
* #9 in wheat production.
Arable Land at €250 per acre!
Foreign direct investment in Ukrainian agriculture topped $1b in 2015, up from $777m in 2014, and $680m in 2010. Three new grain-handling terminals were put into operation in Ukraine last year, bringing export capacity at the ports to more than 50m tonnes.
Already this year, Cargill & Bunge have announced separate construction investments totalling $280m dollars at Ukrainian ports. Yet challenges remain. There currently exists a moratorium on land sales, making it difficult to purchase, and grow capital appreciation on land.
However, the opportunity to secure land rights on some of the world's most fertile land for €250 per acre remains a big draw. Annual rent thereafter is also low, at almost €20 per acre.
Ukraine continues to harmonise its agricultural legislation with EU laws. The regulations with regards to land leasing have also been simplified with the number of significant legal requirements reduced from 11 to three.
The minimum lease period has been increased to seven years, with longer leasing terms available.
Sector leaders predict Ukraine's harvest could reach 100m tonnes by 2020. Consequently, grain yields, exports and investor interest in Ukrainian agriculture will continue to grow for some time to come.
Tom O'Callaghan is Director of Food for Seven Arrows Capital. He is based in Kiev.
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