Agricuture in Ukraine

Western European firms actively operate in the Ukrainian market. They understand that despite the obstacles to doing business in Ukraine, the potential for hard currency agribusiness exports is great. U.S. agricultural machinery has a good reputation in Ukraine. The list of U.S. manufacturers includes AGCO Corporation, Massey Ferguson, John Deere, Caterpillar, and Case/New Holland. They offer a

full range of equipment and parts, including spare parts, for cultivating, growing, harvesting and transporting, as well as equipment for livestock production. While U.S. machinery is well represented in Ukraine, there are still good opportunities for U.S. companies to enter the Ukrainian agricultural machinery market. Existing critical demand for reconditioned (used) machinery is worth mentioning as well.

4. Problems of this sector of economy

The production of grain and oilseed crops is dominated by large agricultural enterprises that were established when Ukraine’s agricultural sector was restructured in April, 2000. (In contrast, nearly 90 percent of the country's vegetables and virtually all of the potatoes are grown on private household plots.) State and collective farms were dismantled and farm property was divided among the farm workers in the form of land shares. Most new shareholders leased their land back to newly-formed private agricultural associations, under the leadership of a director who was frequently, but not always, the manager of the former State farm. Consolidation of small farms into larger and more viable enterprises has been the prevailing trend, similar to what took place in Russia several years earlier. (For a brief discussion of Ukraine’s agricultural restructuring, see June 2001 report.) The conversion to a more market-oriented environment has progressed relatively well according to most observers. Many farms are succeeding, under shrewd leadership, in spite of fluctuating grain prices and constraints on the availability of credit. The transition of Ukraine's agricultural sector from a command economy to a more market-oriented system has introduced the element of fiscal responsibility, and farm managers are striving to make their enterprises as efficient as possible. Decisions on crop selection, fertilizer application, harvest method, grain storage, and all other aspects of farm management are made with an eye toward boosting farm profit. Ukraine agriculture is going through a winnowing process whereby unprofitable, usually smaller farms will either collapse or join more successful farms.

Most farms are able to receive credit, but interest rates and collateral demands are high. Since many farms are already heavily in debt to banks or suppliers of fertilizer and plant-protection chemicals, and since agricultural loans are not guaranteed by the government, banks are largely unwilling to make long-term loans. Most credit is extended in the form of seasonal loans (six to ten months) used almost exclusively for the purchase of fertilizer and plant protection chemicals. Commercial interest rates typically range from 25 to 30 percent. The State provides assistance to farms by paying 50 percent of the interest on agricultural loans. Banks typically require 200 to 300 percent collateral, depending on the farm’s credit history and the risk level. Future crop usually serves as collateral, but collateral can also be offered in the form of livestock, farm machinery, or the personal property of the farm director. Under current legislation, land cannot be used as collateral. Farms' difficulty in obtaining anything other than short-term, high-interest loans places severe constraints on their ability to invest in long-term capital improvements, such as agricultural machinery or storage facilities. Using land as collateral would enable farms to receive longer-term loans, but many farm directors remain leery of the Ukrainian banking system – which is not yet as stable as in Russia – and are reluctant to risk losing their land in default. Furthermore, many agricultural enterprises are comprised of hundreds of shareholders, whose permission would need to be obtained before the farm director could use the land as collateral.

In many cases, the best option is for a farm to attract an investor who can provide market expertise, operating capital, and collateral to enable the farm to secure loans. The potential “down side” of investor arrangements, from the farmer's perspective, is that farm directors to some extent lose control of farm operations. Often the investment company, or “holding company,” insists on maintaining control over every aspect of production and essentially takes over the farm, equipment, and land. Farms are forced to enter into extended leases of five to ten years, sometimes longer, because they depend heavily on cash from the holding company.

The consensus of most observers is that already-successful farms will continue to expand as shareholders pull out of failing farms and lease their plots to stronger ones. Clearly, many farms will not survive the transition to a market economy, and high-risk farms with few liquid assets, heavy debt, bad credit history, and poor management will collapse.

The loss of State subsidies following the collapse of the Soviet Union in 1991 increased feed and production costs and reduced profitability for livestock enterprises. As prices for meat products increased, consumer demand declined, thus establishing a downward spiral that continued throughout the decade. Livestock inventories, and demand for forage, continued to shrink. The increasing inability of large agricultural enterprises (i.e., former State and collective farms) to maintain livestock operations, due largely to inefficient management and farms' inability to ensure sufficient feed supplied, resulted in increased dependence on private producers and household farms to satisfy demand for beef and pork. Furthermore, the involvement of investor groups (holding companies) in agricultural production has had an impact on livestock numbers. Many farms who entered agreements with investment firms killed off their herds because livestock is not quickly profitable and not as attractive to investors. Although the freefall in livestock inventories has slowed since 2000, a rapid recovery in beef production is unlikely. Cattle inventories are increasing on private household farms, which typically have two to three head of cattle per farm, but large industrial farms are shifting away from cattle and toward crop production and total cattle inventories continue to decrease.

5. Investment in agriculture

Investment in agriculture land in Ukraine is conducted under farmland lease agreements. Lease contracts are closed directly with pai-holders for different periods averaging at 10 years and going up to 49 years. Farmland pai lease contracts enable contractors to consolidate large fields of 50-200 hectares located close to each other for the ease of crop rotation planning, cultivation and harvesting.

 Скачать реферат