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COUNTRY REPORT:

UKRAINE

March 2015

Oleg Nivievskyi, Oleksa Stepanuik, Veronika Movchan, Mykola

Ryzhenkov and Yulia Ogarenko

Institute for Economic Research and Policy Consulting, Ukraine

This project has received funding from the European Union’s Seventh Framework Programme

for Research, Technological Development and Demonstration under grant agreement no 612755

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Content

MACROECONOMIC ENVIRONMENT AND POLICIES ..................................................................................... 4

1.1 Background data .......................................................................................................................... 4

1.2 Macroeconomic developments .................................................................................................... 5

1.3 Macro-economic and other general policies ..................................................................................... 6

1.4 Institutional environment of the agro-food sector ............................................................................ 8

2. SITUATION AND DEVELOPMENT OF THE AGRICULTURAL SECTOR ........................................................ 12

2.1 Role of agricultural sector in the economy ...................................................................................... 12

2.2 Land use ............................................................................................................................................ 12

2.3 Farm structures (including land properties) ..................................................................................... 13

2.4 Production and output (including major sectors and yields) ........................................................... 14

2.4.1 Crop production and yields ....................................................................................................... 16

2.4.2 Animal production ..................................................................................................................... 21

2.4.3 Organic production .................................................................................................................... 26

2.5 Prices, costs and income .................................................................................................................. 27

2.5.1 Prices ......................................................................................................................................... 27

2.5.2 Costs .......................................................................................................................................... 28

2.5.3 Farm income .............................................................................................................................. 29

3. SITUATION AND DEVELOPMENT OF UPSTREAM AND DOWNSTREAM SECTORS .................................. 30

3.1 Input production and use ................................................................................................................. 30

3.1.1 Input production ....................................................................................................................... 30

3.1.2 Input use .................................................................................................................................... 31

3.2 Food industry .................................................................................................................................... 33

3.2.1 Food production ........................................................................................................................ 33

3.2.2 Structure of the food sector ...................................................................................................... 35

3.2.3 Prices, costs and performance indicators ................................................................................. 36

3.2.4 Food law .................................................................................................................................... 37

3.3 Bioenergy production ....................................................................................................................... 38

3.4 Food retail and consumption patterns ............................................................................................. 40

3.4.1 Food retail sector ...................................................................................................................... 40

3.4.2 Consumption ............................................................................................................................. 42

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4. AGRI-FOOD TRADE AND TRADE RELATIONS .......................................................................................... 44

4.1 Agri-food trade ................................................................................................................................. 44

4.1.1 Overall agri-food trade .............................................................................................................. 44

4.1.2 Agri-food trade by trading partner ............................................................................................ 45

4.1.3 Agri-food trade by products ...................................................................................................... 46

4.2 Trade policy and infrastructures ...................................................................................................... 47

4.2.1 Measures directly affecting trade imports and exports ............................................................ 47

4.2.2 Logistics and infrastructure ....................................................................................................... 49

4.2.3 Main trade agreements ............................................................................................................. 50

5. AGRICULTURAL POLICY AND INSTITUTIONAL ENVIRONMENT............................................................... 55

5.1 Agricultural policy framework .......................................................................................................... 55

5.1.1 Agricultural policy objectives and mechanisms ........................................................................ 55

5.1.2 Institutional arrangements ........................................................................................................ 57

6 FUTURE PERSPECTIVES FOR THE AGRICULTURAL AND FOOD SECTOR ................................................... 59

6.1. Strengths and weaknesses of the agricultural and food sector ...................................................... 59

6.2. Potential of production and yields by sectors ................................................................................. 60

6.3. Growth attractiveness for specific commodities ............................................................................ 60

7. RECOMMENDATIONS ............................................................................................................................. 63

8. CONCLUSION .......................................................................................................................................... 65

9. BIBLIOGRAPHY ........................................................................................................................................ 66

10. ANNEXES ............................................................................................................................................... 68

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MACROECONOMIC ENVIRONMENT AND POLICIES

1.1 Background data

Figure 1 Administrative Map of Ukraine (Source : www.nationsonline.org)

Table 1 Main country view 2013

Ukraine – Year 2013

Population (1st January) (thousand inhabitants) 45,553

Area* (sq. km) 600,355

Real GDP growth rate (% change on previous year) 0.0

Unemployment rate (%) 7.2

Agricultural area (thousand ha) 42,756

Agriculture, hunting and fishing (% of total GVA) 8.7

Source: Ukrstat

*Including occupied territories

Ukraine is one of the largest European countries by the area. In the west it borders with Poland,

Slovakia, Hungary and Romania, and with Belarus and Russia in the north and east. Ukraine has also

access to the year-round ice-free Black Sea. Ukraine has a relatively low population density.

Ukraine’s landscape is mostly flat, with small mountainous area in the West (about 5%). About 70.8% of

Ukrainian territory is occupied by agricultural land (Ukraine accounts for 1/3 of the world-wide stock of

the most fertile black soils, which are ideally suited for crop production (see Annexes, Figure 27), 17.6%

is occupied by forests, 4.9% is covered by water and 4.2% is land under buildings, the rest 3.4% is

occupied by other types of land. The predominant climate type in Ukraine is temperate continental and

semiarid in the South-East (see Annexes, Figure 25), only southeast of Crimea is subtropical. Average

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temperature ranges between -2 and -7.5 °С in January and 17.5 and 22 °С in July, with the maximum

temperature range from -40 °С to 42 °С across the country and year. Humidity declines from west to

east, creating milder and moister conditions in the west and making the ‘continental’ climate more

pronounced (see Annexes, Figure 26).

1.2 Macroeconomic developments

Table 2 Main macroeconomic indicators in Ukraine 2004–2013

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Average Population (million persons) 47.6 47.3 46.9 46.6 46.4 46.1 46 45.8 45.6 45.6

Real GDP growth rate (% change on

previous year) 12.1 2.7 7.3 7.9 2.3 -14.8 4.2 5.2 0.2 0.0

GDP at current prices (bill. UAH) 345 441 544 721 948 913 1083 1302 1411 1455

GDP per capita at current prices

(thousand UAH) 7.3 9.4 11.6 15.5 20.5 19.8 23.6 28.5 31.0 32.0

GDP per capita at purchasing power

(current prices; thousand USD) 6.1 6.5 7.2 8.1 8.4 7.3 7.7 8.3 8.5 8.8

GVA at current prices (billion UAH) 313 389 474 635 824 796 954 1120 1214 1268

GDP deflator (%) 15.1 24.5 14.8 22.7 28.6 13.0 13.8 14.3 8.1 3.1

Inflation (annual average, % change on

previous year) 9.0 13.5 9.1 12.8 25.2 15.9 9.4 8.0 0.6 -0.3

Total employment (million persons) 20.3 20.7 20.7 20.9 21.0 20.2 20.3 20.3 20.4 20.4

Unemployment rate (%) 8.6 7.2 6.8 6.4 6.4 8.8 8.1 7.9 7.5 7.2

Current account balance (% of GDP) 10.6 2.9 -1.5 -3.7 -7.0 -1.5 -2.2 -6.3 -8.1 -9.0

General government balance (% of GDP) -3.0 -1.9 -0.7 -1.1 -1.5 -2.4 -6.0 -1.8 -3.6 -4.4

Public and publicly guaranteed gross

debt (% of GDP) 24.7 17.7 14.8 12.5 19.9 33.0 39.9 36.0 37.4 40.1

Exchange rate, annual average

(UAH/EUR) 6.6 6.4 6.3 7.0 7.7 10.9 10.5 11.1 10.3 10.6

Exchange rate, annual average

(UAH/USD) 5.3 5.1 5.1 5.1 5.3 7.8 7.9 8.0 8.0 8.0

Consolidated government spending

(billion UAH) 101 142 175 226 309 307 378 417 492 506

Sources: Ukrstat, National Bank of Ukraine, World Bank

Over the last decade Ukrainian economy experienced the periods of boom (2004/08), bust (2008/09),

tepid recovery (2010/11), stagnation (2012-2013) and recession (2013/today). During the boom phase

Ukraine experienced large capital inflows and credit boom. Economic growth was also supported by

favourable prices for Ukrainian exports. Under fixed exchange rate regime (national currency Hryvnia

was pegged to the USD), this translated in double-digit inflation. Consumer prices almost doubled

between 2008 and 2013.

Overheating of domestic economy and global financial crisis caused the fall of Ukrainian GDP by almost

15% in 2009. As a result the National Bank of Ukraine had to devalue national currency from 5 to almost

8 UAH per USD in 2009. Devaluation improved external competitiveness and reduced external

imbalances.

In 2010/11 Ukrainian economy somewhat recovered but production remained below the levels of 2007.

Macroeconomic imbalances also remained. Fixed exchange rate (at new level) and populist social

policies allowed consumption to recover to the boom-time levels while investments and exports

remained depressed. This led to widening of current account deficit that was financed by external

borrowing.

In 2012 and 2013 economy experienced minimal economic growth and low inflation. This could be

outright recession but the economic stimulus from the Euro-2012 football championship and bumper

crop harvest in 2013 delayed it by significant infrastructure spending and robust growth in agriculture.

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Fiscal policy over the last decade was dominated by populist social policies leading to persistently

growing non-discretionary spending. Growth of revenues did not match the growth of expenditures.

Government debt grew from 12% to over 40% of the GDP as a result.

Labour market in Ukraine is characterized by comparatively low unemployment. Although

unemployment rate jumped from 6.4% in 2008 to 8.8% in 2009 it gradually went down ever since and is

significantly lower than in many EU countries. This can be explained by paternalistic labour policies,

unfavorable demographic tendencies and relatively low retirement age (60 years for women and 62 for

men). Significant incidence of subsistence farming in rural areas also contributed to low unemployment.

1.3 Macro-economic and other general policies

Ukraine appears to have unattractive business environment and generally has been reluctant in

undertaking urgently required reforms. The country is ranked 112th out of 189 in the World Bank’s

Ease-of-Doing-Business rating (World Bank, 2013), lower than all its neighbors and CIS peers (see

Erreur ! Source du renvoi introuvable.). In all of Eastern Europe and Central Asia, only Uzbekistan and

Tajikistan rank behind Ukraine. In the global, Ukraine’s business environment compares to that of the

Lebanon, Papua New Guinea and Pakistan. Regulatory barriers to start and operate a business are high,

and entry and operation costs are particularly burdensome for growing export sectors (World Bank,

2010b). Constraints related to the payment of taxes, trade, protecting investments in Ukraine are

among the worst in the world (see Erreur ! Source du renvoi introuvable.). In general, the businesses

have to comply with a long list of permits, licensing, unnecessary mandatory standards and certifications

and other hurdles imposed by the outdated Soviet-era regulatory system.

Figure 2 Ease of Doing Business in Ukraine and ECA region Source : World Bank (2013a)

Figure 3 Ranking of Ukraine on Doing Business Topics Source: World Bank (2013a)

It has to be mentioned that on a paper (nominally) Ukraine has implemented some of the best practices

to improve business environment legislation. For example, over the last five years tax laws were codified

and streamlined, new businesses received tax exemptions, SMEs received expanded access to simplified

taxation and reporting, number of business permits was reduced and starting new business became

simpler. Overall recent reforms in Ukraine were narrowly tailored to improve Ukraine’s performance in

the Doing business report. This was successful and Ukraine increased its ranking from 183th in 2013 to

112th in 2014. Real implementation of the improved business rules, however, has been seriously

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pervaded by glaring corruption. According to 2013 corruption perception index by Transparency

international, Ukraine ranks 144th of 177 countries1. Although this ranking somewhat overstates the

incidence of corruption in Ukraine, it does reflect the absence of trust in public institutions, as well as

limited degree of basic property rights and rule of law.

On a more disaggregated (regional) level the western regions of Ukraine appear to have better business

environment, especially compared to the eastern part of Ukraine. According to the recent IER (2014)

Investment Attractiveness Study, all regions of Ukraine were surveyed on so-called hard and soft factors,

were hard factors denoting mainly natural endowments, while the soft ones describing business

environment (see Erreur ! Source du renvoi introuvable. for the list of the soft factors). As Erreur !

Source du renvoi introuvable. shows the very western regions (Lviv, Ivano-Frankivsk, Volyn) significantly

outperform especially the very eastern regions (Donetsk and Luhansk) as well as Crimea in terms of

business environment in 2014. Erreur ! Source du renvoi introuvable. gives a more differentiated view

but the general impression is only magnified: western regions consistently outperform the rest of

Ukraine in terms of different aspects of business environment. For example, corruption is the lowest in

Lviv, Ivano-Frankivsk, Volyn, Ternopil and Chernivtsi regions (index converges to 2), while it is the

highest in Crimea (index converges to 1). Business expectations are also the highest in Lviv, Ivano-

Frankivsk regions (index converges to 2) and the worst in Donetsk and Poltava (index converges to 1).

Figure 4 Business Environment Ranking of Ukraine’s

regions Source : IER (2014) ; Note : index changes from 1 (worst) to 2 (best)

Figure 5 Ranking of Ukraine’s Regions on Business Environment

Topics Source: IER (2014) ; Note : index changes from 1 (worst) to 2 (best)

Despite the unattractive business environment the FDI inflows have been taking place. They were

attracted primarily by cheap labour, natural resources, large potential market and proximity to the EU.

In case of agri-food business Ukraine’s natural resources i.e land and climate were the main drivers of

FDI. Relative openness of the sector to foreign investment also contributed. Ukraine was among the ten

countries with the largest shares of agriculture in the total FDI inflows (World Bank, 2013), with 4 % of

agriculture in the total FDI inflows from 2005-2007 (compared to the typical share of less than 1%).

Since then, the share of agriculture in the total FDI decreased to about 1.3% in 2013 (Figure 6а). Unlike

primary agriculture, food processing’s share of the total FDI inflow has been relatively stable at about

5% over the last decade and generally speaking corresponds to its contribution to the GDP. 1 http://cpi.transparency.org/cpi2013/results/

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Ukraine’s capital investments have been growing continuously except for the shortfall in 2009, the year

of the global financial crisis. The share of agriculture that has been 6% in the total capital investments on

average over the last decade is closer to the contribution the sector makes to the GDP, while the food

processing’s share has been 5.5 % on average since 2007.

Figure 6 Development and structure of FDI and capital investments in Ukraine (Source: Ukrstat)

1.4 Institutional environment of the agro-food sector

Overall assessment

Ukraine’s institutional environment in agro-food sector is constructed in a way that agriculture receives

generous agricultural tax benefits, a low emphasis on the provision of public infrastructure and other

supporting services, and high transaction costs due to the excessive regulatory environment.

Agricultural policy in Ukraine is focused on sub-sector strategies rather than creation of a level playing

field. It is based on support to specific sub-sectors (field crops, pigs and cattle), primarily through

payments based on area (in hectares), animal heads and outputs, a large concessional credit program,

and tax privileges. In addition, some tariff and non-tariff protection of domestic producers exists, along

with domestic measures such as minimum purchase prices and the state procurement requirements.

Moreover, despite the existence of formally established governmental objectives and the state

programs, policy-making continues to be ad hoc and opportunistic, lacking a cohesive long-term

strategic perspective with state interventions aligned with economic principles (World Bank, 2013b).

Public support

The overall level of agricultural producer support is relatively high, about 1.62% of the GDP. This is high

compared to other emerging economies, as well as compared to the OECD average (about 0.34%, see

section 5.1.1 for details). Public expenditures in the overall support have declined and are not significant

at the moment. They generally have been shifting from coupled to decoupled measures. The lion’s share

of the agricultural producer support in Ukraine is channeled through tax exemption benefits. On average

agricultural tax benefits comprised 10% of the value added generated in agriculture (see section 5.1.1

for more details on the public support to agriculture).

Overall, Ukraine’s agricultural market and trade policy framework mean that exported agricultural

products tend to be taxed, while imported goods tend to receive support. Export restrictions on grains

were implemented five times in the last seven marketing years on the food security grounds, although

the mechanism by which such restrictions would improve the food security were not clear. Export

restrictions (in 2006/07, 2007/08, 2010/11 and in 2011/12) took the form of either quotas or export

taxes. In the 2012/13 marketing year, export restrictions took the form of voluntary export quotas.

Learning from the past experience, grain traders took action to reduce the uncertainty of such

restrictions and signed a Memorandum of Understanding with the Ministry of Agricultural Policy and

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Food by which they voluntarily agreed to cap their grain exports at 80% of the grain exportable volumes

(World Bank, 2013b).

Access to credits

Access to credits for farmers is very limited in Ukraine. Figure 7 shows that the share of agricultural

loans in the total volume of loans relative to the agriculture’s contribution to the GDP is by far lower in

Ukraine than in the EU. In Ukraine, 75% of companies in the agribusiness sector report poor access to

finance as a key barrier to further expansion and investment. Internal self-financing in the form of

retained earnings (60%) and personal savings (13%) remains the most prominent source of funding

among agribusiness enterprises (IFC, 2011). External financing through bank credit (28%) and

trade/supplier finance (5%) rarely appears to be a viable option for agribusinesses. About half of the

producers sell 80-100% of their new harvest immediately to finance their working capital.

Figure 7 Share of agricultural loans in the total volume of

loans in Ukraine and other countries

Source: World Bank/IFC (2014); Note: Ratio between loans to

agricultural companies in total corporate loans and the relative share of

the agricultural sector in GDP. For all countries the data is for 2010, for

Kyrgyzstan – average over 2010-12.

Figure 8 Outstanding loans from commercial banks in

Ukraine

Source: own presentation based on the data from the

National Bank of Ukraine

The banking sector has been the main source of external financing for agriculture. The share of

agriculture in banking sector’s loan portfolios is about 5.9% in the aftermath of the global financial crisis

(see Figure 8). The share of food processing sector in banks’ loan portfolios is comparable to the share of

primary agriculture, i.e. 5.2% over the same period. Accesses to financial resources have primarily large

agro-holdings or enterprises with considerable share in the food sector. The main financial source for

small and medium enterprises is retained revenues.

Other financial institutions play minor role in Ukrainian financial sector and specifically in agricultural

financing. Credit unions remain marginal and are slowly losing the small market share that they have.

Agricultural insurance is also underdeveloped. Agricultural producers generally do not trust insurance as

a result. The value of agricultural leasing is also small (1% of agricultural output). Nevertheless

agriculture constitutes 13% of all leasing transactions and continues to rapidly increase (World Bank,

2013b).

Most banks do not offer specific agricultural products. Thus even small and straightforward seasonal

loans require business-specific risk assessments. However the average profitability and growth potential

of farms is misleading. Current risk assessment tools cannot capture individual client’s risks in primary

agriculture and thus financial support for small and medium producers is often denied.

Main barriers for providing financial resources to farms include lack of professional bookkeeping in

farms, inability to use land as a collateral and strict National Bank of Ukraine (NBU) provisioning

regulations regarding foreign exchange lending (Otten 2012).

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Access to market information

Ukraine has a great need for modern agricultural information system. Lack of control and outdated data

management systems often makes data collected by the state statistical committee unreliable or

contradictory. Among other things, no accurate information on food production and demand is

available. As a result enterprises cannot effectively respond to food shortages and the government

undertakes harmful interventions. Also the subsidies information system is completely absent. Thus

there is no transparency in subsidies allocation and no public control over it.

Agricultural land ownership

The territory of Ukraine is 60.4 million hectares, 69% (41.6 million hectares) of which is agricultural land.

About 74% (30.8 million hectares) of this land is private, the other 26% is state and communal. About

8% (2.6 million hectares) of the agricultural area has been developed for irrigation. Close to 80% of this

area is served by pressurized sprinkler irrigation. Most of the irrigated area is concentrated in the

southern part of the country.

Ukraine went through a rapid agricultural land structure transformation in the 90s when the land area of

collective farms was distributed between the collective farm workers and rural social infrastructure

servants. Depending on the available land, each worker received a certificate for a “land-share” of 4-8

hectares in the unspecified location. Some 6.92 million citizens of Ukraine received these certificates. By

2013, 96.7% of them converted these land shares certificates into legally valid land deeds,2 and so

became owners of land plots with specified location.

There is a moratorium on agricultural land buy-and-sell transactions in Ukraine until 2016. Agricultural

producers operate predominantly on leased agricultural land, i.e. 84.5% (17.4 million ha) of cultivated

agricultural land. The current owners of “land-shares” are mainly pensioners (LRB 2013a) whose

children have typically moved away to work in urban areas. Land is now typically leased for 4-10 years,

with maximum periods of 49 years. The majority of land rental rates ranged from USD 25/ha to

USD 75/ha in 2012 (LRB 2013b), but a high proportion of rental payments is made in kind. The

government set the minimum rental value at 3% of the normative value of land, which now is about

USD 2,600 per hectare on average. This represents the floor price for rental agreements.

Agricultural education, research, and advisory services

Ukraine experiences shortage of adequately trained agricultural specialists at all levels. Overall, there

are 22 agricultural universities in Ukraine with a total of about 180,000 students and about 47,000

graduates in 2013. This exceeds any normal benchmark and has resulted in student’s weak technical,

managerial and analytical skills (Koester et al 2010). Farmers cannot easily recruit the experts they need

for a more efficient operation of their agricultural enterprises and have to draw on-job training

programs and schools. Large oversupply of students also means that there are not sufficient

employment opportunities for students. Such a situation is caused by the flawed system of university

financing and incentives framework. State financing (about 37.3% of the total agricultural budget) is

allocated on the number of students rather than performance criteria. There is no academic and

financial autonomy of universities in Ukraine. Also, low salaries, problems with recognition of degrees

from universities outside Ukraine, corrupted process of promotion and recruitment prevents the

reorganization of agricultural universities.

Ukraine’s agricultural research system appears to be disconnected from both the practical needs of

Ukraine’s farmers as well as international research efforts, and it suffers from the same institutional and

management weaknesses as the education system. The National Academy of Agricultural Science is

2 However, according to the land code of 2001 (as well as envisaged legislative changes), land ownership by foreign

physical or legal persons is not (and will not be) allowed. Agricultural land inherited by foreign physical and legal

persons and by persons without citizenship is even subject to alienation within a year.

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Ukraine’s main institution for agricultural research. It has a special status that provides it with complete

autonomy without independent auditing or any state control. Its involvement is limited to the teaching

of PhD students. It oversees 340 institutes and experimental farms, of which five are national research

centers, 52 research institutes, and more than 200 experimental farms (Koester et al 2010). Ukrainian

agricultural economists are not particularly visible in international research, with only a few publishing

their work in international journals and presenting papers at international conferences (see von

Cramon-Taubadel and Nivievskyi 2011).

Ukraine’s agricultural advisory services are underdeveloped. State support is marginal and the services

remain largely underfunded. The credibility of public advisory services is undermined and reliability of

extension officers is further undermined by low performance of governmental institutions to which they

are affiliated or from where they graduated. Most development in extension services is privately driven

and fee-based (World Bank, 2013a).

Sanitary and phytosanitary services or National Quality Infrastructure

Ukraine’s sanitary and phytosanitary control system is complicated and characterized by fragmented

supervisory agencies, significant bureaucracy and corruption, but low effectiveness in terms of

protecting the health of people, animals and plants. Ukraine continues to use sanitary and phytosanitary

regulations which are not largely WTO compliant. Total compliance costs of the sanitary control system

amount to between 2.6% and 4.9% of annual turnover of agricultural enterprises, depending on the

sector (Nivievskyi, 2013). The burden of the phytosanitary measures for private sector is 7.5 higher in

Ukraine than in the EU (IFC, 2014).

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2. SITUATION AND DEVELOPMENT OF THE

AGRICULTURAL SECTOR

2.1 Role of agricultural sector in the economy

Agriculture plays an increasingly important role in the Ukrainian economy. Its share in the GDP

(including forestry and fishery) increased from 7.5% in 2008 to 8.7% in 2013. The share of agriculture in

the total employment in Ukraine has stayed roughly the same, i.e. 18% in 2000 and 17% in 2013

(excluding rural households). Rural population constitutes 31% (14 million people) of the total

population.

If upstream and downstream industries of agriculture (input supply and food processing) are also

considered, the contribution of the sector to the Ukrainian economy increases roughly to 22% of GDP

(World Bank, 2013a).

The food industry also plays important role in the Ukrainian economy. Between 2001 and 2013, the food

industry’s share of the GDP in Ukraine has been in the range of about 7-9%, with the exception of 2004

when both agriculture and food industry suffered from the consequences of a severe crop winter-kill.

Employment in the food industry has been almost constant at about 4% of the total employment in

Ukraine.

Agri-food products play an increasingly important role in the country’s trade balance. The share of agri-

food exports in the total exports increased from 12% in 2005 to 27% in 2013. Such a significant increase

was mainly driven by the increased demand from the global food markets as well as the relatively poor

performance by the Ukrainian industry.

In the future, the share of agriculture may increase further as services usually grow slowly and the

agricultural productivity in Ukraine is far from potential. The increasing role of agri-food sector seems

especially likely against the current recession in the industry and ever-growing global demand for food.

2.2 Land use Table 3 Agricultural land use in Ukraine 2008–2013, thousand ha

2008 2009 2010 2011 2012 2013

Land area, total 60,355 60,355 60,355 60,355 60,355 60,355

Agricultural land, total 41,626 41,596 41,576 41,558 41,536 41,526

Arable land 32,473 32,478 32,477 32,499 32,518 32,526

Permanent crops in bearing age 304 300 291 293 291 289

Orchards 233 229 223 223 223 222

Vineyards 71 71 68 69 68 67

Permanent grassland 7,918 7,900 7,893 7,886 7,870 7,856

Hayfields 2,416 2,410 2,411 2,412 2,411 2,409

Pastures 5,502 5,490 5,482 5,475 5,460 5,447

Fallow land owned by

enterprises and individuals 192 193 180 164 147 148

Other agricultural land 738 725 736 716 710 708

Sources: Ukrstat

The territory of Ukraine is 60.4 million hectares, 69% (41.6 million hectares) of which is agricultural land

(see Table 3). About 5% (2.6 million hectares) of the agricultural area has been developed for irrigation.

Most of the irrigated area is concentrated in the southern part of the country. The area actually irrigated

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has declined from 2.2 million ha in 2003 to 1.5 million ha in 2013. About 31 million ha of agricultural

land is arable and 27.5 million ha are now used for crop production. More than half of the Ukraine’s

arable land is the world’s most productive black soil, providing an excellent basis for the production of

crops, livestock and energy crops (World Bank, 2008).

Overall, the area of agricultural land slowly decreases in Ukraine (100 thousands hectares ceased to be

agricultural land during 2008-2013 due to urbanization). Even more important is soil erosion, more than

500 million tons of soil is annually eroded in the country. Every year, erosion is causing a loss of soil

fertility over the entire arable land that can be valued currently at around USD 5 billion, in nutrient

equivalent (World Bank/FAO, 2014). So the potential for the land expansion and resulting growth in crop

production is not significant in Ukraine.

2.3 Farm structures (including land properties)

Table 4: Land use by farm type, 2013

Number of units Land area, total

(1000 ha)

Agricultural land,

total (1000 ha)

Arable land (1000

ha)

Average area of

arable land (ha)

Hayfields and

pastures (1000 ha)

Agricultural

holdings, private 55,858 21,167 20,437 19,187 343 1,047

Corporate farms 14,724 - 15,027 14,081 956 -

Peasant farms 40,856 - 4,452 4,310 105 -

Agricultural

holdings, state-

owned

278 1,144 959 796 2,863 128

Households 4.2 million 16,546 15,958 11,846 3 3,386

Source: Ukrstat

Table 5 Agricultural holdings by size classes by UAA

2010 2011 2012 2013

Area (ha)

Number of

agricultural

holdings

Area (ha)

Number of

agricultural

holdings

Area (ha)

Number of

agricultural

holdings

Area (ha)

Number of

agricultural

holdings

TOTAL 21,585,900 56,493 21,570,600 56,133 21,914,200 55,866 21,800,100 55858

0 - 7,669 - 7,877 - 8,214 - 8416

< 5.0 18,300 5,784 17,800 5,639 16,800 5,332 16,000 5026

5.1–10.0 31,900 4,038 31,400 3,983 30,000 3,809 29,600 3755

10.1–20.0 76,300 4,925 75,600 4,897 74,200 4,795 74,100 4784

20.1–50.0 519,800 13,707 512,200 13,535 504,300 13,334 504,000 13294

50.1–100.0 345,200 4,831 350,000 4,895 360,900 5,016 383,000 5275

100.1–500.0 1,743,100 7,181 1,757,400 7,195 1,777,400 7,261 1,770,900 7233

500.1–

1000.0 1,919,400 2,667 1,870,400 2,595 1,883,900 2,624 1,908,400 2666

1000.1–

2000.0 3,822,800 2,661 3,664,800 2,549 3,683,600 2,565 3,636,000 2531

2000.1–

3000.0 3,295,500 1,347 3,188,800 1,304 3,102,500 1,270 3,038,400 1251

3000.1–

4000.0 2,293,000 666 2,206,300 640 2,178,900 632 2,141,600 619

4000.1–

5000.0 1,670,500 376 1,577,900 355 1,481,800 334 1,434,000 323

5000.1–

7000.0 1,919,600 332 1,975,200 342 1,959,100 337 2,016,200 345

7000.1–

10000.0 1,479,600 178 1,456,000 175 1,504,300 179 1,379,000 165

> 10000.0 2,450,900 131 2,886,800 152 3,356,500 164 3,468,900 175

Sources: Ukrstat

The gross agricultural output (GAO) in Ukraine is generated by two groups of producers, i.e. enterprises

and households. There are more than 4 million small households (having 2.8 ha of land each on average)

producing food primarily for subsistence needs, but managing 38% of the Ukraine’s total agricultural

14

land and accounting for nearly 30% of the country’s GAO in 2013. The rest of agricultural output was

generated mainly by private agricultural enterprises, since the state-owned agricultural enterprises

generated only about 1% of the GAO in 2013.

Agricultural enterprises are of two types in Ukraine: corporate farms and peasant farms. These farms,

unlike households, are registered legal entities. There are about 14,724 corporate farms (mainly the

successors of the former collective and state farms) each cultivating about 956 ha of arable land on

average and generating 45% of the GAO in 2013. There are about 40,856 much smaller peasant farms

(mainly run by individual farmers) with an average of 105 ha of arable land each, altogether cultivating

only about 13% of the Ukraine’s arable land generating 7.6% of the total GAO in 2013.

Households dominate the production of the entire range of livestock products, i.e. their share is 78% in

raw milk, 74% in beef and veal, 35% in pork and 17% in poultry output in 2013. However, the share of

households has been shrinking due to the recovery of output of agricultural enterprises. Households

also prevail in the production of potatoes, vegetables and fruits, i.e. 97%, 88%, and 81% respectively in

2013. Agricultural enterprises (including peasant farms) play a leading role mainly in the cultivation of

export-oriented crops, they produced 79% of grains, 85% of sunflower seeds, and 98% of rapeseeds, and

84% of sugar beets in 2013. Peasant farms mainly produce crops rather than livestock, accounting for

about 12% of the total grains, 5.6% of sugar beets, 19% of sunflower seeds, 15.5% of soybeans and 18%

of rapeseeds, but only 2.6% of the total meat and 1.4% of raw milk produced in 2013. Peasant farms

employ the same cropping patterns as corporate farms yet produce at similar or lower rates of intensity,

which is the first hint that they face competitive disadvantages limiting their productivity growth.

Over the last decade Ukraine has been experiencing the process of land consolidation process that has

led to the emergence of large, vertically-oriented agri-holdings. The number of corporate farms has

shrunk from roughly 17,700 in 2004 to 14,724 in 2013. An increasing number of these farms is coming

under the control of agri-holdings, which were created with different purposes, in different sizes,

shapes, and organizational forms but share the common characteristics. Agri-holdings usually consist of

a mother company that, in most cases, is not involved in primary agricultural production but decides

overall strategy, production orientation and investments, and manages access to production factors,

including input and output markets, land and finance. This mother company is typically “holding” 5-50

individual corporate farms of about 2,000-15,000 ha each, with the size of the agri-holdings varying from

30,000 to 400,000 ha. The accumulation of these impressive “land banks” is the most visible and publicly

discussed feature of agri-holdings. In 2014, agricultural holdings farmed more than 6 million ha of

agricultural land in Ukraine (27% of the total area). The largest agri-holding is the UkrLandFarming with

the land bank of about 540 000 ha. These super large agri-holdings produced about 21% of the the GAO,

including 18.7% of the total crop output and 24.8% of the total livestock output in 2012 (UCAB, 2014).

2.4 Production and output (including major sectors and yields)

Since 2000, Ukrainian agriculture is experiencing a recovery after almost a decade of the transitional

recession. Still its output does not reach the pre-independence levels (see Figure 9). Agricultural

holdings’ output drastically dropped during the transition period. Households, on the other hand, used

agriculture for the subsistence during the period of transformation hardships and increased their level

of output. Over the last decade the share of agricultural holdings in the total output has been

persistently increasing.

15

Figure 9 Index of the Gross Agricultural Output (GAO) in Ukraine, 1990=100 (Source: Ukrstat)

Table 6 Agricultural output in 2004-2013 (million UAH, at current prices)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

CROP OUTPUT 36,227 40,235 51,151 61,172 83,425 87,095 116,760 170,130 138,236 175,895

Wheat 8,634 7,764 7,350 11,104 19,491 16,533 18,297 29,760 24,386 30,478

Barley 4,286 4,384 5,453 5,318 10,587 8,519 8,104 12,273 10,947 10,941

Maize 3,881 2,459 3,326 6,186 8,273 8,906 14,895 31,199 31,761 24,666

Oats 369 264 289 406 796 461 352 795 951 910

Rye 628 334 241 474 854 587 369 742 889 717

Sunflower 3,509 4,604 5,364 7,793 8,923 12,073 20,441 28,120 29,956 32,993

Potatoes 12,667 17,688 24,957 27,215 31,559 35,890 47,752 57,572 31,477 41,421

Refined sugar 2,253 2,738 4,170 2,675 2,942 4,126 6,551 9,670 7,870 -

ANIMAL OUTPUT 25,507 34,816 32,055 41,180 54,398 57,276 70,302 77,504 82,764 76,964

Beef and veal 4,220 5,719 5,873 6,084 7,860 7,565 7,694 8,946 8,909 -

Pigmeat 5,073 7,004 6,138 7,375 10,890 10,952 11,441 14,030 16,464 -

Poultry meat 2,291 4,335 4,806 5,949 9,700 11,269 12,844 13,321 17,959 -

Milk 10,888 14,242 12,275 17,715 20,097 20,812 29,073 30,332 27,175 38,688

Eggs 3,035 3,516 2,964 4,057 5,851 6,677 9,251 10,875 12,257 12,881

AGRICULTURAL

GOODS OUTPUT

61,733 75,051 83,206 102,352 137,823 144,371 187,062 247,634 221,001 252,859

Sources: OECD, Ukrstat

16

Table 7 Share of individual products in agricultural output in 2004-2013 (%)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

CROP OUTPUT 58.7 53.6 61.5 59.8 60.5 60.3 62.4 68.7 62.6 69.6

Wheat 14.0 10.3 8.8 10.9 14.1 11.5 9.8 12.0 11.0 12.1

Barley 6.9 5.8 6.6 5.2 7.7 5.9 4.3 5.0 5.0 4.3

Maize 6.3 3.3 4.0 6.0 6.0 6.2 8.0 12.6 14.4 9.8

Oats 0.6 0.4 0.4 0.4 0.6 0.3 0.2 0.3 0.4 0.4

Rye 1.0 0.5 0.3 0.5 0.6 0.4 0.2 0.3 0.4 0.3

Sunflower 5.7 6.1 6.5 7.6 6.5 8.4 10.9 11.4 13.6 13.1

Potatoes 20.5 23.6 30.0 26.6 22.9 24.9 25.5 23.3 14.2 16.4

Refined sugar 3.7 3.7 5.0 2.6 2.1 2.9 3.5 3.9 3.6 -

ANIMAL OUTPUT 41.3 46.4 38.5 40.2 39.5 39.7 37.6 31.3 37.5 30.4

Beef and veal 6.8 7.6 7.1 5.9 5.7 5.2 4.1 3.6 4.0 -

Pigmeat 8.2 9.3 7.4 7.2 7.9 7.6 6.1 5.7 7.5 -

Poultry meat 3.7 5.8 5.8 5.8 7.0 7.8 6.9 5.4 8.1 -

Milk 17.6 19.0 14.8 17.3 14.6 14.4 15.5 12.3 12.3 15.3

Eggs 4.9 4.7 3.6 4.0 4.3 4.6 5.0 4.4 5.6 5.1

Sources: OECD, Ukrstat, own calculations

Table 8 Gross Agricultural Output volume changes in 2004-2013 (% change from the previous year)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

CROP OUTPUT

Wheat 386.77 6.73 -25.41 -0.07 85.72 -19.31 -19.32 32.47 -29.39 41.34

Barley 62.21 -19.03 26.36 -47.26 110.87 -6.17 -28.30 7.22 -23.76 9.00

Maize 28.97 -19.17 -10.34 15.49 54.25 -8.40 13.99 91.06 -8.22 47.65

Oats 7.05 -21.48 -12.71 -21.12 73.40 -22.56 -37.28 10.27 24.53 -25.79

Rye 155.21 -33.80 -44.64 -3.62 86.84 -9.23 -51.27 24.52 16.91 -5.78

Sunflower -28.31 54.29 13.14 -21.60 56.33 -2.48 6.40 28.04 -3.27 31.8

Potatoes 12.47 -6.23 0.02 -1.88 2.32 0.62 -4.89 29.63 -4.11 -4.3

Refined sugar -13.64 -0.37 21.18 -27.97 -15.85 -18.84 41.57 43.27 -17.13 -41.06

ANIMAL OUTPUT

Beef and veal -14.73 -9.09 1.00 -3.75 -12.16 -5.46 -5.69 -6.69 -2.66 10.12

Pigmeat -11.45 -11.65 6.56 20.64 -7.06 -10.75 19.89 11.60 -0.51 6.78

Poultry meat 16.23 30.88 18.61 16.98 12.88 13.33 7.39 4.37 7.12 8.71

Milk 0.35 0.04 -3.12 -7.71 -4.09 -1.28 -3.11 -1.44 4.14 -0.49

Eggs 4.00 9.13 9.11 -1.21 6.36 6.36 7.20 9.60 2.25 2.64

Sources: OECD, Ukrstat

2.4.1 Crop production and yields

Wheat, barley, maize and sunflower are the dominant crops, covering about 70% of the Ukraine’s total

arable land (Figure 10). Over the last decade the structure of the harvested area has somewhat

changed, mainly as Ukraine’s response to the global market developments. In absolute and relative

terms the harvested area of the main crops increased significantly, except barley. The most impressive

expansion was recorded for rapeseed and soybean, followed by sunflower and maize. This expansion

occurred at the cost of barley, rye, oats, millet, buckwheat and sugar beet. The fruit area was somewhat

reduced, while vegetable area gained additional 30 000 ha.

17

Figure 10 Structure of the harvested area of crops in 2004 and 2013, 1000 ha

Source: Ukrstat

Cereals

Figure 11 Structure of cereal production in Ukraine in 2004 and 2013, 1000 tons

Source: Ukrstat

Grains have traditionally been the leading crop in Ukraine, contributing 26.5% to the gross crop output

in 2013. Grain production already surpasses the pre-transition levels and reached a historical maximum

of 62 million tons in 2013. Ukraine has emerged as one of the world’s top grain exporters and continues

to increase its produce of exportable volumes of grains. Wheat and maize have been dominating the

grain production (Figure 11). The main reason for the dominance is growing livestock sector and thus

the consumption of the grain as feed is also increasing (in poultry and pig production), as well as

growing global demand for maize. The rest of grains (e.g. rye, oats and other grains) have been losing

their share over the last decade. In general, grain yields have increased by 40% over the last decade

(about 4 t/ha), with some short-term fluctuation. Better technologies, farm practices, management,

production and post-harvest logistics investments have been the main reasons for improved yields. Still,

the yield levels in Ukraine are far from the potential and from the countries with higher specific

intensities, i.e. in Western Europe in particular.

Wheat; 5

534

Barley; 4

515

Maize; 2

300

Other

grains; 2

013

Rape; 107

Sunflow

er; 3 427

Soya; 256

Sugar beet;

697

Potatoes; 1

556

Vegetables

; 468

Fruits; 281 Other; 5

340

2004

Wheat; 6

566

Barley; 3

233

Maize; 4

825

Other

grains; 791

Rape; 996

Sunflower;

5 089

Soya; 1 351

Sugar beet;

270

Potatoes; 1

394

Vegetables

; 494Fruits; 221

Other; 1

973

2013

Wheat; 17

520

Barley; 11

084

Grain

maize; 8

867

Oats; 1 007Rice; 80

Rye; 1 593

Millet; 459Buckweat;

294

Other; 93

2004

Wheat; 22

278

Barley; 7

561

Grain

maize; 30

900

Oats; 467

Rice; 145

Rye; 638

Millet; 102Buckweat;

179

Other; 356

2013

18

Balman et al (2014) also report that productivity of big agri-holding farms in winter wheat and maize

production was on average 17% higher than in independent farms in 2010-2012, and this tendency is

increasing over time. Higher productivity figures at agri-holdings resulted from more intensive

production technologies.

The positive development took place despite a persistent threat of the government to restrict grain

exports. Export restrictions (in 2006/07, 2007/08, 2010/11 and in 2011/12) were placed in the form of

either quotas or export taxes. In marketing year 2012/13, export restrictions took the form of voluntary

export quotas. Central Ukraine is the main region of grain production in Ukraine, with Poltava oblast

producing 5.64 million tons of grains in 2013 being the champion (Table 9).

Table 9 Production of grains in Ukraine regions 2004–2013, 1000 tons

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ukraine 41,809 38,016 34,258 29,295 53,290 46,028 39,271 56,747 46,216 62,997

Center 13,179 12,490 11,677 9,345 17,584 15,469 13,579 19,982 14,474 22,043

Vinnytsia region 2,097 2,035 2,075 1,686 3,378 3,092 3,111 4,244 3,625 4,844

Dnipropetrovsk region 3,057 2,908 2,635 1,672 3,694 2,817 2,709 3,456 1,554 3,710

Kirovohrad region 2,679 2,479 2,411 1,278 3,003 2,534 2,374 3,465 2,340 3,781

Poltava region 3,008 2,851 2,447 2,866 4,531 3,830 2,854 5,055 3,645 5,637

Cherkasy region 2,339 2,217 2,109 1,842 2,978 3,195 2,531 3,762 3,311 4,070

East 5,324 5,630 4,208 4,151 7,769 5,307 3,874 7,027 5,653 7,704

Donetsk region 2,045 1,912 1,646 1,187 2,332 1,724 1,797 2,286 1,643 2,210

Luhansk region 1,134 1,311 845 800 1,640 1,056 811 1,269 1,294 1,292

Kharkiv region 2,145 2,407 1,717 2,163 3,797 2,527 1,267 3,473 2,717 4,202

North 6,288 5,748 4,768 5,477 8,221 7,774 5,932 9,296 10,492 12,140

Zhytomyr region 821 750 725 741 1,102 1,238 1,087 1,507 1,695 2,103

Kyiv region 2,314 2,284 1,857 1,796 2,593 2,483 2,003 2,785 3,190 3,325

Sumy region 1,284 1,119 890 1,289 2,366 2,005 1,324 2,522 2,668 3,592

Chernihiv region 1,868 1,595 1,297 1,651 2,161 2,049 1,518 2,481 2,939 3,119

South 11,321 8,938 9,216 5,183 12,784 10,866 9,953 12,428 6,319 11,034

AR Crimea 1,205 1,160 1,221 1,228 1,734 1,663 1,404 1,931 908 766

Zaporizhia region 1,837 1,806 1,762 1,241 2,780 2,131 1,905 2,193 1,196 2,111

Mykolayiv region 2,697 1,763 1,951 641 2,386 2,465 2,201 2,628 1,278 2,803

Odessa region 3,647 2,669 2,808 1,263 3,682 2,839 2,929 3,194 1,880 3,670

Kherson region 1,936 1,539 1,474 810 2,202 1,769 1,515 2,481 1,055 1,684

West 5,697 5,210 4,390 5,140 6,932 6,613 5,933 8,014 9,279 10,076

Volyn region 780 677 524 573 717 640 579 748 869 902

Transcarpathian region 355 296 287 301 316 302 256 322 322 325

Ivano-Frankivsk region 358 335 293 300 399 402 347 537 616 678

Lviv region 678 627 587 612 837 823 623 962 1,066 1,186

Rivne region 636 599 483 569 770 696 636 791 918 1,101

Ternopil region 1,035 1,045 905 1,126 1,598 1,574 1,261 1,883 2,164 2,222

Khmelnytsky region 1,427 1,205 938 1,247 1,815 1,702 1,743 2,180 2,713 3,037

Chernivtsi region 427 427 373 414 480 475 489 593 612 626

Sources: Ukrstat

19

Oilseeds

Figure 12 Structure of oilseed production in Ukraine in 2004 and 2013, 1000 tons

Source: Ukrstat

Oilseed crops experienced the most impressive expansion over the last decade, i.e. from 3.5 million tons

in 2004 to a record 16.2 million tons in 2013. The impressive growth was possible due to the

combination of increased sowing areas (by almost 90%) and yields (from average 1 t/ha in 2004 to 2.15

t/ha in 2013). Balman et al (2014) also report that productivity of big agri-holding farms in sunflower

seed production was on average 16% higher than in independent farms in 2010-2012, and this tendency

is increasing over time. Higher productivity figures resulted from more intensive production

technologies at agri-holdings.

Sunflower seed dominates production of oilseeds in Ukraine and its production is trending upwards

(with some short-run fluctuations). The growth is especially pronounced in the last decade by

responding to the demand from growing crushing industry. Ukraine emerged as a top sunflower oil

exporter in the world and exported 3.85 million tons of sunflower oil in 2013.

Other oilseed crops - rapeseed and soy beans have been increasing in their production volume over the

last decade. Ukrainian farmers increased the rapeseed area and increased production from a meagre of

0.1 million tons in 2000 to 2.4 million tons in 2013, with a temporary maximum at 3 million tons in 2008.

This occurred mainly as a response to the high demand for rapeseed in the EU (mainly for biodiesel

production), 1.6 million tons of rapeseed were exported to the EU in 2013.

A remarkable growth of soybean production (from 0.3 million tons in 2004 to 2.8 million tons in 2013) is

mainly the response to the recovery of the domestic livestock sector that increasingly demand rich

protein fodder, as well as to the growing world markets. Sown area of soybean increased from 0.2

million ha to 1.35 million ha over the last decade. In regional perspective Central and Southern regions

of Ukraine dominate oilseed production, with Kirovohrad oblast (Central Ukraine) being the top

producer (1.55 million tons in 2013, see Table 10).

Rape;

149

Sunflow

er; 3

050

Soya;

363

2004

Rape; 2

353

Sunflow

er; 11

037

Soya; 2

763

2013

20

Table 10 Production of oilseeds in Ukraine regions 2004–2013, 1000 tons

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ukraine 3,562 5,604 6,820 5,944 10,212 9,281 9,921 12,454 12,074 16,232

Center 1,174 2,102 2,529 2,299 3,896 3,576 3,625 4,498 4,176 5,810

Vinnytsia region 93 130 244 241 610 556 512 644 660 980

Dnipropetrovsk region 384 655 835 678 991 903 924 1,115 841 1,342

Kirovohrad region 315 619 670 540 1,026 905 991 1,232 1,146 1,545

Poltava region 237 431 464 536 674 721 704 906 834 1,085

Cherkasy region 145 267 315 303 595 492 495 597 692 853

East 798 1,111 1,346 1,425 1,871 1,777 1,748 2,374 2,273 2,642

Donetsk region 353 477 560 495 753 683 600 785 746 796

Luhansk region 217 315 379 405 478 421 387 582 564 647

Kharkiv region 229 320 408 525 641 673 761 1,007 963 1,200

North 99 187 286 398 714 719 774 1,183 1,619 2,116

Zhytomyr region 5 14 38 33 105 113 113 165 288 330

Kyiv region 54 101 139 187 316 303 314 450 563 714

Sumy region 25 45 68 117 191 176 218 346 434 609

Chernihiv region 16 27 41 60 102 127 129 222 334 463

South 1,403 2,084 2,443 1,528 3,025 2,447 3,001 3,382 2,769 4,003

AR Crimea 42 48 69 60 87 68 92 131 132 166

Zaporizhia region 472 749 831 563 896 813 832 1,049 785 1,021

Mykolayiv region 279 460 558 318 739 630 734 762 738 1,062

Odessa region 293 372 422 217 640 436 605 647 527 989

Kherson region 317 454 562 371 664 500 737 793 587 766

West 88 119 216 295 706 762 773 1,018 1,236 1,660

Volyn region 4 6 11 14 35 38 55 65 90 122

Transcarpathian region 2 2 3 3 3 4 3 5 9 12

Ivano-Frankivsk region 4 4 6 8 25 36 25 55 79 102

Lviv region 11 12 23 25 57 92 102 101 145 200

Rivne region 5 17 33 35 70 83 68 87 109 136

Ternopil region 19 26 46 65 182 179 150 175 204 288

Khmelnytsky region 24 32 70 113 275 254 275 408 485 643

Chernivtsi region 19 19 25 34 58 75 97 121 114 158

Sources: Ukrstat

Fruits and vegetables

Figure 13 Structure of fruit and vegetable production in Ukraine in 2004 and 2013, 1000 tons

Source: Ukrstat

Fruit and vegetable production is already an important element of Ukraine’s rural economy given its

high labour intensity. Fruit and vegetable production accounts for about 21.7% of the gross agricultural

output and people employed in the sector occupy approximately 25% of the jobs available in the

agricultural sector. Fruit and vegetable production significantly increased over the last decade.

Vegetable production increased from 6.9 million tons in 2004 to 9.9 million tons in 2013. The growth is

especially pronounced in tomato sector (from 1 million tons in 2004 to 2.05 million tons in 2013) in the

South of Ukraine, where farmers achieve high yields by introducing modern irrigation technologies. Next

top performer is cucumber sector, its production doubled (from 0.5 million tons to 1 million tons) over

the last decade.

The growth of fruit production is comparable to the growth of vegetable production, i.e. by about 40%

(from 1.6 million tons in 2004 to 2.3 million tons in 2013). Top individual fruits in terms of production

Tomatoes;

1 024

Cucumbers

; 575

Table beet;

687

Pepper;

128

Carrots;

675

Onions;

722

Cherries,

sour; 179Apples;

717

Other

Fruits; 740

Other

Vegetibles;

3 154

2004 Tomatoes;

2 051

Cucumbers

; 1 044

Table beet;

927

Pepper;

194

Carrots;

930Onions; 1

020

Cherries,

sour; 201Apples; 1

211

Other

Fruits; 884

Other

Vegetibles;

3 706

2013

21

volumes are apples, cherries, pears and plums. The large export potential is almost untapped in Ukraine.

But for Ukraine to tap this potential, large investments to increase the productivity and reduce the

losses in the value chain are required. Key constraints in fruit production are the fragmented markets

and supply chains with low competitiveness and export capacity, difficulties in accessing finances, and

limited awareness and capacity among producers and processors for food safety and food quality.

Responding to the constant growth of the global consumption of fruits and vegetables, Ukraine has a

real opportunity to become a leading fruit and vegetable supplier to the EU and Russia (World Bank,

2013b).

Other crops

Due to the restructuring of the sugar sector and competitive disadvantage of beet sugar vis-à-vis cane

sugar, the production of sugar beets in Ukraine decreased from 44 million tons in 1990 to 11 million

tons in 2013 (with short-run fluctuations). Potatoes are mostly produced by households and their

production volume has been relatively stable around 19 million tons over the last two decades (22

million tons in 2013).

2.4.2 Animal production Livestock sector was severely hit after the collapse of the former Soviet Union. Livestock numbers have

dropped drastically by 2000. The number of cows continues to fall, while other sectors were able to

recover, e.g. pig and poultry sectors. As the Figure 15 shows, production of meat is dominated by

households, this is especially pronounced in beef sector. Poultry sector is a success story as it recovered

quite quickly after the transition collapse and turned into export-oriented sector. Production of pork is

catching up with the poultry sector. Overall, however, Ukraine is a net importer of meat but has all

chances to become a net exporter, mainly due to the domestically abundant grains.

Figure 14 Development of livestock numbers, 1000

Source: Ukrstat

22

Figure 15 Production of meat by categories of enterprises, tons

Source: Ukrstat

Table 11 Livestock number in Ukraine 2004–2013, 1000 heads

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Cattle (total) 6,903 6,514 6,175 5,491 5,079 4,827 4,494 4,426 4,646 4,534

of which cows 3,926 3,635 3,347 3,096 2,856 2,737 2,631 2,582 2,554 2,509

Pigs (total) 6,466 7,053 8,055 7,020 6,526 7,577 7,960 7,373 7,577 7,922

of which sows 482 501 546 433 440 518 518 472 488 502

Sheep 875 872 925 1,034 1,096 1,197 1,101 1,093 1,073 1,067

of which ewes 580 610 656 751 806 873 792 751 732 727

Goats 879 757 693 645 631 636 631 646 665 669

of which she-goats 606 548 502 477 469 473 467 479 497 501

Horses 591 555 534 498 466 443 414 396 377 354

of which she-horses 231 227 222 209 201 195 184 180 175 354

Poultry 152,783 161,994 166,531 169,290 177,556 191,446 203,840 200,761 214,071 230,290

hens and cocks - 142,573 - - 158,818 172,611 183,611 181,124 195,256 209,733

geese - 8,099 - - 6,820 5,939 6,269 6,304 5,628 5,116

Rabbits 5,219 5,436 5,199 5,136 5,387 5,621 5,355 5,643 5,658 -

Bee-hives 2,980 3,369 3,456 3,422 3,250 3,151 2,922 2,891 2,936 -

Sources: Ukrstat

23

Figure 16 Structure of meat production in Ukraine in 2004 and 2013, 1000 tons

Source: Ukrstat

Pork

Pork production has been on a fragile upward trend with some short-term fluctuations (Table 12). As

Ukrainian consumers favour pork, production volume of the sector has not dropped as drastically as in

beef production. At the moment large corporate pig farms are gaining market share, while pork

production of household and peasant farms is stagnating. Regionally, in Poltava (top grain producer) and

Ternopil regions pork production increased the most, i.e. more than 3 times over the last decade. The

next top performer is Donetsk region where pork production increased 2.28 times in the same period.

Production of pork decreased only in Rivne, Kharkiv, Chernihiv, and Sumy regions (Table 12).

Table 12 Pork production in Ukraine’s regions 2004–2013, 1000 tons

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ukraine 558.8 493.7 526.1 634.7 589.9 526.5 631.2 704.4 700.8 748.3

Center - 105.2 - - 143.7 119.3 147.0 164.8 159.9 180.1

Vinnytsia region - 12.6 - - 22.7 14.2 21.1 25.5 20.1 20.8

Dnipropetrovsk region - 30.3 - - 45.8 44.8 46.9 53.2 50.4 49.3

Kirovohrad region - 19.3 - - 21.5 15.8 21.3 23.1 26.9 26.9

Poltava region - 14.4 - - 20.9 17.6 25.6 28.2 28.3 46.9

Cherkasy region - 28.6 - - 32.8 26.9 32.1 34.8 34.2 36.2

East - 72.9 - - 73.8 69.2 84.1 102.3 96.3 107.0

Donetsk region - 30.0 - - 38.0 39.2 49.4 61.1 64.7 68.3

Luhansk region - 10.7 - - 11.7 8.3 12.2 13.0 11.8 12.7

Kharkiv region - 32.2 - - 24.1 21.7 22.5 28.2 19.8 26.0

North - 95.8 - - 93.6 81.9 94.8 107.6 106.5 111.0

Zhytomyr region - 20.9 - - 17.3 19.4 21.9 24.6 24.7 26.5

Kyiv region - 39.5 - - 41.0 39.0 44.1 53.0 58.0 58.3

Sumy region - 19.8 - - 16.8 9.7 12.3 14.0 11.3 12.0

Chernihiv region - 15.6 - - 18.5 13.8 16.5 16.0 12.5 14.2

South - 81.1 - - 113.6 106.6 120.6 140.7 136.2 132.5

AR Crimea - 18.3 - - 32.2 30.1 34.3 39.7 37.3 36.6

Zaporizhia region - 19.7 - - 31.8 31.3 34.4 41.0 39.9 37.6

Mykolayiv region - 6.9 - - 8.9 5.9 7.2 10.6 11.1 9.5

Odessa region - 19.9 - - 23.3 20.8 24.4 26.1 25.6 25.0

Kherson region - 16.3 - - 17.4 18.5 20.3 23.3 22.3 23.8

West - 138.7 - - 165.2 149.5 184.7 189.0 201.9 217.7

Volyn region - 24.5 - - 35.3 31.1 38.2 35.3 33.6 35.2

Transcarpathian region - 17.9 - - 22.4 19.2 21.6 23.2 28.8 29.0

Ivano-Frankivsk region - 15.9 - - 16.0 14.6 20.7 25.4 28.7 30.3

Lviv region - 21.0 - - 21.8 24.8 31.5 29.8 32.4 39.1

Rivne region - 24.2 - - 25.1 21.1 22.0 20.6 20.7 20.9

Ternopil region - 7.2 - - 13.7 11.8 17.7 19.0 19.9 23.6

Khmelnytsky region - 17.0 - - 13.5 10.7 15.6 17.8 20.4 21.7

Chernivtsi region - 11.0 - - 17.4 16.2 17.4 17.9 17.4 17.9

Sources: Ukrstat

Beef and

veal; 618

Pork; 559

Sheep and

goat meat;

17

Poultry;

376

Other

meat; 312004

Beef and

veal; 428

Pork; 748

Sheep and

goat meat;

19

Poultry; 1

168

Other

meat; 26

2013

24

Poultry

The decline in the total meat production since 2000 has been mitigated by the impressive growth in the

large-scale poultry sector, from 0.2 million tons in 1995 up to 1.2 million tons in 2013. This was probably

triggered by the short production cycle and the corresponding investment cycle. Poultry meat can be

produced in a short period of time, with high efficiency in transforming feed grain into meat. Large agri-

holdings dominate poultry production (about 77% market share). Two of the largest agri-holdings, MHP

and Agromars, dominate the poultry meat market (MHP’s share is about 50%). Whereas, the largest

agri-holding, UkrLandFarming, dominates the egg market. Distribution of poultry production across the

regions basically reflects the availability of grains/fodder, and production of poultry is mainly located in

the Central, North and in the West of Ukraine (Table 13).

Table 13 Poultry production in Ukraine’s regions 2004–2013, 1000 tons

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ukraine 375.5 496.6 589.3 689.4 794.0 894.2 953.5 995.2 1074.7 1168.3

Center - 142.8 - - 299.6 379.8 454.1 468.1 496.0 575.6




Poltava region - 7.3 - - 7.8 10.0 8.2 5.6 10.1 7.6

Cherkasy region - 43.8 - - 143.5 203.5 273.0 274.4 270.7 262.5

East - 77.7 - - 91.8 98.3 95.1 92.4 104.6 105.8

Donetsk region - 34.0 - - 39.4 40.7 37.6 41.4 47.7 44.1

Luhansk region - 13.8 - - 22.4 22.4 20.6 23.5 24.3 25.3

Kharkiv region - 29.9 - - 30.0 35.2 36.9 27.5 32.6 36.4

North - 108.6 - - 171.7 166.9 150.3 160.5 174.2 186.4

Zhytomyr region - 3.9 - - 3.0 3.5 4.5 4.2 4.5 5.3

Kyiv region - 93.2 - - 156.2 150.6 131.5 142.6 154.4 163.7

Sumy region - 7.0 - - 6.2 6.3 9.0 8.2 9.2 9.9


South - 103.1 - - 100.4 105.9 105.8 108.6 113.0 101.4

AR Crimea - 75.5 - - 77.3 81.7 80.9 84.5 88.4 72.1



Odessa region - 7.2 - - 4.2 3.5 2.4 2.4 2.2 2.1

Kherson region - 4.3 - - 3.6 3.8 3.3 2.7 3.4 4.2

West - 64.4 - - 130.5 143.3 148.2 165.6 186.9 199.1

Volyn region - 15.4 - - 33.0 39.7 41.4 43.9 47.1 56.0



Lviv region - 16.6 - - 42.9 43.8 47.6 50.5 59.8 60.3

Rivne region - 4.9 - - 11.0 11.9 12.2 17.6 18.3 20.3

Ternopil region - 5.2 - - 6.4 5.8 5.7 6.5 7.7 8.3



Sources: Ukrstat

Beef

Beef in Ukraine is mainly produced as a by-product of dairy farming and about 75% of beef is supplied

by households (Figure 15 beef). This is very close to the share of households in the total milk supplies

(see below). Beef sector is underdeveloped in Ukraine. As beef production needs long-term

investments, limited access to long-term money has been one of the main reasons for the

underdevelopment.

25

Table 14 Beef production in Ukraine’s regions 2004–2013, 1000 tons

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ukraine 618.0 561.8 567.4 546.1 479.7 453.5 427.7 399.1 388.5 427.8

Center - 98.7 - - 92.8 89.2 84.6 76.1 74.8 87.9




Poltava region - 17.6 - - 14.4 15.7 15.5 15.7 19.1 21.9

Cherkasy region - 26.9 - - 24.8 21.4 19.5 17.8 15.4 17.5

East - 75.2 - - 51.6 49.4 47.0 43.8 43.9 48.3

Donetsk region - 21.1 - - 17.5 14.5 13.0 11.6 11.5 11.2

Luhansk region - 22.4 - - 10.0 11.4 11.3 10.1 9.3 11.1

Kharkiv region - 31.7 - - 24.1 23.5 22.7 22.1 23.1 26.0

North - 106.3 - - 74.4 69.2 66.4 62.2 62.2 70.0

Zhytomyr region - 18.9 - - 22.6 18.6 18.5 17.5 18.0 19.1

Kyiv region - 30.5 - - 16.7 14.6 15.3 13.4 13.1 16.9

Sumy region - 27.8 - - 16.9 19.0 17.2 16.6 17.7 18.7


South - 91.9 - - 88.0 79.2 77.9 70.0 66.7 68.6

AR Crimea - 19.0 - - 23.7 22.2 22.2 17.6 15.0 15.6



Odessa region - 21.2 - - 17.9 16.6 15.4 15.3 15.2 16.0

Kherson region - 17.9 - - 20.7 17.8 17.1 15.3 15.4 15.3

West - 189.7 - - 172.9 166.5 151.8 147.0 140.9 153.0

Volyn region - 17.7 - - 16.0 16.2 14.0 11.6 11.2 12.8



Lviv region - 41.3 - - 38.5 36.3 33.1 33.5 28.2 30.8

Rivne region - 16.2 - - 15.4 15.9 14.8 16.0 15.9 16.6

Ternopil region - 26.0 - - 16.6 15.9 12.4 11.6 11.8 14.4



Sources: Ukrstat

Milk production

Production of milk in Ukraine decreased from about 24.5 million tons in 1990 to nearly 11 million tons in

2013, i.e. by more than 50%. Against the background of falling dairy herd numbers (from more than 8

million cows in 1990 to 2.5 million cows in 2013), the annual milk yield per cow, however, increased

from 2.86 tons to almost 4.17 tons. This is still a very low milk yield compared with western standards.

The average productivity of a cow in Germany, for example, is in the range of 6-7 tons/year and 11-12

tons per cow in Israel. Milk productivity of large agri-holding farms in Ukraine, though, on average was

11% higher than in independent farms in 2010-2012 (Balman et al, 2014).

Milk production is dominated by households, currently they account for 80% of the total milk

production, as compared to 24% in 1990. This adds extra costs to the entire dairy value chain via

problems associated with quality, difficulty to capture economies of scale both in dairy farming and in

the upstream and downstream industries, problems to guarantee a large and stable supply of high

quality milk, seasonality of supplies, high collection costs and other transaction costs (see Nivievskyi,

2013 for details).

Domestic demand for milk is very strong due to the strong external demand for dairy products and

exportable dairy products. The falling domestic raw milk supply has been constantly increasing a

competition for raw milk among dairy processors. In fact, there is a shortage of raw milk supplies to fully

utilize the existing processing capacities. Processing capacity utilization is 60-65% (UCAB, 2012).

Since recently, the situation of decreasing raw milk supplies from households and increasing milk

supplies from dairy farms can be observed in dairy farming of Ukraine. This has happened due to the

decreasing number and aging of rural population, shrinking areas for grazing (due to the expansion of

crop areas), expensive milk collection from households and the need to ensuring high quality of milk

(UCAB, 2012). Also, consolidation of dairy farms can be observed, the number of dairy farms has been

decreasing against the background of growing herd size.

26

Table 15 Raw milk production in Ukraine’s regions 2004–2013, thousand tons

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ukraine 13,710 13,714 13,287 12,262 11,761 11,610 11,244 11,081 11,373 11,483

Center - 3,011 - - 2,717 2,757 2,699 2,701 2,776 2,824

Vinnytsia region - 849 - - 840 842 836 839 847 857

Dnipropetrovsk region - 494 - - 381 359 340 342 343 348

Kirovohrad region - 395 - - 346 347 343 332 309 322

Poltava region - 754 - - 656 718 701 725 778 785

Cherkasy region - 519 - - 494 491 479 464 499 512

East - 1,490 - - 1,179 1,158 1,091 1,076 1,128 1,141

Donetsk region - 514 - - 371 360 339 327 333 325

Luhansk region - 409 - - 319 316 284 276 282 280

Kharkiv region - 567 - - 489 481 467 473 513 537

North - 2,557 - - 2,154 2,126 2,041 2,005 2,080 2,083

Zhytomyr region - 732 - - 614 602 578 569 595 598

Kyiv region - 693 - - 506 476 451 439 476 476

Sumy region - 498 - - 455 456 431 418 427 427

Chernihiv region - 634 - - 580 592 581 578 581 582

South - 2,127 - - 1,773 1,755 1,683 1,644 1,639 1,639

AR Crimea - 347 - - 363 367 348 331 306 292

Zaporizhia region - 384 - - 304 287 262 248 258 265

Mykolayiv region - 432 - - 369 368 364 366 367 371

Odessa region - 606 - - 416 414 404 397 398 402

Kherson region - 358 - - 321 319 306 302 311 309

West - 4,531 - - 3,938 3,814 3,729 3,656 3,750 3,796

Volyn region - 551 - - 485 462 450 451 467 467

Transcarpathian region - 396 - - 394 385 392 389 401 410

Ivano-Frankivsk region - 576 - - 495 486 465 452 466 471

Lviv region - 930 - - 731 683 656 630 621 619

Rivne region - 502 - - 456 448 433 420 443 453

Ternopil region - 485 - - 424 419 417 418 460 486

Khmelnytsky region - 723 - - 625 620 608 598 595 592

Chernivtsi region - 368 - - 328 312 308 298 298 298

Sources: Ukrstat

Sheep and goats

This sector plays a marginal role in Ukraine.

2.4.3 Organic production

Official statistics on organic farming is not existent in Ukraine. According to the International Federation

of Organic Agricultural Movements, however, organic farming is growing in Ukraine and the area under

organic farming increased from 164 000 ha in 2002 to almost 279 000 ha in 2012 (see Erreur ! Source du

renvoi introuvable.). This equals approximately 0.7% of the total agricultural land in Ukraine. At the

same time, over the last decade the number of organic producers has increased more than 5 times

reaching 164 in 2012.

Formal certification of organic production was established in 2007 within a Swiss-Ukrainian project

“Organic Certification and Market Development in Ukraine”. Most of certified producers are situated in

the West and South of Ukraine (Vinnytsky, Zakarpatsky, Lvivsky, Ternopolky, Zhytomyrsky, Odesky,

Khersonsky, Poltavsky regions).

Table 16 Area under organic production and number of organic farms in Ukraine

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Area (thousand ha) 164.4 239.5 240.0 242.0 242.0 249.9 270.0 270.2 270.2 270.3 278.8

Number of certified organic

producers 31 69 70 72 80 92 118 121 142 155 164

Size of domestic market (in EUR m) - - - - - 0.5 0.6 1.2 2.4 5.1 7.9

Sources: International Federation of Organic Agricultural Movements, http://www.ifoam.org/; Organic Federation of Ukraine

The legislative framework for organic market was introduced only in 2013 with the approval of the Law

“On the production and circulation of organic agricultural products and raw materials” No 425-VII (with

amendments of the President) on the 3rd of September. The law defines the legal and economic basis

27

for the production and circulation of organic agricultural products and raw materials, control and

supervision of such activities and aims to ensure fair competition and proper functioning of the market

for organic products and raw materials, improvement of the basic health indicators of the population,

environmental protection, sustainable use of soil and other natural resources, and it also ensures

consumer confidence in products and raw materials labeled as organic.

An important achievement of the Law is the introduction of clear definition for organic products, which

helps to protect organic producers from unfair competition of those producers, who use the labels

“eco”, “bio”, “organic”, but do not meet requirements of organic standards. It is now commanded by

the law that only certified organic producers are allowed to use “organic” label, which should result in

higher trust to the “organic” label from the side of consumers.

Although the Law legally came into effect on the 9th of January, 2014, it could not be fully applied

because not all required by-laws and regulations were approved. It also contains a number of important

deficiencies, which should be corrected for the effective functioning of the organic market. Most

importantly, the process of certification and functions of different responsible bodies should be

described more clearly. Secondly, requirements for organic products should be harmonized with the

international standards as much as possible, so that transaction costs for producers are minimized.

2.5 Prices, costs and income

2.5.1 Prices

Table 17 Agricultural output price indices; nominal (previous year=100)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

CROP PRODUCTS 93.3 95.5 114.1 157.7 95.2 109.1 139.8 115.7 105.6 91.8

Grain and leguminous crops 83.8 91.8 123.2 161.5 92.5 101.9 140.3 121.4 109.1 90.8

wheat 77.6 84.3 126.9 151.2 94.5 105.1 137.2 122.8 116.3 88.3

rye 92.8 80.4 130.3 204.1 96.4 75.7 128.9 161.7 102.5 85.6

corn 90.1 78.4 150.9 161.1 86.7 117.5 146.7 109.6 110.9 79.9

barley 76.1 126.3 98.4 184.9 94.4 85.8 132.7 141.2 117.0 91.7

Oilseeds 131.2 84.6 102.2 184.6 92.9 120.1 142.6 112.2 107.5 90.8

sunflower seeds 134.3 85.0 96.0 202.3 72.0 138.7 159.1 107.4 110.1 83.7

soybean - - - 158.7 104.3 151.0 97.4 112.5 116.8 101.3

rape - - - 120.7 119.2 108.6 123.9 141.1 94.8 78.3

Sugar beet 96.5 130.3 105 84.7 138.8 188.4 115.4 107.7 82.4 92.1

Potatoes 85.4 126.8 156.1 97.2 111.5 112 164.3 95.5 47.6 146.4

Vegetables 119.2 125.6 108 120.6 115.4 99.7 143 90.9 74.1 92.8

Fruits and berries 168 133.6 146.5 111 124.9 101.7 118 131.7 92.9 96.0

ANIMALS AND LIVESTOCK PRODUCTS 134.2 129.5 88.8 115.8 147.4 101.4 114.3 109.2 108 102.4

Livestock and poultry (live weight) 144.8 134.8 89.9 102.4 158.5 102.9 104.2 110.8 111.6 95.4

cattle 159.3 135.0 90.0 110.6 160.8 92.5 108.1 128.5 103.8 85.6

pig 168.1 141.4 82.7 90.4 173.2 107.4 88.5 109.5 117.7 98.1

poultry 110.8 131.0 93.0 103.6 149.6 102.3 109.2 107.5 111.8 96.5

Milk and milk products 119.2 134.3 94.4 154.6 123.4 91.5 155.5 103.4 86.7 125.0

Eggs 123.2 105.5 76.4 142.1 137.5 107 116.3 110.2 117.4 104.8

Wool 128.5 128 95.2 95.7 127.3 74 120.7 166.8 119.3 81.5

AGRICULTURAL GOODS 105.7 108.1 102.4 138 110.3 106.4 130 113.6 106.8 97.1

Sources: Ukrstat

Global prices for agricultural commodities have been on an upward trend, but increasingly volatile.

Growing global population drives the prices up, but weather has been a primary driver of the increased

volatility. The number of reported droughts, floods and extreme temperatures seem to be increasing,

resulting in production losses in major (grain) producing regions and decreasing stocks, with an

attendant food market response.

At the same time, there are strong linkages between energy and agricultural markets due to the high-

energy content of some fertilizers, energy needs for field operations and transportation, as well as

feedstock costs for biofuel production. The same demand and supply factors that drive up agricultural

markets are also expected to increase prices for energy and fertilizers.

28

As Ukraine is tightly integrated into the world economy, these global tendencies transmit to the

domestic agricultural prices. Particularly, during 2004-2013 the strongest price increase was

demonstrated by gourds (325% rise from 0.14 to 0.59 UAH per kg), flax (318% rise from 1.27 to 5.30

UAH per kg) and fruits (307% rise from 0.74 to 3.01 UAH per kg). Among cereals, the most prominent

was increment of barley price from 0.39 to 1.45 UAH per kg (274%). Amid oilseeds, the largest was

increase in sunflower seed price from 1.15 to 2.99 UAH per kg (160%), which in turn was also followed

by the increase in sunflower seed production.

Rise in animal product prices was considerably lower than increase in the crop product prices. For

instance, cattle price increased by 147% (from 4.36 to 10.75 UAH per kg), pig price increased by 120%

(from 7.20 to 15.84 UAH per kg), and poultry price grew by 145% (from 4.97 to 12.17 UAH per kg). Ratio

between maize price (as a major feed grain) and livestock price remained roughly the same during 2004-

2013 period: 0.11 for cattle, 0.18 for pigs and 0.23 for poultry. Milk experienced the largest increase in

price among animal products; its price has risen by 303% from 0.84 to 3.36 UAH per kg. Nevertheless,

milk production has declined by 16% due to the long production cycle.

2.5.2 Costs

Crops

Table 18 Cost structure in crop production, %

2008 2009 2010 2011 2012 2013

Fixed costs 29.6 31.7 31.0 28.9 31.9 31.4

Depreciation 5.6 6.6 5.9 5.4 5.7 5.9

Rents 8.5 10.4 10.6 9.1 10.9 12.4

Labour 10.2 9.3 8.6 8.8 9.5 7.1

Other costs 5.3 5.5 5.9 5.6 5.8 6.0

Variable costs 70.4 68.3 69.0 71.1 68.1 68.6

Social events 2.5 2.8 3.1 2.9 3.5 2.6

Seeds and planting material 12.4 11.7 12.1 11.7 12.6 12.6

Other agricultural goods 0.6 0.6 0.6 0.6 1.2 0.6

Mineral fertilizers 17.6 16.9 16.1 17.2 15.5 16.1

Motor fuels and lubricants 15.1 13.2 13.3 13.9 12.1 11.8

Electricity 1.0 1.1 1.1 1.0 0.9 1.0

Other fuels and energy 1.0 1.0 0.8 1.0 1.0 1.1

Spare parts, repair 5.8 6.2 5.9 5.9 5.5 5.3

Services performed by outside organizations 14.4 14.9 16.0 17.0 15.8 17.4

Sources: Ukrstat

The share of variable costs has gradually decreased from 70.4% in 2008 to 68.6% in 2013 (Table 18)

reflecting increasing technological/capital intensity of Ukrainian agriculture. The main expenditures in

crop production are on mineral fertilizers (16.1%), seeds (12.6%), fuels and lubricants (11.8%). Share of

rent in total expenditures increased the most: from 8.5% in 2008 to 12.4% in 2013. Still rents and labour

costs have rather modest share in the total costs which reflect relatively low prices of these factors. At

the same time percentage increase in re

Animal production

Table 19 Cost structure in animal production

2008 2009 2010 2011 2012 2013

Fixed costs 21.4 20.2 17.9 17.6 17.5 17.6

Depreciation 3.9 4.2 3.9 3.6 4.1 4.4

Rents 0.1 0.1 0.0 0.1 0.0 0.0

Labour 11.8 10.7 10.0 9.7 9.2 9.0

Other costs 5.6 5.2 4.0 4.2 4.2 4.2

Variable costs 78.7 80.0 81.9 82.4 82.6 82.2

Social events 2.8 3.2 3.6 3.6 3.4 3.3

Feed 54.5 54.0 55.6 58.0 55.2 57.5

Other agricultural goods 5.1 5.4 4.6 3.3 6.5 3.3

Motor fuels and lubricants 3.6 3.1 3.1 2.9 2.8 2.8

Electricity 3.0 3.0 2.8 2.9 2.8 3.0

Other fuels and energy 1.3 1.6 1.6 2.1 2.1 2.0

Spare parts, repair 2.7 3.4 2.7 2.7 2.8 2.7

29

Services performed by outside organizations 5.7 6.3 7.9 6.9 7.0 7.6

Sources: Ukrstat

As a result of much smaller rents compared to crop production, variable costs make about 80% of the

total costs in animal production. The largest part of variable costs (57.5%) is feed, however almost half

of the feed farms produce by themselves. The share of labour costs is relatively small (9.0%).

2.5.3 Farm income

Table 20 Index of income from agricultural activities (2008=100)

2009 2010 2011 2012 2013

Crop production 1.32 1.64 2.15 2.86 2.73

Wheat 1.21 1.10 1.55 1.91 1.77

Barley 0.92 0.98 0.94 1.08 0.94

Maize 1.82 2.25 4.12 6.05 5.86

Sunflower seed 2.23 3.76 4.06 6.14 5.20

Soya 1.72 3.20 4.34 7.50 8.19

Rape seed 0.77 0.74 0.91 0.99 1.33

Potatoes 1.41 2.37 2.62 1.77 2.98

Vegetables 1.24 1.40 1.64 1.62 1.73

Animal production 1.09 1.39 1.70 1.89 2.13

Cattle 0.90 0.93 1.10 1.11 1.07

Pigs 1.24 1.35 1.80 2.01 2.26

Sheep and goats 1.21 1.69 1.58 1.78 1.56

Poultry 0.79 1.19 0.81 1.33 1.25

Milk 1.08 1.67 2.01 1.97 2.58

Eggs 1.19 1.48 1.92 2.38 2.51

Total farm income 1.26 1.57 2.03 2.60 2.57

Sources: Ukrstat

In the period 2008-2013, the farm income in Ukraine grew by 157%. Income growth was stronger in crop

production (173%) than in animal production (113%). The greatest increase in the income was

experienced in maize production (486%), sunflower seed (420%) and soybean production (719%). This

can be explained by the large demand for maize as feed and rapidly growing prices of oilseeds. Income

from growing of barley was the only to decrease in the period 2008-2013 (-6%), this correlates with the

significant decline in the output of barley. In animal production, the largest increase in the total income

was from milk (158%), egg (151%) and pork (126%) production. Increase in the income from cattle

production was only marginal (7%).

Table 21 below compares the performance of large agri-holdings vs. independent agricultural

enterprises in terms of yields, costs, and profits.

Table 21 Performance of agri-holdings vs. independent agricultural enterprises

Agri-holdings Individual enterprises

2010 2011 2012 2010 2011 2012

Winter wheat

Yield, dt/ha 30 39 35 28 34 27

Costs, UAH/t 995 976 1,321 843 909 1,287

Profit, UAH/ha 423 1502 962 630 1350 653

Profitability, % 14 39 21 27 44 19

Maize

Yield, dt/ha 48 75 61 46 67 46

Costs, UAH/t 795 732 1,043 795 746 1,146

Profit, UAH/ha 2188 5070 3038 2014 3759 1615

Profitability, % 57 92 48 55 75 31

Sunflower seeds

Yield, dt/ha 17 20 18 16 20 17

Costs, UAH/t 1 640 1814 2,298 1558 1625 2,216

Profit, UAH/ha 2409 2814 2385 2340 3200 2322

Profitability, % 86 78 58 94 98 62

Source: Balman et al (2013)

30

3. SITUATION AND DEVELOPMENT OF UPSTREAM AND

DOWNSTREAM SECTORS

3.1 Input production and use

3.1.1 Input production

Agrochemicals

Fertilizer production in Ukraine is represented by nitrogen, potassium, and phosphate fertilizers.

Ukraine produces mainly nitrogen fertilizers. In 2013, Ukraine produced 6.6 milion tons of nitrogen

fertilizers, including 64.6% of liquid (anhydrous) ammonia, 20.7% carbamide (urea) and 11.8% -

ammonia nitrate. Export of nitrogen fertilizers constituted 97.8% of all fertilizer export in 2013 and 1.8%

of the total export. Ukrainian share in the global nitrogen fertilizer market is about 10%. Ukraine sells

fertilizers to about 70 countries all over the globe (main export destinations are Brazil, Turkey, Mexico,

Vietnam and India). Urea amounts to 70% and ammonia nitrate - 18% of Ukrainian nitrogen fertilizer

exports. Share of imports in the domestic supply of nitrogen fertilizers varies from 14% (ammonia

nitrate) to 30-40% (urea, sulphate ammonia). The main supplier of nitrogen fertilizers is Russia. All

production of saltpeter, 80% of the total production of carbamide, and 75% of ammonia in Ukraine is

concentrated in one holding.

Chemical plants are traditionally situated around coke enterprises (in Eastern Ukraine) or around natural

gas processing enterprises (Western Ukraine). Ownership of plants is highly concentrated. There are six

main producers; four of them (Cherkasy “Azot”, “Stirol”, Severodonetsk “Azot”, “Rivneazot”) are owned

by the Ostche Holding, “DniproAzot” is owned by the financial-industrial group “Privat” and

Odesa Port Side Plant is still state-owned but already announced for sale.

Potassium fertilizers are mainly produced in Western Ukraine (in Kalush and Stebnyk towns) near the

large natural reservoir of potassium salts. The main producer is “Stebnytsky potassium plant”.

Potassium fertilizers are also produced by the Zaporozhye Titanium & Magnesium Combine as an

addition to their main production. According to the latest available statistics (2007-2009), Ukraine

produces on average 8.7 thousand tons of potassium fertilizers annually and the production decreases

with each year. However, the market of potassium fertilizers is heavily dominated by imports from

Belarus (97% of all imports of potassium fertilizers)

Phosphorus fertilizers are mainly imported. The main Ukrainian producers are PJSC Sumykhimprom and

PJSC Dneprovsky Plant of Chemical Fertilizers.

Production of plant protection chemicals is almost non-existent in Ukraine; about 95% of the supply is

imported from abroad.

Agricultural Machinery and Equipment

Production of agricultural machinery in Ukraine steadily declines due to the growing preference of

Ukrainian farmers towards the imported agricultural machinery. In 2013, Ukraine produced 4,325

tractors (25% less than in 2004), 68 combines (78% less than in 2004), 1,590 disk harrows (61% less than

in 2004) and 3,480 seeders (65% less than in 2004). The share of Ukrainian producers on the domestic

market equals only 10% of the sales. Imports of agricultural machinery and equipment are mainly

supplied by the USA, Germany and France. In 2013, the market shares of the main suppliers were the

following: USA – 40%, Germany – 22% and France – 7% (UCAB, 2014).

The main Ukrainian producers are “Kharkiv Tractor Plant” (Kharkiv), “SerpiMolot” (Kharkiv),

“ChervonaZirka” (Kirovograd), PA Yuzhmash (Dnipropetrovsk), LLC “Ukravtozapchastyna” (Kyiv).

Seeds

31

Ukraine’s agricultural producers have poor access to modern seed varieties. Given the deficiencies in the

Ukraine’s agricultural research system, there is an increasing need for imports. At the moment, the

market structure is the following: 50% - seeds of domestic selection, 25% - seeds of foreign selection are

produced in Ukraine, 25% - are imports. Seed market volume is estimated at about USD 1.5 billion.

Financial services

As of January 2014, 180 banks were operating in Ukraine (14% more than in 2004). Majority of them

(72%) are small banks with assets of less than 3 million UAH created to serve the needs of particular

businesses. There are 21 banks with assets of more than 21 million UAH. Foreign capital equals 34% of

the total stock capital; its share was rapidly increasing starting from 2005 (when it was 10%). During

2013, the share of foreign capital decreased by 5.5 p.p. while three foreign banks ceased to operate in

Ukraine.

Ukrainian financial system was seriously struck by the 2008-2009 financial crises and is still recovering

from it. The average UAH term deposit interest rate increased from 10.0% in the beginning of 2008 to

17.2% in the beginning of 2009. The average UAH loan interest rate increased from 13.0% to 29.0%

during the same period. Afterwards the interest rates gradually decreased. Nevertheless, in the

beginning of 2014, the average interest rates for UAH term deposits and loans where respectively 13.2%

and 17.2%. Because of high interest rates, amount of new credits loaned to enterprises has dramatically

decreased. Before 2008, the annual average increase in corporate loan portfolio was 58%, after 2008 it

is only 10%.

In 2013, loans to agricultural enterprises equaled 4.3% of the total loan portfolio (5.4% of corporate loan

portfolio). About 69% of agricultural loan portfolio consists of loans in national currency, of which 88%

are short or middle-term loans. It is expected that the amount of long-term loans will further decrease

in 2014 due to the social and economic instability in Ukraine.

3.1.2 Input use

Seeds and other genetic material

Ukraine’s agricultural producers have a poor access to modern seed varieties, especially for grains and

oilseeds. This is due to the inadequate domestic seed research and testing systems and insufficient

domestic seed production capacity, resulting in sub-optimal performance of the sector. Agricultural

productivity is strongly influenced by the genetic potential of seeds, adapted to the local agro-climatic

environment. Given the deficiencies in Ukraine’s agricultural research system, there is an increasing

need for imports. However, Ukraine employs a tedious and costly testing and registration system for

imported seed varieties, thereby increasing the transaction costs for producers. The testing and

registration of imported seed varieties could be facilitated by harmonizing the technical standards with

Ukraine’s trading partners. Private seed companies could fill the gap in the availability of adapted

technologies given a more appropriate business and regulatory environment. In particular, the

internationally accepted system of plant variety protection needs to be fully implemented in Ukraine

and effectively enforced. In addition, a comprehensive and effective varietal testing program is needed

in the major production regions, with their results widely publicized. Ukraine will also need to improve

its seed production capacity. In animal production, non-trade barriers also impede imports of new

genetic material and reduce domestic livestock productivity.

32

Fertilizers

Table 22 Fertilizers’ use in Ukraine in 2010-2013

2010 2011 2012 2013

Fertilizer use, total 1,061 1,263 1,343 1,489

N, total 775 899 928 1,041

P2O5, total 157 195 220 236

K2O, total 129 169 194 213

Fertilized area, 1000 ha total 12,614 14,152 14,593 15,342

NPK, kg of active substance per hectare of arable land 34.3 40.8 43.3 48.0

Sources: Ukrstat

Fertilizer use has increased modestly since 2001 in Ukraine. The average fertilizer application per

hectare has increased from 22 kg/ha in 2002-2007 to 48.0 kg/ha in 2013 (albeit with a significant

regional variation). This is still very low intensity level compared to the EU, where intensity levels in

Germany and France, for example, are about five times higher than in Ukraine (World Bank 2013b). Low

fertilization levels are a long-term concern because if fertilizer application rates continually stay below

the rate of nutrient extraction by crops, gradual nutrient depletion will take place and soil fertility will

decline, eventually reducing the soil’s yield potential.

Plant protection

Plant protection chemicals are widely available in Ukraine and the domestic demand is growing. The

market volume increased from USD 86 million in 2002 to USD 710 million in 2012 and is expected to

grow further. The world’s leading agro-chemical manufacturers have established representatives in

Ukraine and increasingly effective distribution systems for their products. They also offer advisory

services along with their products. Research and demonstration farms have been established by these

companies to convince farmers of the relative advantage of their products. Credit programs have been

developed in order to make these inputs available. However, the state has not yet matched these

private sector efforts with an effective regulatory system for the verification of the effectiveness and

desirability of agri-chemicals used in Ukraine.

Agricultural Machinery and Equipment

Table 23 Number of tractors in Ukraine in 2010-2013

2010 2011 2012 2013

Tractors 310,248 313,480 322,209 323,111

Agricultural enterprises 137,757 134,554 137,958 134,177

Households 172,491 178,926 184,251 188,934

Tractors per 100 hectares of arable land 1.00 1.01 1.04 1.04

Sources: Ukrstat

Demand for modern farm machinery and equipment is strong in Ukraine. Major manufacturers are

represented in the country and are growing their businesses. However, their expansion is constrained by

farmers’ limited access to finance. Ukraine’s current needs for agricultural machinery and equipment

are believed to exceed the world’s annual supply of equipment. Yet farms, especially SMEs, have

limited access to finances, thereby constraining investment in machinery. In addition, time-consuming

and costly certification and testing requirements for imported agricultural equipment, based on

technical norms developed by the Ministry of Agricultural Policy and Food, increase transaction costs

and ultimately prices for agricultural producers. Machinery imports could be facilitated by harmonizing

the technical standards with Ukraine’s trading partners. Modern equipment can also be used through

leasing arrangements or contract services. These services exist and are used in Ukraine.

33

3.2 Food industry

3.2.1 Food production

Production of food products was rapidly increasing during 2004-2007 – on average by 14% annually. Due

to the financial crisis, production of food decreased by 6% in 2008. This was followed by a period of

stagnation in 2009-2012 with annual average growth of 2.4% yoy, followed by a new wave of recession

in 2013 (-5.1% yoy).

Figure 17 demonstrates the structure of the production of food and beverage industry in Ukraine in

2013. Meat and meat products comprised 13.8% of the food and beverage sales (29.9 billion UAH), 1.5

million tons of meet were produced in 2013. There is, however, a shift in the production structure, with

increasing shares of poultry and pig meat, and declining shares of beef meat production. The structure

of the sector in 2013 was following: poultry meat – accounted for 60% of the production of meat and

meat products, prepared meat, canned meat and sausages products - 20% of the production volume,

swine meat – 15% of the production volume, cattle meat – 5% of the production volume. In 2012, there

were 58 thousands workers employed in meat and meat product sector (14% of food sector workers).

Figure 17 Sales of main food products in Ukraine in 2013, billion UAH (Sources: Ukrstat)

Processing and preserving of fish, crustaceans and mollusks is one of the smallest food industry

subsectors in Ukraine. In 2013, it accounted for only 1.1% of the total sales value of food and beverages

(2.4 billion UAH, 19.5% yoy growth). About 7 thousand workers were employed in the sector (1.8% of

food sector employment) in 2012. It remains to be seen how profound will be a negative effect of the

occupation Crimea peninsula by the Russian Federation on the sector production in 2014.

Processing and preserving of fruit and vegetables is mainly concerned with production of juices

(0.7 million tons, 9.6 billion UAH - 4.4% of the total sales of food and beverages). Canned fruits and

vegetables are only moderately popular in Ukraine because of increasing all year round availability of

more healthy fresh and frozen fruits (vegetables) and existing tradition of home-maid canned food.

Nevertheless canned products have their stable consumer base as a result of relatively small price (in

comparison to fresh products) and long shelf-life. Employment equaled 22 thousands workers (5.3% of

food sector employment) in 2012.

Vegetable oils and animal fats dominate the structure of the food and beverage industry production:

15.8% of the total sales (34.3 billion UAH) and 3.7 million tons of production, with sunflower oil being

the prevailing product (91% of the total oils and fats output). Production of sunflower oil is

characterized by natural seasonality – production is approximately the same in the first, second and

fourth quarter of the year, but significantly falls in the third quarter. As consumers care more about

Meat

and

meat

product

s; 29,9

Processing

and

preserving of

fish; 2,4

Processing

and

preserving of

fruit and

vegetables ;

9,6

Vegetable

oils and

animal fats ;

34,3

Dairy

products ;

28,3

Grain mill

products; 6,9

Bread and

bakery ; 18,1

Other food

products ;

36,0

Prepared

animal feeds

; 7,0

Beverages ;

33,2

Tobacco

products ;

11,5

34

their health, there is a downward consumption tendency for butter, cooking fats and margarine and

upward tendency for olive oil, and functional spreadable oils and fats. About 23 thousand workers were

employed in the vegetable oils and animal fats sector in 2012 (5.5% of food sector employment).

A dairy products sector is almost equivalent with meat production in terms of the sales volume, the

sector accounts for 13.1% of the total sales (28.3 billion UAH, 1.8 million tons produced) of food and

beverages. In the structure of dairy production the largest shares belong to milk and cream (30% of all

dairy products) and cheese (18%). Dairy production is a significant source of employment, in 2012 there

were 66 thousands workers (15.7% of food sector employment), as well as the significant source of

foreign exchange for the country.

Manufacture of grain mill products, starches and starch products accounts for 3.2% of the total sales

value (6.9 billion UAH, 3.0 million tons produced). Employment equaled 20 thousands workers (4.7% of

food sector employment) in 2012.

According to the official statistics, production of bread and bakery products is annually decreasing in

Ukraine: it amounted to 2.16 million tons in 2006 and decreased to 2.05 million tons in 2013. In terms of

sales value its share equals 8.4% (18.1 billion UAH) of the total sales of food and beverages. The

decrease is mainly explained with the growing bread production by small private bakeries and

supermarkets that are not included in the official bread production statistics. About 50% of breads and

bakery products are breads produced from wheat and 30% - breads from barley; other 15% are loaves

and buns, and the rest of 5% are different cookies. It is the food industry subsector with the largest

employment; in 2012 it employed 89 thousand workers or 21.4% of the total food sector employment –

the largest share in the food and beverage industry.

Share of manufacture of other food products in the total production of food and beverages equals

16.6% in the total sales value (36.0 billion UAH, 1.8 million tons produced). Two main products in this

sector are sugar (22.1% of the total sector’s sales value) and chocolate/chocolate products (42.7% of the

total sector’s sales value). Employment in the sector is the second largest in the food industry after

bakery – 67 thousands workers (16.1% of food sector employment) in 2012.

Manufacture of prepared animal feeds accounts for 3.2% of the total sales value of food and beverages

(7.0 billion UAH). About 8 thousand workers are employed in the sector (2% of food sector employment)

in 2012.

Beverages have been the second largest sub-sector of the food industry in value terms. It comprised

15.3% of the total sales value (33.2 billion UAH) of food and beverages in 2013. Alcohol drinks dominate

this subsector comprising about 56% of the sub-sector’s production volume (beer – 47% and stronger

alcohols – 8%, respectively). Non-alcohols made up approximately 44% of the sub-sector production

volume. About 95% of non-alcohols are consumed domestically and only 5% is exported and import of

non-alcoholic drinks is insignificant. In alcohol segment, about 9% of beer and 25% of vodka and 7% of

wines are exported. Import in these segments is also not significant, only in wines the import made 11%

of the output volume. About 52 thousands workers were employed in the beverages production (12.5%

of food industry production) in 2012.

Manufacture of tobacco products stands for 5.3% of the total sales value (11.5 billion UAH) of food

industry. Number of cigarettes produced decreased from 130 billion pieces to 86 billion pieces because

of financial crisis, increase in taxes, prohibition to smoke in public places, pictorial warnings on packages

and increased awareness of negative effects of smoking. It is estimated that circa 9.3 million Ukrainian

citizens smoke on average 17 cigarettes per day (IER, 2014). This corresponds to a domestic market of

58 billion cigarettes annually. Actual consumption of cigarettes in 2012 equaled 62 billion pieces. Thus

Ukrainian market is larger than any market of the EU countries except Germany, Italy and France. About

4 thousand workers are employed in the sector (0.9% of food industry employment) in 2012.

35

3.2.2 Structure of the food sector

In 2012, there were 786 enterprises producing meat and meat products in Ukraine. The largest share of

the production – 60% - belongs to poultry meat. This market is dominated by a few vertically integrated

agriholdings. The largest of them - OJSC Myronivsky Hliboproduct controlled 32% of the poultry market

in 2011, second largest – Agromars Kompleks OOO controlled 16% of the market in 2011. Together top

10 producers produced 74% of the total poultry meat in Ukraine.

As was mentioned previously, prepared meat, canned meat and sausage products account for 20% of

the total volume of meat products. Ten largest companies produced 46% of the total prepared meat

products in 2010 and 51% in 2011 – thus there is a centralization tendency in the sector. Three largest

producers are OJSC Myronivsky Hliboproduct (9% market share in 2011), Favoryt Ltd. (8% market share

in 2011) and Globynsky MK TOV (6% market share in 2011). Peak of prepared meat, canned meat and

sausage production was in 2008, when 335 thousand tons were produced. Production decreased to 272

thousand tons in 2009. Starting from 2010 a slow recovery began, in 2013 production was still below the

level of 2008 with 294 thousand tons manufactured.

Chilled processed food is an important part of everyday diet of average Ukrainian. As for today majority

of consumers do not differentiate between healthy and unhealthy (i.e. containing harmful artificial

colours, flavours and preservatives) chilled products – thus health and wellness products account for

less than 1% of the retail sales value of chilled processed food. Top companies in this subsector are all

local players with long history. They include Yatran’ Myasokombinat VAT, Kremenchukmyaso VAT,

Globynsky MK TOV and Yuvileinyy Myasokombinat TOV and are expected to hold a combined 36% value

share in 20133.

Demand for frozen processed food (in Ukraine it is first of all frozen dumplinks) is continuously rising

due to the increase in the number of entrepreneurs and office workers who do not have time for

cooking. As a result there is a tendency to switch from consumption of fresh or frozen meat, poultry or

fish to a consumption of semi-prepared frozen meat products (cutlets, steaks etc.). The leading company

in this subsector is Drygalo PP with approximately 14% market share. The company has been rapidly

expanding its product range under several brands (e.g. Drygalo, Vanka-Vstanka, Nostalgiya) and has

introduced frozen ready meals in various types. Moreover, its products are reasonably priced and have

good distribution4.

Cattle and swine meat production is less centralized than production of poultry and prepared meat

products. Two largest companies (Globynsky MK TOV and APK-INVEST LLC) both produced 7% of the

total output in 2011. Top 10 companies produced 29% of the total output of cattle and swine meat in

Ukraine in 2011. Their share in the total natural output has increased by 4% compared to the previous

year.

In total 438 companies were producing vegetable oils and animal fats in 2012. Among them the

prominent place belongs to sunflower oil producers. Two largest sunflower oil producers are Kernell

Holding S.A. (main plant Prykolotnyansky OEZ OAO) with 7% of the total retail sales value of sunflower

oils and Bunge International (main plant Dnipropetrovsky OEZ ZAT) with 10% of the total retail sales

value in 20135. The most successful brands of these companies are Chumak and Stozhar (Kernell) and

Oleina (Bunge). Contrary to other sectors, the share of ten largest producers in the total output

decreased from 61% to 56% in 2010-2011.

In 2012, there were 417 companies in Ukraine producing dairy products. As was mentioned before, the

largest dairy subsector is production of milk and cream. Top 10 companies produced one third of all

domestic milk in 2010, and their share continues to grow. Lustdorf TOV is set to lead the drinking milk

3 http://www.euromonitor.com/chilled-processed-food-in-ukraine/report

4 http://www.euromonitor.com/frozen-processed-food-in-ukraine/report

5 http://www.euromonitor.com/oils-and-fats-in-ukraine/report

36

product segment with 26% share of the retail value sales in 2013, followed by Unimilk TOV (14%)6. Both

companies own a large number of milk processing plants and collaborate with the largest retailers.

Ukraine has a well-developed culture of cheese consumption. Consumption of cheese is moderately

increasing due to the growing popularity of foreign cuisines (Italian and French among others) and

educational efforts of producers (printing recipes on cheese packages and launching dedicated

websites). The main cheese market players - Shostkynsky Miskmolkombinat VAT, Dniprorudnensky

Syrorobny Kombinat VAT, Pyryatynsky Syrzavod KP, Mensky Syr VAT, each held approximately 5-6%

retail value share in cheese segment in 2013. These producers benefit from a large demand for low-

price cheese and a high penetration of unpackaged cheese (many supermarkets stock a wide range of

unbranded packaged cheese cut from much larger blocks of cheese and sold by weight)7.

3.2.3 Prices, costs and performance indicators Prices of main food products, beverages and tobacco products have been on an upward trend in Ukraine

(Figure 18). On average prices were annually increasing by 14.2% in 2007-2013. Prices increased

uniformly among all food categories with the exception of dairy products and sugar that accelerated

their growth since 2008. It was caused by the global dairy price developments coupled with the shortage

of raw milk supplies for processing. Sugar prices decreased by 20% in 2011, driven by the oversupply of

sugar on the domestic market.

Figure 18 Price index of main food products in 2007-2013, % (2006=100%) (Source: Ukrstat)

In the period 2004-2011, labour productivity in Ukrainian food and beverages industries increased by

21.1%, labour productivity in tobacco production increased by 14.2%. Total factor productivity also

increased by 14.7% in food and beverages production and by 4.2% in tobacco production in Ukraine

during the same period.

Gross agricultural profit in Ukrainian food industry is highly volatile and differs greatly between industry

sectors (see Table 24). For instance, meat and dairy sectors were among the industries with the largest

gross profit in 2012. However, two consecutive years before 2012 dairy sector had a negative gross

profit and meat sector had a negative profit in 2010. Losses were mainly caused by two factors: large

number of small and medium enterprises in the industry (which have limited access to financial

resources and are more vulnerable to downward economic shifts) and tax evasion schemes which are

used to hide real value of profits.

6http://www.euromonitor.com/drinking-milk-products-in-ukraine/report

7 http://www.euromonitor.com/cheese-in-ukraine/report

37

Table 24 Gross operating profits in 2010-2012, million UAH

2010 2011 2012

Manufacture of food products 1,711 1,145 5,820

Processing and preserving of meat and production of meat products -165 677 1,313

Processing and preserving of fish, crustaceans and mollusks -69 -59 -20

Processing and preserving of fruit and vegetables -33 39 74

Manufacture of vegetable and animal oils and fats 504 606 816

Manufacture of dairy products -860 -488 1,285

Manufacture of grain mill products, starches and starch products 126 -548 -58

Manufacture of bakery and farinaceous products 286 101 -121

Manufacture of other food products 1,819 845 2,466

Manufacture of prepared animal feeds 103 -28 65

Manufacture of beverages 921 1,283 2,343

Manufacture of tobacco products 2,267 2,344.4 2,257.9

Sources: Ukrstat

3.2.4 Food law

Ukraine’s sanitary and phytosanitary control system is complicated and characterized by fragmented

supervisory agencies, significant bureaucracy, corruption, burden for the private sector, but low

effectiveness in terms of protecting the health of people, animals and plants. Ukraine continues to use

sanitary and phytosanitary regulations which are not largely WTO compliant.

Overall, the main characteristics of Ukrainian food safety regulatory system include (see World Bank,

2013a):

• Fragmented and contradictory primary and secondary legislation. Outdated overly-prescriptive

mandatory product-focused standards (GOST and DSTU)8 dating back from the Soviet era, and other

requirements which add up to 2,352 standards to produce 48 strictly-regulated dairy products. For

example, on average, a typical dairy value chain (“from farm to fork”) needs to: comply on average

with up to 161 food safety related permits, authorizations, and other regulatory requirements;

comply with a minimum average of 49 mandatory product standards (GOST and DSTU) for each

dairy product; comply with a minimum of 52 orders and mandatory guidelines from the Ministry of

Health and other supervision agencies for each dairy product; comply with a total of 112 prescribed

testing methods, in spite of the fact that 63% of them are not in line with international best

practices; and receive repeated and overlapping inspections from several different inspecting

agencies. As long as Ukraine continues to subject quality specifications to regulatory control,

producers have little flexibility to respond to changing consumer preferences, thereby experiencing

critical constraints in market access and in building their export competitiveness.

• Little appropriate communication or coordination between food safety government agencies,

resulting in scattered and overlapping competencies, redundant inspections, and overall inefficient

control. Overall, there are around 25 different regulatory agencies that are directly or indirectly

involved in ensuring compliance with food safety regulations by businesses. The State Committee of

Ukraine for Technical Regulation and Consumer Policy (DSSU), the State Committee for Veterinary

Medicine of Ukraine (VET), and the Sanitary Service of Ukraine (SES) together are responsible for

72% of the total administrative burden incurred by businesses in complying with food safety

8 GOST (Gosudarstvennyi Standard – State Standard) is a pre-1991 standard used in the former Soviet Union and

refers to a set of technical standards maintained by the Euro-Asian Council for Standardization, Metrology and

Certification (EASC), a regional standards organization operating under the auspices of the Commonwealth of

Independent States (CIS). DSTU (Derzhavniy Standart Ukrainy – State Standard of Ukraine) is the official standard

that is being developed and used in Ukraine since its independence.

38

regulations. More specifically, DSSU accounts for 33% of the overall burden, while VET accounts for

21% and SES for 18%.

• Safety control is based mainly on pervasive sample collection, compulsory certification, and

frequent on-site inspections (on average 12 inspections for a total duration of 28 working days for

one company), instead of a comprehensive and robust risk-based control system of production

process (such as Hazard Analysis and Critical Control Points [HACCP]). The current system of controls

is not aligned with EU directives nor is it recognized in export markets. Therefore only about 11% of

food processing companies have an internationally-recognized quality certification, in spite of the

heavy compliance burdens imposed by the domestic controls system.

• Laboratory services (testing) are a core element of a country's food safety related quality assurance

system. Although many of the most critical labs are accredited according to Ukrainian standards,

accreditation by an international accreditation body is rare and the option of accreditation by an

internationally recognized national accreditation body does not yet exist. Many laboratories

therefore undertake testing which does not conform to international standards and even if they do,

the results are not internationally recognized.

• Lack of traceability. The absence of a well-functioning traceability system does not enable prompt

recall of unsafe products, nor identification and sanctioning of non-compliant producers for alleged

food safety violations.

Total compliance costs of the sanitary control system amount to between 2.6% and 4.9% of annual

turnover (in dairy sector), depending on the sector (Nivievskyi, 2013).

As far as phytosanitary measures are concerned, the main characteristics of Ukrainian measures is non-

compliance with risk assessment criteria required by the WTO. Domestic and export trade suffers the

most. Phytosanitary regulatory regime contains very high risk of corruption. The burden of the

phytosanitary measures for private sector is 7.5 higher in Ukraine than in the EU (IFC, 2014).

3.3 Bioenergy production

Bioenergy sector is still developing relatively slowly in Ukraine compared to the EU countries. The share

of biomass in the gross final energy consumption of Ukraine is 1.78%, while in the EU-27 it is on the

average at 8.39% and in a number of countries even much higher (Geletukha et. al., 2014). Table 25

shows that the annual use of biomass for energy production is about 2 Mtce9 and 80% of this is

represented by wood biomass. At the same time, theoretical biomass potential estimated by the

Ukrainian bioenergy association is at the level of 20-25 Mtce/yr (2013 data), including about 11 Mtce/yr

from agricultural waste (straw, maize stalks, sunflower stalks etc.) and more than 10 Mtce/yr from

energy crops (Geletukha et. al., 2014). Hence, Ukraine is currently using only about 8-10% of its available

biomass potential.

9 Mtce - million tons of coalequivalent.

39

Table 25 Consumption of biomass and biofuels in Ukraine (2012)

Annual consumption* Share in the annual

consumption, % natural units ktce10

Straw of grain crops and rape 84 kt11

43 2.0

Firewood (population) 1.7 million m3 413 19.0

Wood biomass (apart from consumption by population) 3.8 Mt 1296 59.6

Sunflower husk 627 kt 343 15.8

Bioethanol 52 kt 48 2.2

Biodiesel ~0 ~0 ~0

Biogas from agricultural waste 20 million m3 12 0.6

Landfill gas 26 million m3 18 0.8

Total - 2173 100

Sources: (Geletukha et. al., 2014)

* Consumption for energy production in Ukraine. Export of biomass pellets/briquettes is not taken into account.

The main reason to a huge gap between the current level of biomass production and its potential is due

to the direct subsidies to conventional energy sources, government support to below-market energy

prices for households, and relatively week environmental legislation. Considering that significant

increase of energy prices was always a highly unpopular decision, Ukrainian politicians decided to

concentrate on “green” tariffs and tax preferences to support the development of renewable energy in

Ukraine. Although new Cabinet of Ministers took first important steps12 to increase energy prices for

population, there is still a long pathway towards complete elimination of cross-subsidisation of

households by industrial consumers and the distortions on the energy market.

The government of Ukraine introduced13 a special “green” tariff for producers of electricity from

renewable sources in 2008. National Electricity Regulatory Commission approves “green” tariffs on case-

by-case basis, which are defined by multiplying retail electricity tariff (for 2nd class of consumers) by

“green” coefficient for particular type of energy and by peak time coefficient (if applicable). Minimal

value of the “green” tariff is guaranteed and it is also linked to the EUR exchange rate to protect

investments from currency depreciation14. It is envisioned by the legislation that “green” tariffs for new

plants or considerably reconstructed old plants will be reduced by 10% after 2014, by 20% after 2020

and by 30% after 2024 and completely phased-out by 2030. Initially, the Law of Ukraine “On Electric

Power Industry” No 575/9715defined “biomass” as products which are partially or fully composed from

substances of plant origin. Notably, biogas and municipal waste were not considered as eligible for

“green” tariff, which created certain barriers for investments. Since 1st of April, 2013, a new definition

of the “biomass”16 came into effect, which corrected old problems but introduced new ones. In

particular, it is now covers biogas and municipal waste. However, it incorporates only waste and

residues (not products) from agriculture, forestry and fishery. Thus, a number of widely-used materials

and products (e.g., maize silage, wood chips, etc.) are excluded, which impedes investments to a wide

range of biomass-to-energy projects. An important limitation is also a local component requirement

(i.e., certain percentage of equipment and work in the total value of the project should be of Ukrainian

origin) for renewable energy projects to be eligible for “green” tariff. This requirement is especially

problematic for biomass projects as necessary equipment is not produced in Ukraine. Moreover,

business representatives17 argue that 2.3 “green” tariff coefficient for bioenergy projects is too low to

10 ktce – thousand tons of coalequivalent. 11 kt - thousand tons. 12Resolution of the Cabinet of Ministers(№ 81 as of 25th of March, 2014, http://zakon4.rada.gov.ua/laws/show/81-2014-

%D0%BF)envisionsstepwiseincrease of gas and heattariffs in the next 3 years.Electricityprices for householdswereincreased by 10-40%

(Resolution of the National EnergyRegulation Commission№ 749 as of 23rd of May, 2014, http://www.nerc.gov.ua/?id=11057)since of 1st of

June. 13The Law of Ukraine “On amendingsomelaws of Ukraine to establishment of “green” tariff”№601-VI as of 25th of September, 2008.

http://zakon1.rada.gov.ua/laws/show/601-17 14

Minimal value of the “green”tariff for biomass-based projects equals 0.12 EUR/kWh 0.05 EUR/kWh =(retail

electricity price for 2nd

class consumers)*2.3 (“green” coefficient for biomass). 15

http://www.youtube.com/watch?v=3wkuqRFXNvI 16

Law No. 5485-VI“On amendments to the Law of Ukraine “On Electric Power Industry” (promoting electricity

production from renewable energy sources). 17

Bioenergy Association of Ukraine

40

guarantee acceptable for investors pay-back period and should be increased to 2.7 for plants using solid

biomass, to 3.0 for biogas projects based on agricultural materials, and to 2.7 for biogas projects of

other types (landfills, waste water treatment systems, etc.).

Other support mechanisms theoretically available for renewable energy producers (REPs) are fiscal

incentives and preferential regime of connection to electricity grid. Tax preferences include the

following incentives:

(1) Exemption from VAT and excise duties for the import of equipment for renewable energy

production (which is not produced in Ukraine and should be specified in the list approved by the

government of Ukraine);

(2) REPs are exempted from paying a special surcharge on energy production (3% from produced

electricity);

(3) REPs are exempted from paying a corporate profit tax (energy should be produced only from

renewable sources and this should be the main income of the company) until 1st of January, 2021;

(4) Reduction of the land tax by 75% for the lands used for renewable energy facilities;

(5) REPs are subject to smaller land rent on state and municipal lands.

REPs are guaranteed the rights to connection to power grids. Grid connection costs are partially funded

via funds provided by the electricity transmissions tariffs and the remaining 50% is repayable financial

assistance up to 10 years (IFC, 2013). However, these state support mechanisms for the facilitation of

energy production from renewable sources and biomass are not sufficiently effective (for biomass in

particular) because of bureaucracy and corruption.

3.4 Food retail and consumption patterns

3.4.1 Food retail sector

Retail food sector has been quickly growing over the last decade, with some slight short-run decline

during the financial crisis. The annual retail turnover of food products has increased from 304 UAH per

capita (7.7 billion UAH) in 2000 to 3909 UAH per capita (147.8 billion UAH) in 2013 (see Figure 19). The

share of food sales in the total retail sales has remained fairly constant – 41.6% in 2005, 41.1% in 2013.

Figure 19 Per capita food and nonfood products sales in Ukraine in 2005-2013, 1000 USD

Source: Ukrstat

There is a considerable difference between sales in the regions of Ukraine. Sales are the largest in Kyiv

city – 11.2 thousand UAH per capita. This is caused by the higher salaries and the greater demand for

41

labour in the capital city. Kyiv is followed by Dnipropetrovsk oblast (5.1 thousand UAH per capita) which

is a large industrial center in the Central Ukraine and Odesa oblast (5.0 thousand UAH per capita) – large

export-import center and tourist-oriented region. Sales are the lowest in agricultural regions (1.8

thousand UAH per capita in Khmelnytskyi and Vinnytsia oblast) where average salaries are lower and

people are more likely to have gardens. Retail take place via: i) super- and hypermarkets, ii) chain

convenience stores, iii) kiosks and petrol stations, iv) traditional outlets – independent grocery stores

and open air markets. The floor space of retailers has increased by 4-7% annually.

Despite growing number of supermarkets, traditional groceries and open-air markets remain to be

popular retail outlets. Some are operating successfully in distant small districts of large cities and small

provincial towns and villages, where the construction of supermarkets or modern chain stores is not

viable. In Kyiv that captures approximately 1/5 of the food products market and where 1/6 of the

country’s hypermarkets and supermarkets are located, open-air markets sales account for between 30-

35% of prepared food and 70-80% of fresh meat. Open-air outlets account for 22% of the national retail

sales, while soviet style stores account for 10-15% (USDA, 2012). Also, open-markets are leading sellers

of vegetables, fruits, meat, honey and dried fruits. At the same time, sales of dairy products, sunflower

oil, and alcoholic drinks are gradually moving from open markets to outlets of other types. These

traditional stores, however, are likely to be quickly replaced by the chain grocery stores (300 - 500

square meters), which are gaining more and more weight. The overwhelming majority of these stores

(except small ones with 150-200 square meter floor space) procure products through wholesale

companies. Smaller stores buy products in Cash&Carry stores or from large wholesale open-air markets.

Super- and hypermarkets’ share in the retail food sales has been expanding and is estimated at about

40-50%.

Table 26 shows the top super- and hypermarkets chains. The average floor space of a Ukrainian

supermarket grew from 822 square meters in 2005 to 1200 square meters in 2009. Traditional retailers

are losing their clientele due to new and improved services that are provided by large retailers. Key

success factors of supermarkets are: higher quality, attractive prices through better logistics and

substantial discounts, comfortable shopping conditions, and additional services.

Kiosks (usually 8-25 square meters) survived at road intersections, bus stops, underground stations, near

open-air markets, in bedroom communities, and in rural areas. Kiosks are becoming more specialized;

for example, producers of meat and bakery products have opened kiosks to sell their own products near

public transportation stops. Another possibility with rapidly growing prospects and increasing retail sales

is petrol stations. Approximately 10-15% of all Ukrainian petrol stations sell packaged food. At the

moment the petrol station stores account for 1-2% of all food stores in Ukraine.

Chain convenience grocery stores have been gaining the share in food retail. This partly reflects the food

chain strategies to changing consumer after-crisis behaviour. Chains scaled down and increasing rely on

smaller formats to recapture market share. Small mini markets and “shop near home” became

predominate formats. Retailers believe that smaller stores allow for retail industry growth in the

turbulent post-crisis market environment. The Fozzy Group is developing a network of Fora and Bumi-

market grocery stores. The Rainford group also has a network of 32 “convenience stores.” Their

competitor in the Dnipropetrivsk region (ATB Corporation) has a network of 372 stores. Usually

groceries are located in suburbs, offer a narrow product range and have limited floor space. These new

groceries are quickly replacing the Soviet-style food stores. The average floor space varies from 300 to

500 square meters. Stock lists include an average of 1,500 to 3,500 items. Grocery outlets became

rather popular among pension-age consumers who prefer to shop close to home. These outlets also

target consumers with below average incomes and who generally purchase goods daily. These products

tend to have a short shelf life (bread, dairy products, fruits and vegetables, etc.). Market analysts note

that convenience stores lack regular customers and their market share is small. Nevertheless, grocery

stores are very successful in small Ukrainian towns (USDA, 2012).

42

Table 26 Top 7 hypermarkets and supermarkets chains in Ukraine (rating from larger to smaller chain)

Retailer name/outlet

type

Owner/turnover Total store area, 1000

sq m

Number of outlets in

2012

Location

Silpo Fozzy Group ($2.6

billion in 2011) 362.2

206 Nation-wide

Fozzy, C&C 5 Nation-wide

Metro Metro Cash and Carry

(Metro AG Germany) 227 27 Nation-wide

Real 37.1 4

Furchet Furchet LLC 184.3 117 Nation-wide

Velyka kychenia Retail Group Holding 113.2 43 Nation-wide

Tavria-V, Kosmos Tavria-V LLC 105 34 Southern/Central

Ukraine

Auchan Auchan Ukraine 85 8 Nation-wide

Eco-Market Bayadera Ltd 81.7 82 Nation-wide

Source: USDA (2012)

3.4.2 Consumption

On average Ukrainian households spend about 50% of their incomes on food and drinks, excluding

alcohol and tobacco products. Including alcohol and tobacco products this share increases to almost

54%.

Food consumption patterns in Ukraine have been following the world patterns. As the income of

population grows, more protein rich products tend to replace the staple food. For example, according to

the State Statistics Committee of Ukraine, per capita consumption of meat and meat products increased

from 33 kg per person (per year) in 2000 to about 56 kg in 2013, while consumption of bread and bakery

products has decreased from 125 to 108 kg per person over the same period (Table 27). Moreover,

there have been shifts in consumers’ preferences toward poultry. Poultry (as it is cheaper and often

considered as healthier) has been gradually replacing beef and pork in the diets of Ukrainians. Financial

crisis accelerated this shift. The majority of Ukrainians are not ready to pay a premium price for beef

from beef cattle. In addition, consumers prefer purchasing fresh meat (animals slaughtered the day

before sale) that they purchase in open-air markets and chilled beef sold in supermarkets. No frozen

meat is usually available for sale in retail chains.

Table 27 Food consumption per capita in Ukraine, kg /year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Grains 125.6 123.5 119.5 115.9 115.4 111.7 111.3 110.4 109.4 108.4

Vegetables 115.4 120.2 126.7 118.4 129.2 137.1 143.5 162.8 163.4 163.3

Potatoes 141.4 135.6 133.6 130.4 131.8 133.0 128.9 139.3 140.2 135.4

Fruits 33.9 37.1 34.8 42.1 43.5 45.6 48.0 52.6 53.3 56.3

Bread products 125.6 123.5 115.9 115.4 111.7 111.3 111.3 110.4 109.4 108.4

Sugar 38.4 38.1 39.5 40.0 40.9 37.9 37.1 38.5 37.6 37.1

Vegetable oil 13.0 13.5 13.6 14.3 15.0 15.4 14.8 13.7 13.0 13.3

Meat and meat products 38.5 39.1 42.0 45.7 50.6 49.7 52.0 51.2 54.4 56.1

Beef & veal, - - - 11.6 10.5 9.6 9.8 9.1 8.5 9.2

Pig meat - - - 15.4 17.7 16.1 18.0 18.6 21.1 21.5

Poultry - - - 17.7 21.5 23.0 23.2 22.5 23.8 24.4

Milk and milk products 226.0 225.6 234.7 224.6 213.8 212.4 206.4 204.9 214.9 220.9

Eggs (pcs) 220.0 238.0 251.0 252.0 260.0 272.0 290.0 310.0 307.0 309.0

Fish and fish products 12.3 14.4 14.1 15.3 17.5 15.1 14.5 13.4 13.6 14.6

Source: Ukrstat

Per capita consumption of milk and milk products decreased from 226 to 205 kg over 2005-2011.

Consumption of hard cheese was replaced by spread cheese; consumption of yogurts was replaced by

cheaper traditional sour milk products. In 2012 and 2013, consumption of milk and milk products rapidly

43

increased by 8% to 221 kg per capita. This may be caused by the trade war with Russia in 2012 when a

range of Ukrainian producers were banned from Russian market and resulting decrease in domestic

price from 3.04 to 2.66 UAH per kg. Despite a significant contraction of premium market segment,

imports of high quality cheese (mainly from the EU countries) continue. Imported cheese remains

significantly more expensive than domestic competitors at the top segment, but has by far superior

quality. Imports of cheese and other milk products are expected to increase in the next 7 years as a

result of 4-8% decrease in prices – consequence of Deep and Comprehensive Free Trade Area (DCFTA)

implementation.

Per capita consumption of fish has almost doubled from 8 kg in 2000 to 15 kg in 2013. Another positive

development is a strong growth in consumption of vegetables from 101 kg in 2000 to 163 kg in 2013.

Consumption of bread and bread products, on the contrary, has decreased from 124 kg in 2000 to 108

kg in 2013. Interesting tendency is that vegetable fats have been gradually replacing animal fats, the

consumption of vegetable oil jumped from 9 kg in 2000 to 15 kg in 2009, after it gradually decreased to

13 kg in 2013.

44

4. AGRI-FOOD TRADE AND TRADE RELATIONS 4.1 Agri-food trade

4.1.1 Overall agri-food trade

During 2004-2013, the value of agri-food export increased by 4.2 times, value of import increased by 3.1

times. Their share in the total export (import) increased from 9.8% to 26.3% (from 6.4% to 9.9%) in the

same period. Since 2009, the average annual growth for export was 17.8% and 12.5% for import.

Agricultural trade balance has always been positive in Ukraine it equaled 9.1 billion USD in 2013 (Figure

20).

Figure 20 Agricultural trade in Ukraine in 2004-2013, billion

USD

Sources: DESA/UNSD, United Nations Comtrade database

Figure 21 Top agricultural export products in Ukraine in

2004-2013, billion USD

Source: DESA/UNSD, United Nations Comtrade database

Figure 22 Top agricultural import products in in Ukraine

2004-2013, billion USD


Ukrainian agri-food export is dominated by raw products and their share is constantly increasing. For

instance, the share of cereals in the total export increased from 26% in 2004 to 38% in 2013; the share

of oil seeds increased from 5% to 12%. At the same time, the share of prepared meat and fish products

decreased from 0.8% to 0.4%. Vegetable oils are the only processed good among the top three exported

agri-food goods: its share increased from 17% in 2004 to 21% in 2013.

Ukrainian agri-food import is much more diversified than export. Edible fruits and nuts are the largest

imported group and held 16.4% of all agri-food import in 2013. Other significant imported goods are fish

45

and mollusks (11.4%), tea, coffee or mate products (8.7%), meat (8.3%), cocoa products (6.1%) and

tobacco products (6.0%).

4.1.2 Agri-food trade by trading partner In 2013, Ukraine exported to the EU agri-food goods worth of 4.5 billion USD. Over the last ten years the value of Ukrainian

agri-food export to the EU has increased by 5.9 times, however the share of the EU countries in the total agri-food export

remained fairly constant – 24% in 2004, 27% in 2013. Ukraine exports to the EU mostly raw products (cereals – 39% of the

total agri-food export to the EU; oilseeds – 28%) or products with low value added (vegetable oils, animal fats – 11%; food

industry wastes, animal fodder – 11%). Spain was the largest export recipient in 2013 – it imported 17.0% of Ukrainian agri-

food exports. Maize accounted for 69% of this export, 13.7% was sunflower oil and 6.7% soya beans. Other large EU

importers were Netherlands (15.5% of export to the EU), Italy (13.4%) and Poland (11.8%), see

Figure 23. They were mainly importing maize, rapeseed and sunflower oil. France is notable as the

world’s largest consumer of Ukrainian rapeseed; it imports 23% of the total Ukrainian rapeseed export.

Figure 23 Geographical structure of agri-food exports of

Ukraine, 2013


Figure 24 Geographical structure of agri-food imports of

Ukraine, 2013


Six CIS countries and Georgia received from Ukraine agri-food exports worth of 3.6 billion USD in 2013.

Value of Ukrainian agri-food export to the CIS and Georgia has increased by 2.3 times in the period

2004-2013, although the share of these countries in the total agri-food exports has fallen from 49.4% to

21.6%. Russia remains the main agri-food partner of Ukraine among the CIS countries; however its share

in the total agri-food export has dramatically decreased from 35.4% in 2004 to 11.8% in 2013. Such a

rapid change is due to the political tension between two countries and resulting trade restrictions

mainly from the Russia’s side18. Nevertheless Russia remains the largest consumer of Ukrainian food

products. In 2013, it imported 74% of the total Ukrainian meat/fish food products export, 60% of cocoa

products export, 56% of beverages export, 55% of dairy products export, 46% of meat export and 46%

of vegetables export (Figure 23). All other CIS countries and Georgia accounted for 9.9% of Ukrainian

agri-food export in 2013 – almost the same as in 2004 (14.1%). Interesting detail is that the trade with

Belarus – the second largest CIS consumer of Ukrainian agri-food export - remained virtually the same:

3.5% of agri-food export in 2004 and 3.0% in 2013 despite the fact that Russia and Belarus are both

members of the Custom Union and should implement unified trade policy.

Apart from the EU and CIS countries, important trade partners of Ukraine are Arabian countries of

Middle East and North Africa which consume a large share of Ukrainian cereals export (for instance

18

ban of Ukrainian meat in 2006, meat and dairy products in 2010, confectionery, dairy products and meat in

2011, confectionery in 2013

46

Egypt imported 24.8% of Ukrainian wheat export), and India which is the largest importer of Ukrainian

sunflower oil (32.5%).

Together EU countries account for 40.6% of the total agri-food import to Ukraine (Figure 24). The four

largest exporters to Ukraine are Germany (8.3% of the total Ukraine’s agri-food import), Poland (6.1%),

France (3.8%), Netherlands (3.3%) and Italy (3.1%). Germany specializes in extracts of tea, coffee, mate

(13.1% of German agri-food export to Ukraine, largest supplier to Ukraine), ice-cream (8.7%) and meat

(swine – 10% and poultry- 4.8%). Poland exports to Ukraine apples (14.4% of Polish agri-food export to

Ukraine), animal feed (9.3%) and pig fat (9.1%). France is the large supplier of maize (23.9% of France’s

agri-food export to Ukraine), oil-cakes (12.3%), sunflower seeds (8.6%) and wine (8.0%). Italy exports

mostly wine and citrus fruits. Spain is also important supplier of citrus fruits – 12.2% of all citrus import.

CIS countries and Georgia account for 15.4% of the total agri-food imports to Ukraine of which 71.5%

are imports from Russia. The share of imports from the Russian Federation in Ukrainian agri-food

import has decreased from 15.0% in 2004 to 11.0% in 2013. As of 2013 Russian import consisted of

cocoa products (14.5% of agri-food import from Russia), manufactured tobacco other than cigarettes

(6.8%) and animal feed preparations (5.9%). Main imported goods from other CIS countries and Georgia

are beverages (50.2% of agri-food imports from these countries), fruits (16.9%) and dairy products

(12.5%).

Other important agri-food importers are Brazil (the main pig meat importer), Iceland, Norway and the

USA (all three are large fish importers), and Turkey with Egypt (fruit importers).

4.1.3 Agri-food trade by products

Over last five years export of cereals has increased from 3.6 to 6.8 billion USD. Steady annual growth of

exports was interrupted only in 2010 when government implemented export prohibition. Luckily it was

lifted the next year and resulted to a signing of Memorandum between the government and exporters

in which they negotiated affordable amount of export.

Ukraine is the largest producer of sunflower oil in the World. Its share has been about 24% for the last

three years. Sunflower oil industry is predominantly export-oriented, exporting above 90% of the

produced sunflower oil abroad. This makes Ukraine the leading sunflower oil exporter in the world. As

was mentioned before the main buyer of Ukrainian oil is India (32.5% of Ukrainian sunflower oil export).

The main competitor is Russia which has been competing against Ukrainian product with USD 10-20

lower prices (USDA 2014a).

As a consequence of increasing export of sunflower oil, Ukraine’s export of sunflower seed is constantly

diminishing due to the attractiveness of domestic market: export has fallen from 98 million USD in 2004

to 49 million USD in 2013. Turkey is the main consumer of Ukrainian sunflower – in 2013 it imported

50.4% of the total sunflower export.

Cheese is the main product of Ukrainian dairy export (52.3% of dairy export) and 86% of it was destined

to Russia. The exported amount was gradually falling over last ten years as a result of competition from

European producers. It is expected that cheese export will considerably fall in the near future due to the

2014 prohibition of Ukrainian cheese export to Russia. Ukrainian producers are unlikely to find new

markets but still will be able shift to skimmed milk powder and butter exports and thus minimize their

loses (USDA 2014b).

47

Figure 25 Development of main Ukrainian agri-food exports

in 2004-2013, million USD


Figure 26 Development of main Ukrainian agri-food imports

in 2004-2013, million USD


Implementation of the DCFTA with the EU is expected to be a main factor determining the changes in

Ukrainian agri-food trade in the near future. In particular it is assumed that Ukrainian agri-food export

to the EU will increase by 18-20% in the next ten years. In particular, elimination of EU import tariffs

should lead to 38.0% increase in the export of meat to the EU, 14.4% increase in milk export and 46.5%

increase in cereals export (Ryzhenkov et al, 2013).

On the import side, implementation of DCFTA with the European Union should lead to 4-8% increase in

import from the EU. Ukraine will lift its trade barriers slower than the EU, thus a full effect of DCFTA for

import from the EU will be perceptible not sooner than 2019. Nevertheless it is expected that import of

beverages will increase by 29.5%, import of meat by 14.0%, vegetable oils and animal fats by 12.0%

(Ryzhenkov et al, 2013).

4.2 Trade policy and infrastructures

4.2.1 Measures directly affecting trade imports and exports

Overall, Ukraine’s agricultural trade policy framework is functioning in a way that exportable agricultural

products tend to be taxed, while importable ones tend to receive support. World Bank (2013b)

illustrates that poultry, pork, beef and sugar have emerged as the sub-sectors receiving the largest state

support, whereas the implicit taxation of the most important exported cereal and dairy products is

taking place on an equal or even higher level. Moreover distortions created in Ukraine’s agricultural

incentives framework appear to be systemic and consistent. The high levels of support received by the

poultry and pork sector and the large implicit taxation of major cereal products suggests that the

agricultural policy framework is biased toward livestock producers and processors at the expense of

crop producers (World Bank 2013b).

Import tariff and non-tariff measures

Protection of agriculture via import duties is generally modest. The rest of the economy is, however,

more open to international competition.

Table 28 shows that the simple average applied import duty for agricultural commodities is 9.5% — well

below the corresponding final bound 11%.

48

Table 28 Tariffs and imports - summary (percent)

Year Total Agricultural

commodities

Non-Agricultural

commodities

Simple average final bound - 5.8 11.0 5.0

Simple average MFN

applied 2012 4.5 9.5 3.7

Trade weighted average 2011 2.7 9.1 2.2

Source: WTO

Note: MFN= most-favored nation.

On a more disaggregated level, sugar is the most protected agricultural product in Ukraine. Ukraine

applies a Tariff Rate Quota (TRQ) on sugar imports at the level of 267.8 million tons (under WTO

commitment). Within quota import duty is 2%, while the above quota duty is 50% (see Table 29).

Sunflower oil is the second most protected agricultural commodity. The import duty for sunflower oil is

at a prohibitive 30% rate (see Erreur ! Source du renvoi introuvable.), whereas the export duty for

sunflower seed has been annually decreasing by 1 percentage point from 17% in 2008 to 10% in 2014.

Although the average import duty for cereals is higher than for oilseeds, fats and oils (see Table 29), it is

rather irrelevant as cereal exports by far exceed imports.

Nominally animal products are moderately protected with an average 11% import duty (see Table 29). In

reality, however, the gap between domestic and world prices is much higher (World Bank, 2013b). To

some extent, excessive non-tariff trade barriers in the form of demanding import procedures and

regulations are responsible for this state of affairs.

Table 29 Tariffs and imports by agricultural product groups in 2013, in %

Product groups Final bound duties MFN-applied duties Imports

AVG Duty-free MAX AVG Duty-free MAX Share Duty-free

Animal products 13 0 20 11 9 20 1 15

Dairy products 10 0 10 10 0 10 0 0

Fruit, vegetables, plants 13 10 20 10 19 20 1 55

Coffee, tea 6 35 20 6 35 20 1 42

Cereals and preparations 13 3 20 13 4 20 1 27

Oilseeds, fats and oils 11 11 30 8 20 30 1 90

Sugars and confectionery 18 1 50 18 0 50 0 0

Beverages and tobacco 8 26 64 12 26 424 1 24

Cotton 1 40 5 1 40 5 0 61

Other agricultural products 8 24 20 6 45 20 1 19

Source: WTO

Note: AVG= average; MAX= maximum; MFN= most-favored nation.

The completion of the customs clearance process requires 7-10 days including additional required

laboratory tests. Imported agricultural produce is subject to obligatory certification, sanitary-

epidemiological, radiological and — for certain types of produce — veterinary and phytosanitary

control. The following documentation is required for customs clearance (World Bank, 2013b ):

(a) Certificate of conformity. This document confirms that agricultural products are properly

identified and comply with the requirements of the obligatory quality and safety norms and

standards in force in Ukraine. It is issued by the State Committee of Ukraine on Standardization,

Metrology and Certification or an authority that is authorized (accredited) by the State

Committee. There are more than 100 institutions authorized to conduct certification in the

Ukrainian Certification System UkrSEPRO. Foreign certificates are taken into account only in

cases when mutual recognition of such certificates is included in provisions of respective

international agreements. In such cases, a certificate of recognition of the foreign certificate of

conformity is required. The certificate of conformity can be received for a series of shipments if

49

all consignments are shipped to one single recipient or for each specific consignment in all other

cases.

(b) State sanitary and epidemiological expertise certificate. The State Sanitary and Epidemiological

Service of the Ministry of Health Care of Ukraine issues to the importer the certificate of state

sanitary and hygiene testing stating that the produce does (or does not) conform to the medical

requirements of safety for human life and health.

(c) Veterinary certificate. Every consignment imported into Ukraine is inspected and sampled,

regardless of the statements made in the accompanying veterinary health certificate. The

importer/exporter will have to bear the costs associated with testing in the border laboratory or

in the Central State Veterinary Laboratory in case of appeal. The costs of testing vary between

USD 80 and USD 500, depending on the number of tests required and the number of uniform

lots in the shipment. The testing procedure takes up to 7 days, making the import of some

highly-perishable goods impossible.

(d) Quarantine import permit/phytosanitary certificate. The phytosanitary certificate confirms that

quarantine materials correspond to the requirements of safety standards. Ukrainian

phytosanitary inspectors conduct an initial inspection of the cargo at the port of entry and take

product samples for the laboratory test to verify that live quarantine pests are not present in

the cargo. If the exporting country has no state bodies on quarantine and plant protection,

import is allowed after a quarantine import permit is granted. The quarantine import permit is

issued by Golovderzhkaranteen (the Main State Inspection on Quarantine of Plants of Ukraine),

and confirms that the product corresponds to the requirements of safety standards.

Export restrictions

Export restrictions on grains were implemented five times in the last seven marketing years in 2006/07,

2007/08, 2010/11 and in 2011/12 and took place in the form of either quotas or export taxes. In

marketing years 2012/13 and 2013/14, export restrictions took the form of voluntary export quotas.

Traders voluntarily agreed to cap their grain exports at 80% of the grain exportable volumes to reduce

the uncertainty of restrictions. The economic effects from export restrictions were devastating. In the

short-term, Ukraine and farmers lost important export revenues. World Bank (2013a) assesses (using

OECD PSE tables and other studies) that these forgone revenues amounted to: USD 1.3 billion in 2007,

USD 3.9 billion in 2008, from USD 1.9 billion to USD 2.6 billion in 2010/11 marketing year. However, in

the medium to long-term, export restrictions created major disincentives for domestic and foreign

investors to undertake capacity-enhancing investments in production, marketing infrastructure and

related services.

4.2.2 Logistics and infrastructure

Agricultural products within Ukraine are transported by railways, road, and river. About 2/3 of grains are

delivered to ports by railway, 1/3 by trucks, and only 3% by river. Approximately 700 grain and oilseed

silos operate in Ukraine, with total storage capacity of 36 million tons and daily loading capacity of 1.5

million tons, and these numbers are continually growing. Around 15% of the country’s grain and oilseed

silos are state-owned, while the remainder belongs to either agricultural companies, farmers, or other

private owners. Grain terminal capacities increased from approximately 7 million tons/year in

1998/1999 to 47.1 million tons/year in 2012/2013, with most of the investments made in the past five

years. Ukraine has 16 state-owned ports (with a total storage volume of about one million tons of grain

and transshipment capacity of 17 million tons per year), as well as seven private ports.

Overall transportation capacity for agricultural products seems to be adequate, with some bottlenecks

remaining in the rail transport system, bad quality of roads, relatively underdeveloped river transport

infrastructure. Still, transportation and handling costs are about 30% above comparator countries due to

persistent logistical inefficiencies (World Bank, 2013b). The World Bank 2014 Logistics Performance

Index for Ukraine (2.98) is almost 30% lower compared to the top performer Germany (4.12) but a bit

higher than average in the ECA region (Table 30). Trade and transport related component of the

50

Ukraine’s LPI (2.65) scored the least among other components. Poland, Ukraine’s neighbor, significantly

outperforms Ukraine in all components of the LPI. As the Table 31 shows, Ukraine’s logistics efficiency

has been on an upward trend, but there is still large room for improvement. When it comes to the grain

sector, experts in the field assess the cost of inefficiency in the whole value chain (due to infrastructure,

low performance, regulations etc.) at about US$ 30/t, and this a potential source of increased revenues

and investments into agriculture.

Table 30 Ukraine’s Logistics performance compared to top performers and ECA, 2014

Country LPI

Rank LPI Score Customs Infrastructure

International

shipments

Logistics

competence

Tracking

&

tracing

Timeliness

Germany (top

global

performer)

1 4.12 4.1 4.32 3.74 4.12 4.17 4.36

Turkey (top in

the ECA region)

30 3.5 3.23 3.53 3.18 3.64 3.77 3.68

Poland

(neighbor)

31 3.49 3.26 3.08 3.46 3.47 3.54 4.13

Ukraine 61 2.98 2.69 2.65 2.95 2.84 3.2 3.51

Region: Europe &

Central Asia -ECA

2.76 2.51 2.59 2.83 2.67 2.77 3.2

Source: World Bank

Table 31 Development of Ukraine’s Logistics Performance Index

Year LPI

Rank

LPI

Score Customs Infrastructure

International

shipments

Logistics

competence

Tracking &

tracing Timeliness

2014 61 2.98 2.69 2.65 2.95 2.84 3.2 3.51

2012 66 2.85 2.41 2.69 2.72 2.85 3.15 3.31

2010 102 2.57 2.02 2.44 2.79 2.59 2.49 3.06

2007 73 2.55 2.22 2.35 2.53 2.41 2.53 3.31

Source: World Bank

4.2.3 Main trade agreements

The current trade regime, in particular for agricultural goods, mainly arises from Ukrainian membership

in the World Trade Organization and number of bilateral and multilateral agreements with trading

partners.

Commitments under WTO

Ukraine became a WTO member on 16 May 2008 (after almost 15 years of negotiations). This process

resulted in a significant liberalization of trade. Ukraine’s main commitments under WTO are the

following (UNDP, 2011):

• Import tariffs – reduction of binding import duties, including reduction of binding import duties

for agricultural goods (see Table 32) and close to full substitution of specific duties with the ad

valorem tariffs. Maximum import duty rates are set for sugar (50%) and sunflower seed oil

(30%).

51

Table 32 MFN structure of import duty rates for agricultural goods in Ukraine after the WTO accession

At the accession Final bound rates (2011)

Zero rate tariff lines (% of all tariff lines) 9.6 10.0

Ad valorem tariff lines (% of all tariff lines) 62.7 95.5

Average arithmetic rate of the applied import tariff* 13.84 11.16

Average weighted rate of the applied import tariff 18.19 10.07

Minimum rate 0.0 0.0

Maximum rate (for ad valorem rates only) 30.0 50.0

International tariff peaks (% of all tariff lines)** 44.3 21.4

Noise' rates (% of all tariff lines)*** 5.2 2.8

Source : UNDP (2011)

* calculations by the Ministry of Economy of Ukraine and USAID based on trade data for 2004-2005

** international tariff peaks are determined as rates higher than 15%

*** ‘noise’ rates – import rates varying between 0% and 2%

• No quantitative import restrictions of non-tariff measures should be introduced, reintroduced or

applied. The only tariff rate quota was set for imports of raw cane sugar (260 thousand tonnes

annually and increasing to 267.8 thousand tonnes by 2010).

• Export duty rates – Duty rates should be gradually lowered; moreover, no obligatory minimum

export prices should be applied.

Table 33 Changes in export duty rates according to Ukraine’s commitments to the WTO (agricultural goods)

Commodity Duty before WTO

accession Duty immediately after accession Annual rate reduction step

Final rate after

WTO accession

Sunflower seeds 17% 16% 1% 10%

Livestock

50%, 55%, 75%

depending on

livestock type

50 5%

10%

Source: UNDP (2011)

• No export subsidies in agriculture should be applied.

• Ukrainian national technical regulations, standards and conformity assessment procedures

should be based on the international ones. Ukraine committed to reduce number of mandatory

certification and to move to the voluntary standards.

• Sanitary and phytosanitary measures should be applied according to the provisions of WTO

Agreement, Agreement on Application of Sanitary and Phytosanitary Measures, and Agreement

on Import Licensing Procedures.

• Investment regime should be in line with WTO Agreement and Agreement on Trade-Related

Measures (TRIMS).

• Ukraine should comply with the Agreement on Trade-Related Aspects of Intellectual Property

Rights.

• Ukraine bound itself with commitments regarding market access and national treatment in 11

key sectors and several other sectors

• Government procurement – Ukraine hasn’t joined the WTO Agreement on Government

Procurement but has observer status in GPA Committee.

52

Free Trade Areas

During the first decade of transition and afterwards Ukraine concluded both bilateral and multilateral

free trade agreements within CIS framework (see Table 34). Ukraine has concluded FTAs with Armenia,

Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan,

Uzbekistan, which regulate mainly merchandize trade-related issues. The CIS Free Trade Agreement was

signed on 15 April 1994; however, it was replaced by a new CIS FTA, which was signed on 18 October

2011. The new FTA cancels the previous agreement and includes provisions for the parties to stop

bilateral free trade negotiations on the previously signed FTAs. An important advantage of the new

within-CIS trade framework is the implementation of WTO principles as the basic ones. Parties

committed to provide each other with national treatment regime. Also, practices and principles of WTO

should be applied for sanitary and phytosanitary measures, technical regulations, standards, conformity

assessment procedures, antidumping and countervailing measures, regulation of goods and vehicles

transit, government procurement, subsidies, export- and import-related formalities. This FTA implies

minimization of nomenclature exemptions for import duty elimination and fixation of export duties with

further gradual elimination. Finally, CIS FTA is aimed at liberalization of international freight

transportation and improvement of tariff policy effectiveness (UNDP, 2011).

Other directions of trade liberalization also activated starting from 2000s (see Table 34). First, Ukraine

signed FTA with Macedonia. This agreement mainly covers trade in goods, however, the minor issues

also include protection of intellectual property rights, customs procedures, antidumping measures and

rules of origin. Free trade area should be established by a transition period of 10 years. On 24th of June

2010 Ukraine signed FTA with European Free Trade Association (EFTA), which includes Republic of

Iceland, the Principality of Liechtenstein, the Kingdom of Norway and the Swiss Confederation. It came

into force on 1 June 2012 with accompanying three special Agreements on Agriculture between Ukraine

and EFTA members. This Agreement is based on WTO principles and rules. FTA with EFTA includes

principle of asymmetric commitments, which allows Ukraine to adapt its economy in ten-year staging

period for trade with EFTA countries. On 18 November 2011 Ukraine signed FTA with Montenegro;

additionally parties signed a special protocol on goods and services market access as a part of

Montenegro’s WTO accession process.

After Ukraine became a WTO member in 2008, it started negotiations with the European Union on Deep

and Comprehensive Free Trade Area (DCFTA) as an integral part of Association Agreement. This process

was launched on 18 February 2008 and signed on 27 July 2014. The DCFTA is pending ratification by

Ukraine and each of 28 EU member states.

Economic part of this Agreement contains provisions on DCFTA (Title IV and related Annexes and

Protocols) and commitments in different sectors (Title V and related Annexes and Protocols). DCFTA-

related Title contains provisions on: National treatment and market access for goods, Trade remedies,

Technical barriers to trade, Sanitary and phytosanitary measures, Customs and trade facilitation,

Establishment, Trade in services and electronic commerce, Current payments and movement of capital,

Public procurement, Intellectual property, Competition, Trade-related energy, Transparency, Trade and

sustainable development, Dispute settlement, Mediation mechanism. In its turn, sector-related issues,

among many others, contains provisions on agriculture and fisheries.19

19

Betliy et al. (2014) Economic Component of Ukraine-EU Association Agreement: consequences for business,

households and government

53

Table 34 Ukraine’s regional trade agreements: concluded and under negotiations

Trade partner Type Coverage Date of signature Date of entry into force

Post-soviet countries

Armenia RTA, bilateral Goods (GATT Art.XXIV) 07 October 1994 18 December 1996

Azerbaijan RTA, bilateral Goods (GATT Art XXIV) 28 July 1995 02 September 1996

Belarus RTA, bilateral Goods (GATT Art.XXIV) 17 December 1992 11 November 2006

Georgia RTA, bilateral Goods (GATT Art.XXIV) 09 January 1995 04 June 1996

Kazakhstan RTA, bilateral Goods (GATT Art.XXIV) 17 September

1994 19 October 1998

Kyrgyzstan RTA, bilateral Goods (GATT Art.XXIV) 26 May 1996 19 January 1998

Moldova RTA, bilateral Goods (GATT Art.XXIV) 13 November 2003 19 May 2005

Russian Federation RTA, bilateral Goods (GATT Art.XXIV) 24 June 1993 21 February 1994

Tajikistan RTA, bilateral Goods (GATT Art.XXIV) 06 June 2001 11 July 2002

Turkmenistan RTA, bilateral Goods (GATT Art.XXIV) 05 November 1994 04 November 1995

Uzbekistan RTA, bilateral Goods (GATT Art.XXIV) 29 December 1994 01 January 1996

CIS* RTA,

multilateral Goods (GATT Art.XXIV) 18 October 2001 20 September 2012

CEZ** RTA,

multilateral Goods (GATT Art.XXIV)

19 September

2003 20 May 2004

Europe

Macedonia RTA, bilateral Goods (GATT Art.XXIV) 18 January 2001 05 July 2001

Montenegro RTA, bilateral Goods & Services

(GATT Art.XXIV & GATS Art.V) 18 November 2011 01 January 2013

EFTA*** RTA, bilateral Goods & Services

(GATT Art.XXIV & GATS Art.V) 24 June 2010 01 June 2012

EU**** RTA, bilateral Goods & Services

(GATT Art.XXIV & GATS Art.V) 27 June 2014 upcoming

Serbia RTA, bilateral Goods (GATT Art.XXIV) negotiations

Turkey RTA, bilateral Goods & Services

(GATT Art.XXIV & GATS Art.V) negotiations

America

Canada RTA, bilateral Goods (GATT Art. XXIV) negotiations

Asia

Singapore RTA, bilateral Goods & Services

(GATT Art.XXIV & GATS Art.V)

negotiations

Source: WTO

Notes:

*Commonwealth of Independent States: Armenia; Belarus; Kazakhstan; Kyrgyz Republic; Moldova, Republic of; Russian

Federation; Tajikistan; Ukraine;

** Common Economic Zone: Belarus; Kazakhstan; Russian Federation; Ukraine

***Iceland; Liechtenstein; Norway; Switzerland

**** EU-28: Austria; Belgium; Bulgaria; Croatia; Cyprus; Czech Republic; Denmark; Estonia; Finland; France; Germany;

Greece; Hungary; Ireland; Italy; Latvia; Lithuania; Luxembourg; Malta; Netherlands; Poland; Portugal; Romania; Slovak

Republic; Slovenia; Spain; Sweden; United Kingdom;

Briefly, DCFTA imply tariff and non-tariff protection liberalization, as well as legislative approximation.

Both parties committed to reduced or eliminate import tariffs during the staging period of 10 years. Pre-

DCFTA level of protection in the EU for imports of agricultural goods is higher than in Ukraine, it applies

more specific tariff rates. However, asymmetric character of tariff liberalization allows Ukraine to adjust

its economy before full access of European goods to its market. Three main differences for agri-food

tariff lines can be observed: (a) Ukraine keeps non-zero tariff rates for more goods; (b) EU reduce its

rates almost immediately, whereas in Ukraine reduction will last mainly for 5-7 years; (c) EU uses

54

instrument of tariff-rate quota (TRQ) more actively.20 Considering agricultural, food and related goods,

EU will eliminate its tariff protection to zero except for wheat (3.1% as of the end of staging period),

miscellaneous food products (1.2%), fruit and vegetables (0.8%), drinks (0.6%) and sugar (0.4%). In its

turn, Ukraine keeps non-zero, but significantly reduced protection in 14 out of 19 relevant product

groups (2 digits of HS classification). This is a result of TRQs usage by the EU (33 quotas by EU vs. 4 by

Ukraine) and incomplete tariff reduction by Ukraine. Among other commitments gradual elimination of

export duties (gradual elimination for oilseeds and livestock in 10 years, special safeguard mechanism is

applied for oilseeds for 15 years), non-application of export subsidies, harmonization of TBT and SPS,

approximation of Ukrainian both sectoral and horizontal legislation to the Directives of European Union

(including customs matters, doing business, competition policy rights, public procurement, intellectual

property rights, geographical indications etc.) can be mentioned. Additionally, Association Agreement

lists European legislation on agriculture, which should be implemented in Ukraine (44 directives).

Ukraine also conducts negotiations on free trade area with other countries. For example, currently

negotiations with Turkey, Canada, Serbia, Singapore and Syria are in progress. Other perspective

agreements include FTAs with Israel, Vietnam, Lebanon, Morocco and other trading partners.

20

Ryzhenkov et al. (2013) The impact of the EU-Ukraine DCFTA on agricultural trade. German-Ukrainian

Agricultural Policy Dialogue, Policy Paper Series, APD/PP/01/2013, Kyiv, October 2013

55

5. AGRICULTURAL POLICY AND INSTITUTIONAL

ENVIRONMENT

5.1 Agricultural policy framework

5.1.1 Agricultural policy objectives and mechanisms

The Law on “Basic Principles of the State Agrarian Policy up to 2015” contains the objectives of

agricultural policy of Ukraine. They include: (i) food security; (ii) efficiency and international

competitiveness; and (iii) integrated development of rural areas and improvement of social conditions

of the rural population. The “State Targeted Program for the Development of the Ukrainian Countryside

Until 2015”21 translated these policy objectives into specific tasks. It identified financing needs and

sources, and it was a first attempt at developing a coordinated approach to the implementation of

agricultural policy. In the fall 2013 a National Strategy for Agricultural Development 2020 was adopted22.

But this strategy was highly criticized by a private sector that was not involved in its development, so the

practical implementation of the strategy was terminated and most likely a new strategy is to be

developed.

In general, Ukraine’s agricultural policy is characterised as unreliable and inconsistent in pursuing its

objectives (see World Banks, 2013). It continues to be ad hoc and opportunistic, it lacks transparency in

application of policy measures and it creates significantly inequitable distribution of benefits.

Governance issues have eroded public trust and confidence in the state initiatives (see World Banks,

2013).

Agricultural state support is defined in the Law of Ukraine “On State Support of Agriculture in Ukraine”

(No. 1877-IV of June 24, 2004), defining most of the instruments and programs of agricultural support.

The state support in Ukraine as a percentage of farm receipts has been lower compared to the OECD

average. Table 35 shows that the total transfers to farmers were almost 8% of their receipts in 2010-12,

while in OECD area it was 12% in the same period (OECD, 2013). On the other hand, Ukrainian farmers

receive larger transfers as a percentage of the GDP than their OECD counterparts, i.e. 1.62% in Ukraine

compared to 0.34% in OECD in 2010-12.

The state support in general is characterized by modest levels of public expenditures and generous tax

benefits. As Figure 27 shows tax benefits made almost 90% in the total transfers to farmers in 2011-

2012. Tax benefits accrue from two sources: a fixed agricultural tax (FAT), and a special value-added tax

regime in agriculture (AgVAT). The FAT is a flat rate tax that replaces a number of taxes and duties,

including profit and land taxes. Its rate varies from 0.09% to 1.00% of the normative value of farmland.

In 2012, the FAT resulted in an average tax payment of only roughly 7 UAH/ha (0.8 USD/ha) of arable

land, leaving farm profits in Ukraine essentially untaxed. As far as AgVAT is concerned, farmers retain

the VAT from their sales to recover VAT on inputs and for any other production purposes. In 2012, the

benefits from the AgVAT accrued to UAH 11.2 billion (USD 1.4 billion).

Financing of public services, institutions and infrastructure dominate in the public expenditures (without

tax benefits) since 2009, being at almost 63% of the expenditures in 2012 (see Figure 29). The rest is

attributable to direct payments to farmers that have mainly been sub-sectors specific (field crops, pigs,

cattle), primarily through payments based on area, animal numbers or output as well as a large

concessional credit program (see Figure 28). The budgeting and timing of public expenditures, however,

remains ad hoc and undermines trust in the government. The state support programs in Ukraine are

considerably underfinanced. The gap between the planned and actual public expenditures has been

widening over the last couple of years (from 97% in 2007 to 73% in 2012). Moreover, the rules for public

21

Regulation of the Cabinet of Ministers No. 1158 of September 19, 2007 22

Regulation of the Cabinet of Ministers No. of November , 2013

56

funds allocation under different support programs are usually approved on an annual basis and are

often changed from one year to another.

In addition, some tariff and non-tariff protection for domestic producers is implemented in Ukraine,

complemented with some domestic measures such as minimum purchase prices and state procurement.

All of these policy interventions alter the domestic market price of a commodity as compared to its

border price. Market price support (MPS) indicator allows to assess the combined effect of a variety of

government market and trade policy measures and it is one of the components of the Producer Support

Equivalent (PSE). Figure 30 shows that overall Ukraine’s agricultural policy framework is functioning in a

way that exportable agricultural products tend to be taxed, while importable ones tend to receive

support. Figure 30 illustrates that poultry, pork, beef and sugar have emerged as the sub-sectors

receiving the largest state support. Ukraine’s sugar sector enjoys import Tariff Rate Quota (TRQ) of

267.8 million tons with 2% within the quota and 50% above the quota duty. The most important

exportable goods (grains, oilseeds and dairy products) are implicitly taxed. Negative MPS for grains

reflects export restrictions in 2010-12 that took place in the form of either quotas or export taxes. In

marketing years 2012-14, export restrictions took the form of voluntary export quotas, whereby traders

bounded themselves to export up to 80% of exportable surpluses. Sunflower seeds exports are taxed at

10%.

Table 35 Budgetary and other transfers (BOT) to Ukraine’s Agriculture in 2004-2012, in USD million

2004 2005 2006 2007 2008 2009 2010 2011 2012

Transfers to producers (PSE BOT) 1,141.4 1,247.0 1,574.1 1,945.6 2,065.2 1,372.6 1,813.8 1,699.5 2,076.5

Payments based on output (A2) 298.7 432.1 444.2 725.1 784.1 176.5 258.6 4.5 75.0

Payments based on

area/animal/receipts/income (C)

379.8 290.9 578.2 468.6 431.5 106.5 352.9 393.1 437.0

Subsidies to variable inputs and on-

farm services (B1+B3)

412.3 412.7 466.5 603.3 669.7 1,023.4 1,066.5 1,183.4 1,444.3

Transfers reducing the on-farm

investment cost (B2)

50.6 111.3 85.2 148.7 179.9 66.2 135.8 118.5 120.2

Other producer support (D+E+F+G) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financing of public services,

institutions and infrastructure (GSSE

BOT)

361.1 557.4 509.4 666.5 714.4 485.7 613.3 675.8 774.8

Agricultural knowledge generation

and transfer (H)

134.0 204.0 172.7 236.4 367.4 245.8 264.3 302.7 355.0

Food inspection and control (I) 86.7 153.4 116.3 146.7 152.6 92.0 169.0 171.5 199.2

Development and maintenance of

rural infrastructure (J)

110.5 169.1 189.2 230.3 160.0 116.0 127.5 150.0 162.3

Marketing and promotion (K) 1.3 1.3 1.5 1.6 4.7 6.5 6.2 2.0 4.6

Other general support (L+M) 28.6 29.6 29.7 51.5 29.6 25.3 46.4 49.5 53.6

Transfers to consumers from

taxpayers (TCT BOT)

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total budgetary and other transfers

(Total BOT)

1,502.5 1,804.4 2,083.4 2,612.1 2,779.6 1,858.3 2,427.1 2,375.2 2,851.3

Total BOT as a share of value of

production at producer prices (%)

10.6 10.1 10.3 10.5 8.6 8.2 8.2 6.3 8.2

Source: OECD (2013), ‘Producer and Consumer Support Estimates’, OECD Agriculture statistics (database)

57

Figure 27 Types of budgetary and other transfers,

million USD Sources: OECD (2013)

Figure 28 Budgetary and other transfers by implementation,

million USD Sources: OECD (2013)

Figure 29 Breakdown of general services support, million USD Source: OECD (2013)

Figure 30 Market price support as the share of production

value at farm gate, 2010-12 avg. Source: OECD (2013)

5.1.2 Institutional arrangements

Institutional setup in agricultural policy making and implementation in Ukraine is rather centralized with

a little power delegated to the local governments. On a high level of a decision making process, the

following hierarchy exists: 1) the President and Presidential Administration, 2) the Prime Minister and

the Cabinet of Ministers (GoU), 3) Ministry of Agricultural Policy and Food (MoA), 4) other ministries,

but primarily the Ministry of Economy and Trade (trade and business regulations issues) and the

Ministry of Finance (state support issues), 5) the Parliament of Ukraine (Verkhovna Rada). Draft laws can

only be initiated and registered by people’s deputies (PD) or a group of PDs, the President, the Cabinet

of Ministers, or the National Bank (i.e., the ‘subjects of legislative initiative’). The President has a power

to veto the laws. Resolutions of the Cabinet of Ministers or/and Decrees of the corresponding

responsible ministries are implementing the norms of laws.

On the lower level, the MoA via its subordinated agencies implements policies in agriculture, the main

agencies are:

1) The State Agency for Land Resources deals with (agricultural) land policies

implementation. It maintains the State Land Cadastre of Ukraine. The Register of land

rights, however, is maintained by the Ministry of Justice.

2) The Agrarian Fund is responsible for the implementation of market interventions with

the dual objective: i) price stabilization and ii) maintaining a strategic reserve. Due to

the lack of state financing and intransparency of this agency’s operations, Agrarian Fund

intervention has no effect on the market (see World Bank, 2013).

58

3) State Veterinary and Phytosanitary Services is dealing mainly with SPS measures. In

September 2014 this agency was included into the single Food Safety and Consumers’

Protection Agency under the Cabinet of Ministers of Ukraine23.

4) State Agricultural Inspection of Ukraine. This agency was established in 2011 with a

mandate of significant controls in a variety of areas. In September 2014 it was

liquidated24.

Moreover, the GoU and the MoA have their state owned enterprises (SOEs) to affect the agricultural

markets. The largest is the State Food and Grain Corporation of Ukraine (DPZKU). It is a public joint stock

company that was founded in 2010. DPZKU is a relatively large grain trading state enterprise with about

10.5% of the total certified storage facilities, 12% of the total port facilities of the country and significant

assets in food processing sector. The DPZKU implements so called ‘Chinese credit deal’. In 2012, Ukraine

and China agreed on a deal of USD 3 billion. According to this deal, China granted USD 3 billion credit

line to Ukraine in the exchange of Ukrainian exports of grain (mainly maize) to China and Chinese

agricultural machines, equipment, agrichemicals, and seeds imports to Ukraine in 50-50 proportions, i.e.

USD 1.5 billion for Ukraine’s exports and USD1.5 billion for the Chinese imports25.

Major external factors that shape the agricultural policy making in Ukraine are its WTO membership and

recently signed Association Agreement with the EU (AA) with its Deep and Comprehensive Free Trade

Agreement (DCFTA). WTO commitments are substantial. The AA is expected to trigger comprehensive

institutional and regulatory reforms.

23

Resolution of the Cabinet of Ministers of Ukraine #422 as of 10.09.2014 24

Resolution of the Cabinet of Ministers of Ukraine #422 as of 10.09.2014 25

Resolution of the CMU #857 as of 13.08.2012

59

6 FUTURE PERSPECTIVES FOR THE AGRICULTURAL AND

FOOD SECTOR

6.1. Strengths and weaknesses of the agricultural and food sector

Agri-climatic and geographical endowments make Ukraine exceptionally positioned in the currently

growing global food markets: 1/3 of the world-wide stock of the most fertile black soil, which is ideally

suited for crop production, favorable temperature and precipitation regimes, access to the year-round

ice-free deep Black Sea ports. This excellent background allows Ukrainian agriculture to develop despite

unfavorable investment environment, inefficient logistics and infrastructure, ineffective and rather

counterproductive public services and agricultural policy. Below SWOT analysis is summarized as

follows:

� Strengths: o favourable agri-climatic conditions with 1/3 of the world’s stock of the most fertile black soil; o advantageous geographical position relative to major sales markets: Europe and CIS; o year-round availability of ice-free and deep port capacities to handle large vessels; o investments into the sector despite unfavourable doing business environment; high capital

return; o developed railway and main connecting roads infrastructure; o relatively cheap labour o competitive advantage (cheap feed and raw materials supply) for livestock and food processors

due to the competitive crop sector

� Weaknesses: o low productivity, high share of households in production;

o great number of conservatively disposed agrarians;

o lack of qualified staff (especially highly skilled); lack of modern technologies and modern

managerial practices;

o underdeveloped national quality infrastructure (sps measures); shortage of elevator capacities

and cold storage capacities; undeveloped marketing infrastructure in rural areas;

o high dependence on agro-climate conditions, inefficient system of insurance of agricultural risks;

underdeveloped agri-finance infrastructure;

o high administrative burden; inefficient logistics and transaction costs as a result;

o ad-hoc and opportunistic state agricultural policy; absence of equal level-playing field for all

producers and sectors; continued delay of introduction of farmland market sales and purchases;

� Opportunities:

o growing world population and increasing global demand for food products;

o increasing demand for alternative energy – market for agricultural raw materials;

o substantial scope for productivity increase in the sector;

o possibility of a large-scale agricultural production and substantial export potential due to the

relatively low density of population per ha of arable land;

o global climate change and possibility of two crops seasons;

o underperforming agricultural science, research and development, and education systems;

o further integration of Ukraine into the international trade: Association Agreement between

Ukraine and the EU; better investment climate

o shift from supply to demand-driven paradigm of international agriculture and westernization of

diets

60

o technology transfers from the EU in general, including national quality infrastructure (sps

measures), education, extension services; decreased losses due to better technologies;

� Threats:

o decreasing content of nutrients in soils, erosion, worn-out melioration systems;

o imperfect system of budget support, delays in VAT refund to exporters;

o inadequacy of the expert training system, low level of integration into the international scientific

community;

o continued ad-hoc and opportunistic state agricultural policy, quantitative restrictions of foreign

trade; continued high administrative burden and unfavourable investment climate due to status-

quo in reforms;

o depopulation and urbanization of rural population, thus lack of labour for agriculture.

o Status-quo in bringing the national quality infrastructure to the best world practices – threat for

export expansion o Continued market protection from the Customs Union/Russia

6.2. Potential of production and yields by sectors

Average yields have generally increased in Ukraine since 2000. But sector performance is still lagging

behind in comparison to other countries. Average grain yields in Ukraine are about half of the EU-27

level, despite the fact that growing conditions in Ukraine are certainly above average. For example, in

2012, yields for barley were 2.1 t/ha vs. 4.4 t/ha average for the EU-27; for maize, 4.8 t/ha vs. 6.05 t/ha;

for wheat, 2.8 t/ha vs. 5.34 t/ha.

Average yields mask an enormous variation between farms. In the case of winter wheat, for example,

average farms produce about 2.2 t/ha, while top 30% farms reach 5-7 t/ha (World Bank, 2013b). Farms

with high capital intensity that use modern machinery, high-quality seeds and fertilizers and original

plant protection agents tend to achieve higher productivity and reach and surpass the East European

comparable farms yields (6 t/ha wheat; 6.2-7.1 t/ha maize, 2.4-3.9 t/ha rapeseed).

Another potential area for increasing production volumes has been decreasing the level of losses due to

bad technologies in the value chain. For example, due to the fact that about 70% of agricultural

machinery is physically outdated, Ukraine loses 5-6 million tons of grain during harvesting annually.

6.3. Growth attractiveness for specific commodities

It is difficult to talk about growth attractiveness for specific commodities, as the sector specific

development depends on complicated set of often unpredictable factors. Generally, more detailed and

in-depth analysis would be required to define a competitiveness position of different Ukraine’s

agricultural products internationally and domestically, thus a potential for growth. Below only an

‘intellectual or substantiated hint’ on the sectors that ‘reveal’ already the signs of competitiveness on

export markets are provided.

Figure 31 compares Ukraine’s annual increase in the world market share (horizontal axis) with the

annual growth of international demand (vertical axis) between 2009-2013. Figure 31 also distinguishes

between growing and declining products/sector using the average nominal growth of the total exports

of the world for the period 2009 to 2013 (red horizontal reference line), which was 10%. So the

products, whose world imports have grown below 10%, are classified as declining products, as their

shares in world trade are declining, while products located in the upper quadrants are growing products,

as they are growing faster than the world market. The vertical and horizontal axis divide the chart into

four quadrants with different characteristics: Winners in growing sectors, Winners in declining markets,

Losers in growing sectors, Losers in declining sectors (ITC, 2013). Figure 31 shows that on aggregate

level Ukraine’s agri-food commodities are classified either ‘winners in growing markets’ or ‘winners in

declining sectors’. This means that these products are characterized by increasing shares of the

country’s exporters in the world import markets that are growing above or below the world average

61

rate. Either way it implies further growth potential and allows to take advantage of the changing world

markets.

Ukraine reveals its comparative advantages and growth for a sufficiently significant number of agri-food

commodities, they are commodity groups HS: 04 (dairy products), 10 (cereals), 12 (oilseeds), 15

(vegetable and animal fats), 19 (cereal, flour etc preparations), 20 (vegetable, fruits etc preparations), 23

(residues of food industry, animal fodder), see Figure 31.

Figure 31 Ukraine’s exports growth versus world import growth, 2009-2013, product groups in 2-digit Harmonized System

Source: http://www.trademap.org/

Figure 31 also demonstrate that fruits and vegetables on an aggregated level do not perform well in

terms of capturing growing shares of the world market. On a more disaggregated level (4 digits HS),

however, performance of individual products has been more heterogeneous, showing some really

strong competitiveness and export potential. Figure 32 shows that some individual vegetables

(cabbages, cucumbers, onions, leguminous vegetables, frozen vegetables) reveal considerable growth

potential, while the performance of virtually all fruits on world markets remains poor (see Figure 33).

62

Figure 32 Ukraine’s vegetables exports growth versus world import growth, 2009-2013, product groups in 4-digit HS


Figure 33 Ukraine’s fruits exports growth versus world import growth, 2009-2013, product groups in 4-digit HS


63

7. RECOMMENDATIONS

Ukraine’s agriculture is still performing well below its potential. Given its fertile black soils and

supportive climate, Ukraine is capable to reach the average yields in the EU, i.e. to increase them by

about 2 times. By closing this productivity gap Ukraine’s agriculture could make a much larger

contribution to the country’s economy and welfare. This will require more capital-intensive agriculture,

financed by unleashing the potential domestic and foreign investments into the sector. At the moment,

the inflow of FDI and total capital investments into Ukraine’s agriculture is low in comparison to other

sectors considering agriculture’s contribution to the GDP.

Key constraints to investment and growth in agriculture are well formulated in the recent World Bank

Agricultural Policy Review for Ukraine (World Bank 2013b), i.e.:

(i) Policy and Business Environment Constraints: ad hoc policy making and resulting uncertainties

for investors; lack of transparency in the implementation of policy; and privileged treatment of

favored enterprises and sub-sectors, resulting in uneven playing field for enterprises.

(ii) Private Sector Markets for Land, Finance, Inputs and Services: constrained access to land,

finance, private agricultural services and technology, especially for small and medium sized

enterprises.

(iii) Public Infrastructure and Services: inefficiencies and gaps in public infrastructure, logistics,

technical knowledge and managerial skills; significant gaps in public institutions and efficiency of

public services and regulatory agencies, resulting in high costs of doing business.

Table 36 below summarises the key reform priorities to address these constraints and unleash

investments and ensure sustainable agricultural growth in Ukraine.

Table 37 Reform Agenda for Unleashing Investments and Agricultural Growth

REFORM PRIORITIES SOLUTIONS AND RECOMMENDATIONS

Non-interventionist trade

policy

Closing the productivity gap would mean more excess supplies that should

be taken off the domestic market; otherwise they would have a dampening

effect on domestic prices and on farmers’ incomes. Facilitating exports

would create incentives for investors to undertake capacity-enhancing

investments in production, marketing infrastructure and related services. On

the other hand, modern and largely imported inputs (seeds varieties,

machinery and equipment, agri-chemicals) transfer new technologies and

innovations into the sector.

• In the process of implementation of the DCFTA with the EU,

make a long-term and binding commitment of non-

interventionist trade policy.

• Ensure agricultural policy consistency: adopt a more consistent

long-term policy approach to reduce decision making risks for

investors and further embrace public private consultation in

policy making.

• Avoid sub-sector and enterprise bias: establish an even playing

field across the sectors rather than focusing on individual

strategic sub-sectors or favoured enterprises. This would help to

ensure that the allocation of private investments is unbiased

and directed towards their most economically efficient purpose.

• Abandon price regulation: this creates further bias between

sub-sectors and further uncertainty for investors. Investments

do not flow into the sectors with price regulations.

• Minimum possible administrative burden: comprehensively

64

review regulatory procedures for imports/exports/production

and marketing of agricultural inputs/outputs and harmonize

them with best international practices to reduce transaction

costs.

Enabling Business and

Regulatory Environment:

Agribusiness and investments need stable and consistent policy

environment. Excessive regulations (e.g. cumbersome state licensing,

testing, certification and registration systems) ultimately decrease

producers’ incomes and thus should be minimized.

Functional Agricultural Land

and Finance Markets

A free land market would allow the transfer of land from less efficient to

more efficient farmers, thus increasing overall productivity. It would also

allow land to serve as collateral, thus increasing investment in agriculture.

Supportive Fiscal and

Educational Framework

The current agricultural tax system and farm support programs in Ukraine

leaves farmers virtually untaxed, distort farm production decisions and have

a highly questionable effect on overall sector competitiveness. Agribusiness

suffers from a glaring shortage of human capital at all levels (extension

workers, skilled analysts, innovative researchers, agronomists, veterinaries

etc) thus questioning the performance of agricultural research and

education system.

• Consider reforming the Fixed Agricultural Tax (FAT) and the

special VAT regime.

• Continue to shift agricultural public support from production-

based support to the programs that support agricultural

research and education, infrastructure, market information etc.

Modern National Quality

Infrastructure (Sanitary and

Phytosanitary Measures)

Ukraine’s current and largely Soviet-type SPS system does not ensure

effective food safety control but rather undermines agriculture’s export

potential and competitiveness through high compliance costs. The

Government of Ukraine should lead a joint public-private reform effort to

streamline its SPS measures according to the requirement of the Art. 64 of

the Association Agreement with the EU.

Source: Own presentation and World Bank (2013b)

65

8. CONCLUSION

Ukraine’s agriculture is well positioned to rapidly secure an increasing share of the growing global food

market. Growth of global world’s population by an additional 2.3 billion by 2050, shift to western-style

high protein diets, and increased demand for biofuels significantly increase the global demand for

additional agricultural output. Growth in demand is primarily expected in cereals, oilseeds and

vegetable oils (World Bank, 2013b). These are the products for which Ukraine has a growing share in

expanding world export markets. Ukraine could also exploit growing regional markets for fruits and

vegetables.

Ukraine can take advantage of these emerging opportunities by raising farm yields to their potential (as

demonstrated by Ukraine’s best farms), and by building capacity to rapidly respond to export markets.

World Bank (2013b) reports that the impact on the economy could be very substantial; a 30%

productivity increase in agriculture could increase Ukraine’s GDP by 4.4% in the medium term (five

years) and 12.5% in the long term (ten years). This growth would be especially beneficial for the poor, as

unskilled wages and incomes of rural poor households could increase by 11.2% in the medium term and

27% in the long term.

This would require more capital intensive agriculture and much more domestic and foreign direct

investment in Ukrainian agriculture. This would require a political will and significant efforts from the

government to remove the policy uncertainties faced by investors and to adopt a more consistent policy

approach that would be characterized by an equal level playing field for all sub-sectors and enterprises.

Significant regulatory burden on businesses should also be reduced, while public spending programs

should be focused on stimulating technical innovation. Upgrading national quality infrastructure

(technical regulations and SPS measures) should also be a priority, for it would facilitate the excess of

Ukrainian agri-food commodities to export markets.

Recent Association Agreement between Ukraine and the EU is seen especially promising for Ukraine’s

agriculture. Aside from different tariff reductions and import facilitation opportunities, Ukraine should

strive for harmonization of its TBT and SPS, that in fact implies approximation of Ukrainian both sectoral

and horizontal legislation to the 44 Directives of EU.

66

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68

10. ANNEXES

Figure 34 Annual precipitation

Source : GeoNova

Figure 35 Climate diversity

Source : GeoNova

69

Figure 36 Global Land Quality Map

Source : Natural Resource Conservation Service, USDA

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