The nation’s growing agricultural sector will get a boost if the European Union agrees to sign a free trade agreement with Ukraine at a summit in Vilnius, Lithuania, on Nov. 28-29.
Some types of agricultural producers might strengthen their position on international markets significantly, while improving the quality of goods they supply to local markets. Others, however, will face strict quotas that can dampen their ambitions.
The agriculture ministry paints a rosy picture about the sector’s prospects. Agriculture Minister Mykola Prysiazhniuk believes that the nation can get Hr 4 billion in additional export revenue as part of a free trade zone within a few years.
The findings of Center UA, a non-governmental organization, echo the minister’s assessment. The group found that Ukraine can earn about €383 million annually once duties for food imports are eliminated. However, the EU will set quotas on 36 types of duty-free products.
Some 83.1 percent of agricultural products, according to Center UA, could be exported to the EU duty-free after the free trade pact is signed – including 350,000 tons of barley annually. By comparison, in 2006-2010, Ukraine exported 156,600 tons of barley each year to the EU.
The annual quota on corn is 650,000 tons. In 2006-2010, Ukraine exported 626,800 tons per year and paid import duties, according to the non-profit’s statistics.
However, it will take a while for the benefits to materialize. Leonid Kozachenko, president of Ukrainian Agrarian Confederation, says that initially the country’s exports will be severely limited with quotas and requirements to conform to EU standards.
These quotas will limit Ukraine’s opportunity to sell value-added goods, such as processed meat and dairy products.
However, other types of commodities, such as sunflower oil, will be free to conquer new markets and are already doing well, said Kozachenko. Export of soy and canola seeds, fruits and vegetables and other commodities will also get tailwind.
But what is salvation for crop growers is doom for livestock farming, says ProAgro consultancy director Mykola Vernytsky.
Due to subsidies, European meat products have lower costs than Ukrainian ones. Thus, Ukrainian meat producers, specifically of pork, might run the risk of being muscled out by European rivals. Poultry, however, is a different case, as it’s one of the most developed meat markets in Ukraine and is 90 percent controlled by large producers. The two biggest chicken producers, MHP and Agromars, have already received EU export certification.
Ukraine’s dairy industry also is talking about risks. On the one hand, Ukraine will get new quality standards, which is good, deputy president of the Association of Milk Producers Denys Marchuk says. On the other hand, meeting those standards requires new equipment, which many cannot afford.
It costs up to $20 million to build a new modern farm with more than 1,000 heads of cattle, but it would take at least eight years to recover the cost, Marchuk says. Moreover, Ukrainian producers cannot at the moment compete with heavily subsidized European peers.
Moreover, Kozachenko said that 70 percent of milk in Ukraine comes from households, which is unacceptable by European standards. About 20 percent of meat is also sourced that way, and will be outlawed in Europe. But even if that sourcing practice changes, it will create a social problem in rural areas, where raising cows for milk remains a main source of income.
Signing the free trade agreement with the EU, however, could be challenging for small businesses, Deloitte partner Mykhaylo Melnyk believes. They will face increased competition, but they will also get new opportunities for joint projects with European businessmen that will give them resources.
Experts agree that even though the immediate challenges may be tough to overcome, getting EU certification will boost a company’s chances to enter other international markets, even those outside of Europe. As a side effect, Ukrainians should also benefit from greater competition and quality improvements that follow.
But getting certification will cost the industry about $6 billion, according to Kozachenko. He believes, however, that European banks will be interested in dishing out loans to support that process.
Kozachenko predicts that as a result the industry will be ready to shine in three to five years. Some producers, primarily those churning out sunflower oil and vegetables, might only take a year to adapt, while MHP already made its first export shipment to the EU last week.
Kyiv Post staff writer Kateryna Kapliuk can be reached [email protected].
