Villagers in Shamraevskoe – a farm in Kyiv oblast – have every reason to be proud: the 55 tons per hectare they harvested in September is more than twice as much as Ukraine usually collects.
Moreover, it exceeds the average grain yield of the European Union, which has been less than 50 tons in the past several years. And they are not alone.
Ukraine’s Ministry of Agrarian Policy estimated this year that the nation will harvest 50 million tons of grain – almost 20 million tons more than last year. Perfect weather helped produce this year’s record crop, as did improved farming techniques and the sowing of larger areas.
“This is the largest figure in all the years of [Ukraine’s] independence,” boasted Ukrainian Prime Minister Yulia Tymoshenko.
But there is no reason to celebrate yet.
While the record harvest finally gives the government something to be proud of, farmers are not particularly happy. Despite the abundance of high-quality wheat, most of the grain remains in storehouses, waiting for a buyer with a decent offer. And many cash-strapped farmers simply don’t have access to sizable storage facilities of their own, thus they will not have the opportunity to cash in on this year’s massive harvest by selling their crop at a high price. What’s more, with export capacity limited due to constraints in Ukraine’s ports, the domestic market is full of grain, keeping prices low.
Leonid Tkachuk, director of Shamraevskoe farm, is convinced that the only ones who will profit from the record-breaking harvest are grain traders. Blessed with some of the richest soil on earth, Ukraine has since independence become a magnet for leading international grain trading firms such as U.S. companies Cargill, Bunge and Archers Daniel Midland, as well as European groups.
Large Ukrainian grain trading firms have also emerged. All have reaped sizable profits from past harvests in Ukraine. But farmers could once again take a hit, selling their crops for below-market value. As a result, they could find themselves once again cash-strapped in planning for next year’s harvest.
In an interview with Kyiv Post’s sister publication Korrespondent magazine, Tkachuk said grain traders are hounding farmers, eager to buy up their grain while prices are low right after the vast harvest. Farmers want to wait and sell for more. But most of the vast grain silo facilities in the country have in recent years been snapped up by traders. The few storage facilities accessible to farmers are not equipped to hold grain for long periods. In order to keep wheat and barley from going bad, they must be stored in tall, aerated structures.
Such elevators are beyond the reach of most farmers. In the words of Eugene Leng, chief executive officer of the crop-raising company Ukrzernoprom, one must invest no less than $200 to keep one ton of grain. If, on average, an elevator holds two thousand tons of grain, then the cost of such an elevator is no less than $400,000.
“In our conditions, grain will last a maximum of two months before it starts getting bugs,” Tkachuk explained. So farmers must choose to sell their grain at clearance prices or let it rot.
Rodion Rybchinskiy, head of analytical services at agribusiness consulting company APK-Inform, said Ukrainian villagers have been in a stalemate for many years now.
“Currently, landowners have no other choice than to sell their grain to traders or keep it, because the government has removed itself from stocking up on grain for the State Reserves. This is the main reason prices are so low. The government announces a minimal price, but then doesn’t buy anything itself. So grain traders proceed from what is most profitable,” the expert explained.
Whose fault is it?
While farmers blamed grain traders, analysts blamed restrictive government regulations that prevent investments from reaching either party.
The first policy is a ban on selling agricultural land, preventing farmers from receiving the benefits that come with ownership. The land is devalued because farmers cannot use it for collateral and, thus, cannot take out loans to invest in machinery or elevators. Grain traders, on the other hand, cannot make long-term plans and are hesitant to invest when the lease rate of land can multiply in one year.
Second, the export ban – only recently lifted – has prevented farmers in past years, when grain prices where high, from receiving market prices. The law was intended to keep domestic food prices low, but has had devastating consequences for Ukraine’s farmers. Last year alone, export restrictions incurred more than $1 billion worth of losses to producers, according to some estimates. Photos of decomposed grain being thrown into the Black Sea circulated through mass media all over the world.
Now it looks like similar photos might appear again. These restrictions – along with the government’s general instability – have affected agricultural infrastructure by limiting investment, resulting in completely inadequate storage capacities, transportation capacities and port capacities.
Andriy Yarmak, an independent agribusiness expert, said that significant amounts of grains and oil seeds will go to waste again. If last year the losses exceeded 1.3 million tons, this year they may reach 2 million tons. Yarmak estimated that Ukraine will loose $1.4 billion in missed opportunities and lower prices. It’s a sizable loss, comparable to the amount in annual state funding Ukraine uses to feed and supply its vast military of more than 150,000 soldiers.
“We have not yet had a government that would create a clear strategy for Ukrainian agriculture,” Yarmak said. “All Ukrainian governments [of the past have supported] inefficiencies by providing subsidies. The Ukrainian government forgets that we are now considered to be a country with a market economy and still tries to set food prices [fearing a backlash from voters ahead of elections]. It discourages business and, frequently, farmers, whom they at the same time, try to support with subsidies.”
All this, Yarmak claimed, was to gain a few extra votes.
Leonid Kozachenko, president of the Ukrainian Agrarian Confederation, in an interview with Korrespondent, said that Western banks are ready and willing to invest billions of dollars in coming years into Ukraine’s agricultural infrastructure. He predicted that vast investments are needed to bring Ukraine to Europe’s technological standards, and doing so could boost harvests to 80-million-ton levels.
But such advancements are hindered by the Ukrainian government’s continued use of protectionist policies, lack of free-market reforms and unstable politics.
Kozachenko said: “We make a big deal [of agrarian subsidies], saying, ‘Hr 100 per hectare from the government will save farmers.’ But the farmers don’t want Hr 100. They say, ‘Keep your money. Don’t act like you’re supporting us. Instead, create conditions in which tens of billions of dollars can enter the country.’”
With global grain production down, this year could have been the lucky boost Ukraine needed. The country could have, according to some estimates, exported well more than 14 million tons of grain. But even with the lifting of export restrictions this year, it’s too late. Past years of protectionist policies have curtailed investment that would have prepared Ukraine’s infrastructure to better handle and capitalize on such vast harvests.
The losses will be embarrassingly high. And, in the words of Yarmak, “unfortunately, as always, nobody will take responsibility for this.”
Korrespondent’s Olga Timkiv contributed to this report.
