#3 Ukraine Agriculture Bulletin, BFC

08/2016

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3 UKRAINE Agriculture Bulletin Ukraine to Allocate UAH 5.5 Billion for Small Farm Enterprises in 2017 Ukraine Opens New Market Outlets in Indonesia Ukrainian Payment Agency Established to Support Ukrainian Farmers Ukraine’s Corn Oil Production Down 35% since 2011

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Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4) 5) 6)

Minister Kutovyi Mets with Korean Ambassador ............................................................................ 2 Ukraine to Allocate UAH 5.5 Billion for Small Farm Enterprises in 2017 ........................................ 2 PJSC Agrarian Fund Provided UAH 1.5 Billion in the 2016 Marketing Year..................................... 2 Agrarian Ministry Seeks UAH 3 Billion for Farmers in 2017 ............................................................ 2 Ukraine Opens New Market Outlets in Indonesia ........................................................................... 3 Ukraine to Maintain a Register of Organic Agricultural Producers ................................................. 3

Foreign Aid ................................................................................................................. 3 7)

Ukrainian Payment Agency Established to Support Ukrainian Farmers ......................................... 3

Private Sector.............................................................................................................. 3 8) 9) 10) 11) 12) 13) 14) 15) 16) 17)

Investments in Agriculture Have Doubled....................................................................................... 3 Ukraine and Moldova to Cooperate on Walnut Production Development .................................... 4 Ukraine's Golden Harvest and the Future ....................................................................................... 4 Ukraine’s Corn Oil Production Down 35% since 2011 ..................................................................... 4 Ukrainian Food Exports to the EU Up Almost 70% .......................................................................... 5 Agricultural Companies Projecting Growth in Third Quarter Production ....................................... 5 Ukrainian Dairy Industry Profitability Down.................................................................................... 5 Ukrainian Dairy Products Cannot be Exported to the EU ................................................................ 5 Pork Exports Plummet Amid Low Demand ..................................................................................... 5 Agricultural Exports Grow even as Pork and Beef Exports Decline ................................................. 6

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

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State Initiatives 1)

Minister Kutovyi Mets with Korean Ambassador

September 2nd, 2016, http://www.ukrinform.net/rubric-economics/2076322-koreans-to-invest-in-ukrainian-farms.html

Minister Kutovyi of the Ministry of Agricultural Policy and Food met with the Korean Ambassador to Ukraine, Lee Yang-goo, to discuss deepening bilateral trade cooperation between Ukraine and Korea.

Korean investors are particularly interested in investments for the development of organic production and infrastructure while the Ukrainian side hopes that such investments will be made mostly to smalland medium-sized farms, particularly those in need of help getting technical equipment.

2)

Ukraine to Allocate UAH 5.5 Billion for Small Farm Enterprises in 2017

August 31st, 2016, https://www.rbc.ua/rus/news/podderzhku-fermerov-gosbyudzhet-2017-zalozhat-1472640547.html

The government of Ukraine intends to provide for UAH 5.5 billion to support small farm enterprises, according to the draft budget for 2017. State support is also intended to be directed towards domestic engineering, especially that for the production and modernization of agricultural machinery.

3)

PJSC Agrarian Fund Provided UAH 1.5 Billion in the 2016 Marketing Year

August 31st, 2016, http://agrofond.gov.ua/en/news/list/374--pat-agrarnij-fond-profinansuvav-agrarijiv-na-15-mlrd-grn/

During the 2016 marketing year, total contributions from PJSC Agrarian Fund for financing agricultural producers amounted to UAH 1.5 billion (including UAH 1.14 billion in advanced payments for harvests).

The Agrarian Fund is considered to be one of the few state institutions to provide substantive funding support to agricultural producers, especially in the recently volatile times in Ukraine which has led many large, private players to not risk lending or investment into the sector. The current process for the Fund sees a turn-around time between application and reception of funds by producers of 7-10 days, and producers receive up to 65% of the forecasted cost of the next harvest.

The program for the Fund in the 2016-2017 season has already been finished with the signing of 190 contracts to buy 500,000 tons of second- and third-grade of grain, rye and buckwheat.

4)

Agrarian Ministry Seeks UAH 3 Billion for Farmers in 2017

August 30th, 2016, http://www.unian.info/economics/1493564-ukraine-agrarian-ministry-seeks-uah-3-bln-in-state-support-forfarmers-in-2017.html

Ukraine's Ministry of Agrarian Policy and Food is proposing UAH 3 billion in state support in 2017 for small- and medium-sized agricultural producers. The support would either come in the form of direct financial aid for the cultivation of up to 500 hectares of land or in tax breaks. Minister Kutovyi has stated that direct financial aid is preferable to tax breaks since direct funding is more easily utilized and more flexible than tax breaks in how, where and when it is spent. The aid would help farmers who increasingly find it difficult to find financing for the purchase of new equipment or for learning new technologies.

Besides direct financial support, the Ministry hopes that the UAH 3 billion will also be available for programs that would help small agricultural producers find export markets for their products.

A draft law has already been developed for aid to small and medium agricultural producers and is expected to be adopted at some point this autumn.

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5)

Ukraine Opens New Market Outlets in Indonesia

August 17th, 2016, http://www.blackseagrain.net/novosti/ukraine-opens-new-market-for-sunflower-oil

Representatives from the Ukrainian and Indonesian Ministries of Agriculture have signed a memorandum of understanding regarding the potential development of free trade between the two countries. The news of this development is expected to increase the trade of crop products between the two. Particularly noteworthy is that Asian markets are widely considered as attractive, promising markets for Ukraine’s oilseeds and their processed products. The agreement could further imbed Ukrainian sunflower seeds and sunflower seed oils into the Asian market, diversifying their export and becoming the leading products in an Indonesian market that has a growing appetite for oil- and fatcomplex commodities.

6)

Ukraine to Maintain a Register of Organic Agricultural Producers

August 8th, 2016, http://www.ukrinform.net/rubric-economics/2063775-government-approves-procedure-for-keeping-registerof-organic-producers.html

Ukraine’s Cabinet of Ministers has agreed to the procedure to set up and keep a register for organic producers. The adopted procedure will not necessarily provide anything new in principle but will help attract investors to Ukrainian organic agricultural production. The register will be made available on the website of Ukraine’s State Service for Food Safety and Consumer Protection.

Foreign Aid 7)

Ukrainian Payment Agency Established to Support Ukrainian Farmers

August 9th, 2016, http://rian.com.ua/economy/20160809/1014463222.html

Representatives of Ukraine, Poland and Lithuania signed a memorandum of understanding to establish the Payment Agency which will work to attract European funds for the development of Ukraine’s agriculture and rural areas. In the European Union (EU), agriculture is supported by specialized payment agencies. Ukraine’s current State Farmers Support Fund operates similarly to these agencies; however, institutional changes to comply with management, audit and information technology requirements needed to be made in order for Ukraine to access greater EU assistance.

Private Sector 8)

Investments in Agriculture Have Doubled

August 31st, 2016, http://agroportal.ua/news/ukraina/v-agrosektor-stali-investirovat-v-17-raz-bolshe/

Throughout the first half of 2016, the volumes of capital investments in agriculture have amounted to UAH 17 billion, 73.8% more than during the same period of 2015. Despite this, the Ukrainian agroindustrial complex still requires much more in investments because of the high depreciation of fixed assets and industrial infrastructure in the country.

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9)

Ukraine and Moldova to Cooperate on Walnut Production Development

August 31st, 2016, http://www.blackseagrain.net/novosti/ukrainian-walnut-industry-struggles-to-gain-market-share

Despite increasing walnut production by 3,000 tons to a total of 63,000 tons, Ukrainian walnuts are struggling to find their place in European Union and Chinese markets. In an effort to improve walnut exports and establish themselves in more markets, Ukrainian and Moldovan walnut producers have signed a memorandum of cooperation to further the development of the walnut industry with the development and introduction of new varieties and new technologies. In particular, Moldova has pledged to further scientific research into new varieties.

By working together, the two countries’ producers are hoping to attract more investment into the industry and to increase production and, ultimately, exports into more markets.

10) Ukraine's Golden Harvest and the Future August 31st, 2016, http://www.blackseagrain.net/novosti/ukraines-golden-harvest

Ukraine’s grain harvest is forecast to exceed previous records, a considerable achievement considering that seeded areas across Ukraine are down about 2.5 million acres due to conflict and occupation in the south-east of the country and Crimea. According to the latest figures, this year's grain harvest is expected to exceed 60 million tons, and oilseeds are also expected to perform well this season with an expected yield of 17 million tons.

One would expect the former soviet state to have exports dominated by Russia and other former soviet countries; however, only 10.2% of Ukrainian agricultural exports are to Russia and other CIS countries.

Asia is now the dominant export market for Ukrainian agricultural goods, taking 45.1% of Ukrainian exports in 2015. This includes a Chinese market where sunflower oil imports and corn imports into China were made up of 97% and 90% Ukrainian products, respectively. Furthermore, whereas the EU accounted for only 4% of Ukrainian agricultural exports in 2015, exports to EU countries have increased tenfold over the past 15 years. Ukraine's signing of the EU Association Agreement in 2014 provides further opportunities with export quotas allocated for 36 commodity positions. Ukraine also continues to harmonize its agricultural legislation with EU laws.

Ukraine has over 100 million acres of agriculture land, with over 75 million acres classified as arable land (close to one-third of the equivalent arable land in all the European Union), and sector leaders predict Ukraine's harvest could reach 100 million tons by 2020. Consequently, grain yields, exports and investor interest in Ukrainian agriculture should continue to grow for some time to come.

11) Ukraine’s Corn Oil Production Down 35% since 2011 August 12th, 2016, http://finchannel.com/index.php/world/ukraine/59251-ukraine-decreased-corn-oil-production-during-5recent-years-study

Despite the systematic increasing in corn production volumes in Ukraine, corn oil production has shown a downward trend in the last five years. According to the statistics, Ukraine produced 7,970 tons of corn oil in 2015, down 35% when compared to 2011’s 12,260 tons. Currently, one company from Dnipropetrovsk oblast monopolizes corn oil production by producing 95% to 97% of crude corn oil and nearly all refined corn oil in the country; however, it is thought that new enterprises into corn oil production would bolster the industry and not only satisfy domestic needs for the products but also become a valuable commodity in foreign markets.

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12) Ukrainian Food Exports to the EU Up Almost 70% August 11th, 2016, http://www.unian.info/economics/1464898-ukrainian-food-exports-to-eu-grow-by-almost-70-since-start-ofyear.html

Food product exports to the European Union (EU) have increased by 68% since the beginning of the current year when the free trade area was launched, and Ukrainian exports, in general, have grown by 7% this year. Ukrainian manufacturers have actively been using trade preferences in trade with the EU and have already filled nine tariff quotas. Currently, 86 companies have authorized exporter status which allows for the export of their products without having to obtain certificates.

Ukraine's foreign trade deficit in goods from January 2016 to June 2016 was estimated at USD 1.953 billion, up 23.5% from the same period in 2015. The export of goods in the first half of 2016 totaled USD 15.241 billion, down 11.9% year-on-year, while imports declined by 9.9% to USD 17.194 billion.

13) Agricultural Companies Projecting Growth in Third Quarter Production August 10th, 2016, http://en.interfax.com.ua/news/economic/362856.html

According to a recent poll of 847 Ukrainian agricultural companies, third quarter agricultural production this year is expected to rise as compared to the second quarter. 70% of respondents anticipated production growth with 23% expecting no change and 6% projecting a decrease in production. 28% of the companies in the survey also expected prices to increase while 47% expected no price increase and 25% anticipated a price decrease. In addition, 24% of respondents felt that they will increase their number of employees with 4% expecting a decrease in employment and 72% expecting no change.

14) Ukrainian Dairy Industry Profitability Down August 10th, 2016, http://ubr.ua/market/agricultural-market/ukrainskie-proizvoditeli-moloka-ponesli-rekordnye-ubytki-424230

The profitability of milk production decreased by 3.5% in July. The nominal income of dairy production in July 2016 was 15.8% lower than in the same period last year and 30.3% lower than average over the last 5 years. An increase in the price of the concentrated feed contributed to this dairy index decline as well as the decline of the average purchase price of milk by 0.9%.

15) Ukrainian Dairy Products Cannot be Exported to the EU August 10th, 2016, http://ubr.ua/market/agricultural-market/ukraina-ne-budet-postavliat-molochku-v-es-424196

Ukrainian dairy products will not be exported to the European Union (EU) because of their low quality and their containing antibiotic drugs. There are currently tariff quotas in the EU for Ukrainian milk, but none can be met because the milk has failed to meet standards. It is widely known that much milk from Ukraine is diluted; however, the discovery of antibiotics in the milk means that none can be imported into the EU since there are no funds available to check the quality of all the milk.

16) Pork Exports Plummet Amid Low Demand August 9th, 2016, http://www.segodnya.ua/economics/business/torgovyy-proval-ukraina-pochti-ostanovila-eksport-svininy741040.html

Pork exports from Ukraine plummeted to 1 thousand tons this year, as compared to 36 thousand tons last year. There was a cautious optimism about pork exports at the beginning of the year that hasn’t Page 5

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come to fruition due to a 4% production decrease and an out-of-balance supply and demand. FAO analyst Andrey Pankratov noted that the key moving forward will be to work towards restoring the supply and demand balance to bring prices and exports back up.

17) Agricultural Exports Grow even as Pork and Beef Exports Decline August 8th, 2016, http://ucab.ua/en/pres_sluzhba/novosti/import_palmovoi_olii_zris_a_eksport_svinini_i_myasa_vrkh__znizivsya/?category=29 779

According to Ukraine’s State Fiscal Services’ information, the export of agricultural products has increased by 2.6% to USD 7.8 billion during the first seven months of 2016 as compared to the same period in 2015. The share of agricultural products in overall exports reached 40.1%, a 4.9% growth, and was led by the export of fats and oils derived from plants and animals; in particular, sunflower oil exports increased by 23%. At the same time, live animals and animal product exports decreased by 11.9% due to a decline in pork and beef exports. The export of ready-to-eat foods also declined.

Agricultural product imports also increased by 10% over the first seven months of 2016 as compared to 2015 to reach USD 2.2 billion.

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