#6 Ukraine Agriculture Bulletin, BFC

11/2016

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6 UKRAINE Agriculture Bulletin Ukrainian Farmer Funds Expected to Be Distributed in December 2016 USD 70 Million Investment for Seaport Grain Terminal Project Completion 277 Ukrainian Companies Can Export to the European Union CHS Ukraine Allocating USD 50 Million for Farmer Support Program

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Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4)

Ministry of Agriculture Project to Improve Ukrainian Grain Quality .............................................. 2 New Methodology for Determining Regulatory Monetary Value Proposed .................................. 2 Ukrainian Farmer Funds Expected to Be Distributed in December 2016........................................ 2 Ministry of Agriculture Working to Strengthen Ukrainian Organic Sector ..................................... 2

Foreign Aid ................................................................................................................. 3 5) 6) 7)

USD 70 Million Investment for Seaport Grain Terminal Project Completion ................................. 3 Ukraine Signs Memorandum of Understanding with OECD ............................................................ 3 EBRD Considering USD 15 Million Loan for Tomato Processing Plant ............................................ 4

Private Sector .............................................................................................................. 4 8) 9) 10) 11) 12) 13)

Ukrainian Agricultural Production Grows in First Ten Months of 2016 .......................................... 4 Open Letter Calls for Lifting the Moratorium on Agricultural Land Sales ....................................... 4 277 Ukrainian Companies Can Export to the European Union ....................................................... 5 Grain Is Ukraine’s Major Export Revenue Earner ............................................................................ 5 Potential Losses from African Swine Flu Could Cost Billions if not Stabilized ................................. 5 CHS Ukraine Allocating USD 50 Million for Farmer Support Program ............................................ 6

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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State Initiatives 1)

Ministry of Agriculture Project to Improve Ukrainian Grain Quality

November 24th, 2016, http://www.ukrinform.net/rubric‐economics/2127228‐ukraines‐agriculture‐ministry‐launches‐pilot‐ projects‐in‐four‐regions‐to‐improve‐grain‐quality.html

The Ministry of Agriculture of Ukraine is launching a pilot project initiated by the International Finance Corporation (IFC) that is seeking to improve the quality of grain in Ukraine. The project will see a group of 40 experts working in the Mykolaiv, Odesa, Kirovohrad and Poltava regions. The group will be headed

by Ukrainian Grain Association President Volodymyr Klymenko.

2)

New Methodology for Determining Regulatory Monetary Value Proposed

November 23rd, 2016, http://ucab.ua/en/pres_sluzhba/novosti/kabmin_onoviv_ngo_dvadtsyatirichnoi_davnosti

The official website of the Cabinet of Ministers has published a resolution that will change the methodology for determining the regulatory monetary value of agricultural lands. The new methodology will provide a more balanced regulatory monetary value for agricultural lands in the regions of Ukraine, better meeting modern economic realities and creating a more competitive environment. The new methodology greatly simplifies the assessment procedure by taking into consideration the division of agricultural areas into zones which are grouped based on similar soil types, prices and amount of rental income.

The resolution also provides that state authorities should draw up scales of regulatory monetary value for agro‐industrial soils groups of natural and agricultural zones in terms of a soil assessment to be conducted every seven years. The use of such a system will mean that the price of land where soil is of a better quality will be higher.

The Ukrainian Agribusiness Club has been an active participant the last three years in working to update the previous, 20‐year‐old methodology so that it is more reasonable for landowners and land users.

3)

Ukrainian Farmer Funds Expected to Be Distributed in December 2016

November 14th, 2016, http://agroportal.ua/news/ukraina/fermeram‐raspredelyat‐finansy‐v‐onlainrezhime/

For the first time, a meeting of the Central Committee of the Ukrainian State Fund for Farming Support has been held online to ensure transparency in decision‐making. A total of UAH 15.8 million has been allocated from the national budget for farmers this year, with 156 requests for a total of UAH 54 million received for the funds. It should also be noted that the interest‐free loan limit has been increased from UAH 250,000 to UAH 500,000.

It is expected that the funds will be transferred to regional authorities for distribution in December 2016.

4)

Ministry of Agriculture Working to Strengthen Ukrainian Organic Sector

November 14th, 2016, http://minagro.gov.ua/en/node/22597

Over the last few years, Ukraine has developed a reputation as a reliable supplier of organic products in the European Union (EU) due to Ukrainian organics high quality and competitive prices. This has enabled Page 2

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the industry to find a niche in EU markets and become a priority for the Ministry of Agriculture to further develop. Today, nearly 300 farmers are engaged in organic production, and around 400,000 hectares of land are certified as organic. But exporters of organic products to Europe, which consumes 80% of all Ukrainian organic exports, are facing certain challenges in helping the industry fully blossom.

In order to help the industry continue to grow, the Ministry of Agriculture is actively working to reduce regulatory barriers for organic exports to the EU. Perhaps the greatest hindrance today is the double inspection organic products from Ukraine undergo — first by Ukrainian supervisory authorities prior to leaving the country and then again by experts in the country of destination. This adds unnecessary work and expenses for domestic exporters and foreign buyers, causing a loss of time and money through redundant analyses and affecting the competiveness of Ukrainian organics.

The Ministry is working on the creation of a full registry of organic producers in Ukraine which will be a clearer, more transparent picture of the organic sector. In addition, the European Commission is proposing a new e‐system of certification for imported organic products that will help trace products during transportation, increase transparency and reduce the risk of fraud. The e‐system is scheduled to be launched in April 2017 and will significantly reduce costs for the both producers, exporters, buyers and state authorities. The European Commission has also agreed to maintain a permanent dialogue with Ukrainian regulators in order to exchange information, prevent emergencies in bilateral trade and better coordinate organic policies in the future.

Foreign Aid 5)

USD 70 Million Investment for Seaport Grain Terminal Project Completion

November 18th, 2016, http://www.ukrinform.net/rubric‐economics/2123008‐swiss‐company‐investing‐70‐mln‐in‐completing‐ construction‐of‐grain‐terminal‐in‐ukrainian‐sea‐port.html

Swiss company Risoil S.A. will invest about USD 70 million to complete the construction of a grain terminal at the Chornomorsk seaport in the Odesa region. The investment will provide enough financing for the third and fourth stages of construction, which include an all‐purpose warehouse, an automated offloading station, and a two‐sided pier.

Construction of the terminal began in 2014, and the first two stages were commissioned in March of this year.

6)

Ukraine Signs Memorandum of Understanding with OECD

November 14th, 2016, http://minagro.gov.ua/node/22592

During a visit to France, a memorandum of understanding for deepening cooperation was signed by the Organization for Economic Cooperation and Development (OECD) and the Ukrainian government.

Implementation of the memorandum will facilitate cooperation with the OECD in key spheres, especially in expanding the range of agricultural products produced and in diversifying markets.

Cooperation within the framework of the memorandum will be carried out through the implementation of research projects and the conducting of surveys which will be used to develop recommendations for improving public policy in various sectors of the economy. It is believed that the end result will be improved legislation which takes into account best international practices and recommendations, an expansion of Ukraine’s participation in the OECD, and the creation of new areas of cooperation between Ukraine and the OECD. Page 3

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7)

EBRD Considering USD 15 Million Loan for Tomato Processing Plant

November 10th, 2016, http://en.interfax.com.ua/news/economic/383017.html

The European Bank for Reconstruction and Development (EBRD) is looking into providing a USD 15 million loan to Agrofusion, the largest Ukrainian tomato paste producer. The loan would partially finance the construction of and purchase of equipment for the company’s third tomato paste plant in Ukraine and help the company promote its products abroad. In May 2016, the International Finance Corporation (IFC) of the World Bank Group said it would provide USD 10 million to Agrofusion in working capital. The total cost of the project is USD 50 million.

The EBRD Board will meet to discuss the provision of funds on December 14, 2016.

Agrofusion was founded in 2007 and currently has the capacity for processing 480,000 tons of tomatoes per season, producing 61,500 tons of tomato paste.

Private Sector 8)

Ukrainian Agricultural Production Grows in First Ten Months of 2016

December 4th, 2016, http://ubr.ua/market/agricultural‐market/v‐ukraine‐vyrosli‐obemy‐proizvodstva‐selhozprodukcii‐453355

The volume of Ukraine’s agricultural production for October 2016 increased when compared to October 2015, but showed a 26.7% decline when compared to the production in September 2016. In total through of the first ten months of 2016, agricultural production in Ukraine increased 2.8% year‐on‐year.

This includes a 5% rise in crop production and a 2.8% decrease from the livestock sector. In addition, the first ten months of 2016 saw an increase in production from agricultural companies (up 3.9%) and private households (up 1.6%).

The Ministry of Economic Development and Trade also announced a revision to their forecasted growth for agricultural production in Ukraine from 0.7% to 2.2% this year.

9)

Open Letter Calls for Lifting the Moratorium on Agricultural Land Sales

December 2nd, 2016, http://en.interfax.com.ua/news/economic/388066.html

Leading Ukrainian economists and policy makers have signed an open letter criticizing the halt of land reform efforts. This comes following Parliament’s overwhelming vote (297 votes for) to extend the moratorium on agricultural land sales for another year. The letter views the decision as an egregious error and a sign of the misunderstanding in society about one of the key issues of economic reform since the country’s independence from the Soviet Union.

Authors say Ukrainian rural farmers, who for hundreds of years have been deprived of the right to own land, gained the right for only a short period of time following Ukraine's Independence in 1991.

Following that, they have been routinely denied their constitutional right to dispense of their property as they see fit by eight parliamentary votes in the past 25 years.

Signatories cite other Eastern Europe countries which opened land sales markets 10 to 15 years ago as an example of how the development of a land sales market can help develop an economy and increase land prices and crop yields. They are also critical of proponents’ claims that the moratorium is necessary due to the low starting prices for land plots, emphasizing that prices are low because there is a complete absence of any land market. To the contrary, the letter claims that, because of the moratorium’s Page 4

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artificial barriers and lack of alternatives, the level of land leasing fees in Ukraine is one of the lowest in Europe, harming nearly 6.7 million Ukrainians in the process.

Signatories of the letter include former Prime Minister Yuriy Ekhanurov; former head of the Ministry of Economic Development, Pavel Sheremet; First Deputy Maksym Martyniuk of the Ministry of Agriculture; Marian Zablotsky, head of Ukraine's Society of Economic Freedoms; Co‐chair Andriy Dlihach of the civil platform New Ukraine; Taras Kozak of Univer Investment Group; Erik Nayman, managing director of Capital Times Investment Company; economist Danylo Monin; Members of Parliament, Volodymy Ariev and Oleksiy Mushak; and Mykola Veresen, well‐known journalist and civil activist.

10) 277 Ukrainian Companies Can Export to the European Union November 25th, 2016, http://www.ukrinform.net/rubric‐economics/2127675‐state‐service‐on‐food‐safety‐277‐ukrainian‐ companies‐have‐right‐to‐export‐products‐to‐eu.html

Volodymyr Lapa, head of Ukraine’s State Service on Food Safety and Consumer Protection, announced that, at present, 277 Ukrainian companies have the right to export products to European Union (EU) markets. Of those 277 companies, 97 are engaged in producing food products and 180 produce products of non‐animal origin.

11) Grain Is Ukraine’s Major Export Revenue Earner November 15th, 2016, http://zik.ua/en/news/2016/11/15/grain_is_ukraines_major_budget_earner_991829

Over the first nine months of 2016, Ukraine’s agricultural traders exported USD 10.4 billion worth of grain, or 40.2% of the country’s total revenue from exports. Grain accounts for USD 4.2 billion in export earnings , followed by sunflower oil and animal fats at USD 2.7 billion, foods at USD 1.6 billion, and livestock and animal foods at USD 0.59 billion. Over the same period, Ukraine imported USD 2.78 billion worth of agricultural products, or 10% of total imports.

In 2015, Ukraine exported USD 14.6 billion worth of agricultural products, mostly to Asia, Europe and Africa. In 2015, Ukraine also cut its import of foods by 41.5%, largely due to the low purchasing power of its citizens due to currency deflation.

12) Potential Losses from African Swine Flu Could Cost Billions if not Stabilized November 15th, 2016, http://ucab.ua/en/pres_sluzhba/novosti/potentsiyni_zbitki_vid_pogirshennya_epizootichnoi_situatsii_mayzhe_u_10_raziv_bils hi_nizh_vidatki_na_ii_stabilizatsiyu

As of September 30, 2016, 55 cases of African swine flu have been recorded in Ukraine and the Food and Agriculture Organization (FAO) is forecasting that the number of cases will rise to 117 in 2017. Since the beginning of the year, more than 9,000 pigs have been impacted by the disease, costing farmers UAH 29 million.

Based on data from 2015, the direct budget revenue from cattle and swine breeding amounted to UAH 1.4 billion just from taxes on the remuneration of labor. Considering the 50% VAT, revenues of up to UAH 2.8 billion are at risk if the worsening epizootic situation in Ukraine leads to a major decline in the production of meat and other animal products. Such losses would be much more than the funds needed to ensure a stable epizootic situation. The financing necessary to stabilize the situation in Ukraine is estimated at UAH 337 million, only 11% of direct budget revenues from the production of milk, beef and Page 5

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pork; however, Ukraine’s 2017 budget currently only provides for UAH 56.8 million for maintaining a stable epizootic situation.

13) CHS Ukraine Allocating USD 50 Million for Farmer Support Program November 7th, 2016, http://en.interfax.com.ua/news/economic/382034.html

CHS Ukraine LLC is allocating USD 50 million for a joint program with Syngenta and Galnaftogaz. The program, set to begin in spring, will support agricultural producers in 2017. Under the program, Galnaftogaz will supply fuel to farmers, and Syngenta will provide them with seeds, pesticides and herbicides on credit that will include a grace period and a small interest rate. Farmers, in turn, will repay the loan in grain, which CHS Ukraine will export.

In the 2015/2016 agricultural year, CHS Ukraine exported 1.1 million tons of grain from Ukraine. For the 2016/2017 agricultural year, the company plans to raise exports of grain to 1.5 million tons. The company also plans to increase its allocation for the program to USD 100 million for 2018.

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