#4 Ukraine Agriculture Bulletin, BFC

09/2016

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4 UKRAINE Agriculture Bulletin Ministry of Agriculture and Food Policy Plans to Dissolve the Agrarian Fund Berry Cultivation and Gardening are Priorities Sectors for the Government Ukrainian Parliament Ratifies EUR 400 Million Loan Agreement with EIB Ukrainian Harvest Well Under Way

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Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6) 7) 8) 9)

Ministry of Agriculture and Food Policy Plans to Dissolve the Agrarian Fund ................................ 2 Opening the Land Market could Generate Significant Economic Gains ......................................... 2 Berry Cultivation and Gardening are Priorities Sectors for the Government ................................. 2 New Anti‐Corruption Online Platform Launched ............................................................................ 2 Draft 2017 State Budget Ceases VAT Program ................................................................................ 3 Ukraine Plans to Restore Irrigation on 0.5 Million Hectares by 2020 ............................................. 3 Ukrainian Government Increases Maximum Financial Assistance to Farmers ............................... 3 Investments in Agriculture Increase Significantly ........................................................................... 3 Ukrainian Government Examining Ways to Increase Export Potential ........................................... 4

Foreign Aid ................................................................................................................. 4 10) Switzerland to Finance New Phytosanitary Control Pilot Project ................................................... 4 11) Ukrainian Parliament Ratifies EUR 400 Million Loan Agreement with EIB ..................................... 4 12) New Loans from EBRD and IFC for a Grain Terminal at Yuzhny Seaport ........................................ 4

Private Sector .............................................................................................................. 5 13) 14) 15) 16) 17) 18) 19) 20) 21) 22)

Ukrainian Harvest Well Under Way ................................................................................................. 5 112 Cases African Swine Flu have been Recorded in Ukraine since 2012 ...................................... 5 Grain Exports for 2016‐2017 Agricultural Year Could Exceed 40 Million Tons ............................... 5 European Union to Increase Import Quotas for Ukrainian Products .............................................. 5 Ukrainian Dairy Industry at Risk from African Swine Flu ................................................................. 6 Agricultural Production Costs Up .................................................................................................... 6 New Survey Shows Improved Business Climate for Ukrainian Agriculture ..................................... 6 5% of Land Resources Wasted Annually by Ineffective Land Management ................................... 7 Walnut Harvest Faces a Down Year ................................................................................................. 7 Ukrainian Tomato Exports Experience Dramatic Growth ............................................................... 7

Note: The Agriculture Bulletin presents a monthly roundup of headlines and news stories related to Ukraine’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss‐based development finance consulting company with a long history of working in Eastern Europe, Central, South and South East Asia and North Africa. Read more »

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BFC Agriculture Bulletin

State Initiatives 1)

Ministry of Agriculture and Food Policy Plans to Dissolve the Agrarian Fund

October 5th, 2016, http://en.interfax.com.ua/news/economic/374606.html

The Ministry of Agriculture and Food Policy has announced its plan to draw up a bill which will dissolve the state‐run, state‐funded Agrarian Fund Institution. In making the announcement at a parliamentary meeting, Minister Taras Kutovoy stated that the institution has not fulfilled its function of regulating prices in the market and that corruption currently pervades the institution.

2)

Opening the Land Market could Generate Significant Economic Gains

October 4th, 2016, http://www.unian.info/economics/1554062‐land‐market‐launch‐in‐ukraine‐can‐generate‐significant‐ economic‐gains‐imf.html

The International Monetary Fund (IMF), following the completion of a second review under the Extended Fund Facility (EFF), has released a report expressing their belief that significant economic gains can be made in Ukraine by opening up the land market. Currently, only individuals can own farmland but are, for all intents and purposes, unable to sell or buy it. Furthermore, all agri‐businesses in Ukraine must lease land for crop production. The IMF, in their report, holds that “amending the legislation to unlock land‐related transactions would generate significant economic gains, including higher incomes and greater tax revenues.” New legislation on agricultural land sales, which will act as a reform of the current system, was expected to be submitted at the end of September, and the current moratorium on agricultural land sales, which has been in place in Ukraine for 15 years, is set to expire on January 1, 2017.

The IMF approved a four‐year EFF program in Ukraine worth a total of USD 17.5 billion in March 2015.

So far, Ukraine has already received three loan tranches totaling USD 7.6 billion under the program. The implementation of the reform program, as agreed with the IMF, will help unlock further financial assistance for Ukraine from the World Bank, the U.S. government and the European Union.

3)

Berry Cultivation and Gardening are Priorities Sectors for the Government

September 23rd, 2016, http://ubr.ua/market/agricultural‐market/v‐ukraine‐opredelili‐prioritetnuu‐agrarnuu‐otrasl‐435842

Deputy Minister Olga Trofimtseva of the Ukrainian Ministry of Agriculture and Food Policy announced that the development of the berry cultivation and gardening sectors has become a priority for the Ministry and that the Ministry will work to provide the assistance necessary to ensure that the sectors development is fully realized. The products coming from these sectors are popular in the European Union, as evidenced by a near quadrupling of exports in recent months.

4)

New Anti‐Corruption Online Platform Launched

September 22nd, 2016, http://biz.censor.net.ua/news/12014/minagropolitiki_zapustilo_platformu_dlya_borby_s_korruptsieyi_v_agrosektore

The Ministry of Agriculture and Food Policy of Ukraine has launched the #CrushCorruption platform for faster response to corruption within the agricultural sector. Every farmer or other actor in the agricultural sector who experiences an instance of corruption is encouraged to report the incident via the website crushcorruption.org. The website contains a short, easy‐to‐use form that will collect Page 2

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relevant information, including who, when, where and the circumstances of a particular instance. All complaints made to the site will be carefully considered and forwarded to the appropriate law enforcement authorities as warranted.

5)

Draft 2017 State Budget Ceases VAT Program

September 21st, 2016, http://www.ukrinform.net/rubric‐economics/2087447‐finance‐minister‐danylyuk‐vat‐system‐for‐ farmers‐to‐be‐scrapped‐in‐january‐2017.html

Finance Minister Oleksandr Danylyuk has presented a draft for the 2017 state budget and it does not provide for extension of the special VAT program for farmers next year. He did note, however, that the government is planning on allocating UAH 5.5 billion next year to support small farmers.

6)

Ukraine Plans to Restore Irrigation on 0.5 Million Hectares by 2020

September 14th, 2016, http://agroportal.ua/news/rastenievodstvo/minagroprod‐obeshchaet‐vosstanovit‐orosheniya‐na‐05‐ mln‐ga/

Deputy Minister Olga Trofimtseva of Ukraine’s Ministry of Agriculture and Food Policy met with experts from the World Bank to discuss developing restoration and modernization strategies for Ukraine’s irrigation systems. The Ministry has set a goal of restoring 500‐550 thousand hectares by 2020, bringing the total amount of irrigated land in Ukraine to 1 million hectares. Such a project is estimated to need up to USD 2 billion for completion.

The Ministry has identified restoration and modernization of irrigation systems as important and identified it as a priority in the Strategy of Development of the Agricultural Sector for 2016. The Ministry is also working with the World Bank on another irrigation project and is currently awaiting funding for it to begin.

7)

Ukrainian Government Increases Maximum Financial Assistance to Farmers

September 14th, 2016, http://ubr.ua/market/agricultural‐market/pravitelstvo‐vdvoe‐uvelichilo‐finpodderjku‐fermerskih‐ hoziaistv‐433174

Minister Taras Kutovoy of the Ukrainian Ministry of Agriculture and Food Policy announced an increase in government assistance to small‐ and medium‐sized farms as well as to young fruit plantations and future producers of organic products. The resolution setting this increase in assistance will double the maximum amount of assistance per farm from UAH 250,000 to UAH 500,000.

8)

Investments in Agriculture Increase Significantly

September 11th, 2016, http://ubr.ua/market/agricultural‐market/investicii‐v‐selskoe‐hoziaistvo‐znachitelno‐vyrosli‐430564

In the first half of 2016, the amount of capital investment in the agricultural sector of Ukraine exceeded USD 17.4 billion, a 72.3% year‐on‐year increase. The amount invested in the agricultural sector represents 14.5% of all capital investments made in the national economy over the first half of this year, making agriculture second after the industrial sector in total investments.

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9)

Ukrainian Government Examining Ways to Increase Export Potential

September 8th, 2016, http://www.kmu.gov.ua/control/en/publish/article?art_id=249299250&cat_id=244314975

Ukrainian Prime Minister Volodymyr Groysman announced that the government of Ukraine is working to develop the tools necessary to increase the country’s export potential, specifically that of the agricultural sector, through engaging in new markets and increasing its presence in existing ones. In announcing the work, the Prime Minister noted that the work the government will take will be to help increase productivity and help increase market awareness of Ukrainian products in addition to measures which will further develop modernization of processing within the country.

Foreign Aid 10) Switzerland to Finance New Phytosanitary Control Pilot Project September 28th, 2016, http://www.ukrinform.net/rubric‐economics/2091718‐switzerland‐to‐finance‐pilot‐project‐on‐ phytosanitary‐control‐over‐ukrainian‐crops.html

The Ukrainian State Service on Food Safety and Consumer Protection is cooperating with agricultural organizations to launch a Swiss‐funded pilot project which aims to strengthen phytosanitary control of Ukrainian crops. The specific details of the project have yet to be finalized; however, implementing phytosanitary control refers mainly to works in the field on fighting diseases and eliminating pests. Both public and private laboratories are expected to be engaged in the project.

11) Ukrainian Parliament Ratifies EUR 400 Million Loan Agreement with EIB September 20th, 2016, http://en.interfax.com.ua/news/economic/371397.html

The Ukrainian Parliament has ratified a loan agreement between Ukraine and the European Investment Bank (EIB) which was signed late last year by former Prime Minister Arseniy Yatsenyuk. The loan, worth EUR 400 million, will help finance up to 50% of the cost of agricultural projects in the country.

269 members of Parliament voted for ratification of the agreement.

12) New Loans from EBRD and IFC for a Grain Terminal at Yuzhny Seaport September 13th, 2016, http://agroportal.ua/news/novosti‐kompanii/ifc‐planiruet‐vydelit‐na‐zernovoi‐terminal‐v‐yuzhnom‐37‐ mln/

The Board of Directors of the European Bank for Reconstruction and Development (EBRD) approved a loan of USD 37 million for the construction of a grain terminal at the Yuzhny seaport (Odesa region). The International Finance Corporation (IFC) will provide a matching loan for the construction project.

Cargill, the Ukrainian Port Authority, and MV Cargo, which operates in the Yuzhny seaport, signed an agreement regarding the construction of a grain terminal in February 2016, and the Ukrainian Port Authority approved a dredging agreement in March of this year. MV Cargo will build a grain terminal with a capacity of 5 million tons per year with the possibility of increasing its capacity for an additional 2‐4 million tons per year in the future. The grain terminal is expected to cost around USD 130 million and is scheduled to be opened in 2017.

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Private Sector 13) Ukrainian Harvest Well Under Way October 5th, 2016, http://finchannel.com/world/ukraine/60318‐ukraine‐harvested‐over‐45‐mln‐tonnes‐of‐grains

The Ukrainian harvest is well under way. As of October 4, Ukrainian farmers have harvested over 45 million tons of grain on over 11 million hectares of land, resulting in a yield of 4.04 tons per hectare. At the same time last year, productive volumes reached 43.5 million tons. Farmers in the country have also harvested over 8.8 million tons of sunflower seeds on 4.1 million hectares, more than 6 million tons of corn on 1.2 million hectares, 2.4 million tons of oilseed from 1.1 million hectares, 180 thousand tons of millet on 99 thousand hectares, and 175 thousand tons of buckwheat on 139 thousand hectares.

In addition, farmers have begun the planting of winter grains. As of October 4, winter grains have been planted on 3.9 million hectares, representing nearly 54% of the planned amount for winter.

14) 112 Cases African Swine Flu have been Recorded in Ukraine since 2012 October 3rd, 2016, http://agroportal.ua/news/zhivotnovodstvo/v‐ukraine‐zaregistrirovano‐112‐sluchaev‐achs/

Since 2012, 112 cases of African swine flu have been recorded in Ukraine — 92 among domestic animals and 19 among wild animals. The most recent case of African swine flu was recorded on September 15, 2016 in the village of Polevaya (Dergachi district in the Kharkiv region) when 6 pigs within a 4 kilometer radius succumbed to the disease. In total in 2016, the most cases of African swine flu were recorded in the Odessa region (15 cases), followed by the Mykolaiv region (9 cases), the Sumy and Kharkiv regions (5 cases each), the Volyn and Poltava regions (4 cases each), the Rivne and Kirovohrad regions (3 cases each), the Chernihiv region (2 cases). A quarantine is still in effect in various areas of the Mykolayiv, Sumy, Odessa, Kirovohrad, Rivne, Poltava, Volyn, Vinnitsa, and Kharkov regions.

15) Grain Exports for 2016‐2017 Agricultural Year Could Exceed 40 Million Tons September 30th, 2016, http://en.interfax.com.ua/news/economic/373710.html

The volume of grain exports for the 2016‐2017 agricultural year could reach as much as 40 million tons.

If achieved, this would be the highest figure for grain exports in the history of independent Ukraine.

Wheat export is forecast to be 16.5 million tons, including 10.1 million tons of bread wheat, while barley exports could be as much as 5.6 million tons.

As of the end of September, 10 million tons of new harvest grain had been exported, and over 4 million tons were exported in August, a record‐setting amount.

16) European Union to Increase Import Quotas for Ukrainian Products September 30th, 2016, http://www.eurointegration.com.ua/articles/2016/09/30/7055231/

Less than a year after the launch of a free trade agreement, the European Union (EU) agreed to increase export quotas for Ukrainian Products. Specifically, the EU agreed to the introduction of autonomous preferences for three years for both food and non‐food products. For food products, this translates to more duty‐free imports from Ukraine into the EU.

In particular, the quota for grain is being increased by 100,000 tons; the quota for cereals, by 7,800 tons; the quota for tomatoes, by 5,000 tons; the quota for oats, by 4,000 tons; the quota for honey, by 3,000 Page 5

BFC Agriculture Bulletin

tons; and the quota for grape and apple juices, by 500 tons. In addition, much larger quotas were also obtained for maize (now 650,000 tons) and barley (now 350,000 tons). The quotas for chicken and sugar, however, will remain the same.

The quota increases will better enable Ukrainian businesses to compete in EU markets and gradually lead to Ukraine’s full integration into the European trading system.

17) Ukrainian Dairy Industry at Risk from African Swine Flu September 29th, 2016, http://24tv.ua/ru/ukraina_riskuet_polnostju_poterjat_molochnuju_otrasl_n731998

Along the borders of the Luhansk oblast, an outbreak of African swine flu has been recorded. The virus has led to more than 100 cases requiring the destruction of animals in the past four years, 40 of these cases occurred in just the last two months. The virus also nearly caused the extinction of the cattle population in Bulgaria. This has caused concern among Ukraine’s dairy producers that the dairy industry in Ukraine could be utterly destroyed and that the price of dairy products could increase exponentially.

Farmers are urging the government to move quickly to allocate funds to prevent an outbreak of the virus in the country and protect the developing dairy industry. To prevent an outbreak of the disease in the territory of Ukraine, there would need to be a program of mass vaccination and the creation of a buffer zone. It is estimated that the cost to do both of these preventative measures is UAH 55 million.

18) Agricultural Production Costs Up September 29th, 2016, http://ubr.ua/market/agricultural‐market/v‐ukraine‐podorojalo‐proizvodstvo‐selhozprodukcii‐437217

For the first eight months of the year, the joint index of the costs for the production of agricultural commodities in Ukraine rose 12.4% on average when compared to the same period in 2015. More specifically, the costs associated with plant growing commodities increased 9.1% while the cost for animal growing commodities increased 20.9%. In addition, the cost index for materials and equipment of industrial origin used in agriculture grew 0.5%.

19) New Survey Shows Improved Business Climate for Ukrainian Agriculture September 28th, 2016, http://www.ukrinform.net/rubric‐economics/2091714‐ucab‐farmers‐noted‐improvement‐in‐ukraines‐ business‐climate.html

The results of a survey of farmers by the Ukrainian Agribusiness Club have been announced and show an overall improvement in the business climate of Ukraine’s agricultural sector. In August 2015, the business index of the agricultural sector (as determined by the same survey) was rated at 102.7 points and fell to 96.4 points in February of this year; however, August 2016’s results show an increase up to 114.6. The survey revealed that the most positive effects on the agricultural business climate are easier access to modern machinery, equipment, and qualified personnel with professional skills and a rise in overall business productivity. However, the general economic situation in the country and difficulties in access to capital markets continue to be seen as drags on the business climate in the agricultural sector.

According to the survey, economic conditions improved most in crops (up 24.9 points), livestock (up 6.6 points), and mixed economy farms (up 4.1 points).

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20) 5% of Land Resources Wasted Annually by Ineffective Land Management September 22nd, 2016, http://infoindustria.com.ua/skolko‐zemel‐teryayut‐agroholdingi‐iz‐za‐neeffektivnogo‐upravleniya/

Artem Bielienkov, the director of Smart Farming, has announced recent findings that suggestion that 5% of land resources are wasted annually due to inefficient management. The research points to the unique and often complex nature of land relationships in Ukraine as the leading impetus that causes improper land management. The research also concludes that actual land utilized for agricultural purposes is, on average, overstated by 5% for accounting purposes. In addition, data suggests that as much as 10% of rent payments is used for other, non‐agricultural purposes. In total, the findings of this research indicate that up to 25% of the agricultural land assets of Ukraine is at a risk of being squandered each year.

21) Walnut Harvest Faces a Down Year September 19th, 2016, http://www.segodnya.ua/economics/business/ukraina‐teryaet‐urozhay‐greckih‐orehov‐753055.html

According to preliminary estimates, the harvest of walnuts this year will be 68‐73 thousand tons. This represents a sharp decline from last year’s 116 thousand tons. Most producers believe that frosts in early spring are the cause of the sub‐par harvest this autumn. Ukraine is forecast to export between 40 thousand tons and 45 thousand tons of walnuts this year, depending on the price for processed products.

Despite the down year, the future of the walnut industry is bright as many producers are planning to begin processing in the coming years. It is expected that, if owners unite into cooperatives, a powerful processing complex will arise and producers will be able to increase the quality of Ukrainian walnut products for European and Asian markets.

22) Ukrainian Tomato Exports Experience Dramatic Growth September 18th, 2016, http://www.segodnya.ua/economics/business/ukraina‐pobila‐rekord‐po‐eksportu‐pomidorov‐v‐es‐ 752610.html

Demand for Ukrainian tomatoes in the European Union (EU) has grown significantly since the beginning of the year. Export volumes totaled 2,300 tons from January 2016 through August 2016, a near tenfold increase over the same period in 2015. Poland and Latvia are the main consumers of Ukrainian tomatoes.

In total, Ukraine has exported more than 17,000 tons of tomatoes between January and August of this year, 2.2 times higher than last year. Belarus is the main importer of the Ukrainian product, accounting for 85% of total tomato exports.

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Prepared by Business & Finance Consulting (BFC) www.bfconsulting.com In this bulletin, BFC provides extracts from articles that have been published by others and as a result cannot be held responsible for such content.

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