Ukraine will mostly benefit from WTO membership, especially the metals and chemical sectors, but the nation’s agriculture and food processing to take a hit.
ey expect the nation’s agriculture and food processing will take a hit. “Initially, WTO membership will negatively affect the agribusiness sector in the short term, meaning the next one to three years,” said Vitaliy Vavryshchuk, economics analyst at Dragon Capital.
Agriculture and the food processing industry account for 18 percent of Ukraine’s GDP and 28 percent of employment, according to recent figures. Despite strong fundamentals, the sector continues to underperform, he said, and WTO membership will jump-start long overdue agricultural restructuring.
“Accession will provide an incentive to reform and as importantly, send a signal to foreign investors that Ukrainian agriculture is open for business,” Vavryshchuk added.
Agricultural reform will not be painless, according to experts. WTO membership will force politicians to roll back protectionist and counter productive subsidy policies, allowing the development of a mature agribusiness market. “It will expose inefficient operations to increased competition and force efficiency, but in the long run it will help the ag sector develop faster,” said Morgan Williams, government affairs director for SigmaBleyzer.
The reasons for the sector’s chronic sluggish growth are primarily political. Corrupt post-independence privatizations, a lingering Soviet hangover, arbitrary subsidy and tax policies, and recent political paralysis have kept Ukraine’s historically productive soil fallow, experts said.
“Ukraine’s politicians need to resist the populist urge and keep their hands off the agricultural sector,” Williams said.
Government agriculture officials recognize the looming short-term hits, citing sugar, dairy, and vegetable production.
“These are concentrated in small agribusinesses, which might not be able to meet the quality requirements and standards in full measure,” said Yuriy Melnyk, Ukraine’s Minister of Agricultural Policy. Nevertheless, he emphasized the positive, adding, “Accession gives us the opportunity to participate in the world markets.”
Whether Melnyk, the only holdover from the ousted governing coalition of Viktor Yanukovych, truly views WTO membership as a net-positive for Ukrainian agriculture remains to be seen. His recent comments on future agricultural policy, according to some experts, are a mixed bag.
His support to end the agricultural land sale moratorium, and the establishment of a futures market, are universally viewed as positive by agriculture experts. But his recommendations to establish swine and cattle production in each oblast, and government involvement in the emerging biofuel industry, have raised some concern. Experts believe these moves reflect a potentially disastrous Soviet mindset.
“The private sector and market will do this job more efficiently than any government program,” Williams said.
The time it will take to recover from the short-term economic pain will largely depend on the political will to allow the agricultural sector to fully mature, experts said.
“Certainly, mid-sized producers will have to either grow or establish a niche, while small- and large- will benefit relatively quickly,” said Andriy Yarmak, an agriculture expert.
The agricultural processing and retailing sectors will recover more quickly as it has already attracted significant international interest.
“This half of the agriculture chain has attracted significant FDI, and WTO entry will attract even more,” Williams said.
International agribusinesses are optimistic about Ukraine’s potential, as evidenced by the soaring AgriHort Exposition attendance numbers.
Registered trade visitors have nearly tripled over the last five years from 1,900 people in 2003 to more than 5,000 this year. The exposition begins on Feb. 12.
