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COUNTRY REPORT:
UKRAINE
March 2015
Oleg Nivievskyi, Oleksa Stepanuik, Veronika Movchan, Mykola
Ryzhenkov and Yulia Ogarenko
Institute for Economic Research and Policy Consulting, Ukraine
This project has received funding from the European Union’s Seventh Framework Programme
for Research, Technological Development and Demonstration under grant agreement no 612755
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Content
MACROECONOMIC ENVIRONMENT AND POLICIES ..................................................................................... 4
1.1 Background data .......................................................................................................................... 4
1.2 Macroeconomic developments .................................................................................................... 5
1.3 Macro-economic and other general policies ..................................................................................... 6
1.4 Institutional environment of the agro-food sector ............................................................................ 8
2. SITUATION AND DEVELOPMENT OF THE AGRICULTURAL SECTOR ........................................................ 12
2.1 Role of agricultural sector in the economy ...................................................................................... 12
2.2 Land use ............................................................................................................................................ 12
2.3 Farm structures (including land properties) ..................................................................................... 13
2.4 Production and output (including major sectors and yields) ........................................................... 14
2.4.1 Crop production and yields ....................................................................................................... 16
2.4.2 Animal production ..................................................................................................................... 21
2.4.3 Organic production .................................................................................................................... 26
2.5 Prices, costs and income .................................................................................................................. 27
2.5.1 Prices ......................................................................................................................................... 27
2.5.2 Costs .......................................................................................................................................... 28
2.5.3 Farm income .............................................................................................................................. 29
3. SITUATION AND DEVELOPMENT OF UPSTREAM AND DOWNSTREAM SECTORS .................................. 30
3.1 Input production and use ................................................................................................................. 30
3.1.1 Input production ....................................................................................................................... 30
3.1.2 Input use .................................................................................................................................... 31
3.2 Food industry .................................................................................................................................... 33
3.2.1 Food production ........................................................................................................................ 33
3.2.2 Structure of the food sector ...................................................................................................... 35
3.2.3 Prices, costs and performance indicators ................................................................................. 36
3.2.4 Food law .................................................................................................................................... 37
3.3 Bioenergy production ....................................................................................................................... 38
3.4 Food retail and consumption patterns ............................................................................................. 40
3.4.1 Food retail sector ...................................................................................................................... 40
3.4.2 Consumption ............................................................................................................................. 42
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4. AGRI-FOOD TRADE AND TRADE RELATIONS .......................................................................................... 44
4.1 Agri-food trade ................................................................................................................................. 44
4.1.1 Overall agri-food trade .............................................................................................................. 44
4.1.2 Agri-food trade by trading partner ............................................................................................ 45
4.1.3 Agri-food trade by products ...................................................................................................... 46
4.2 Trade policy and infrastructures ...................................................................................................... 47
4.2.1 Measures directly affecting trade imports and exports ............................................................ 47
4.2.2 Logistics and infrastructure ....................................................................................................... 49
4.2.3 Main trade agreements ............................................................................................................. 50
5. AGRICULTURAL POLICY AND INSTITUTIONAL ENVIRONMENT............................................................... 55
5.1 Agricultural policy framework .......................................................................................................... 55
5.1.1 Agricultural policy objectives and mechanisms ........................................................................ 55
5.1.2 Institutional arrangements ........................................................................................................ 57
6 FUTURE PERSPECTIVES FOR THE AGRICULTURAL AND FOOD SECTOR ................................................... 59
6.1. Strengths and weaknesses of the agricultural and food sector ...................................................... 59
6.2. Potential of production and yields by sectors ................................................................................. 60
6.3. Growth attractiveness for specific commodities ............................................................................ 60
7. RECOMMENDATIONS ............................................................................................................................. 63
8. CONCLUSION .......................................................................................................................................... 65
9. BIBLIOGRAPHY ........................................................................................................................................ 66
10. ANNEXES ............................................................................................................................................... 68
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MACROECONOMIC ENVIRONMENT AND POLICIES
1.1 Background data
Figure 1 Administrative Map of Ukraine (Source : www.nationsonline.org)
Table 1 Main country view 2013
Ukraine – Year 2013
Population (1st January) (thousand inhabitants) 45,553
Area* (sq. km) 600,355
Real GDP growth rate (% change on previous year) 0.0
Unemployment rate (%) 7.2
Agricultural area (thousand ha) 42,756
Agriculture, hunting and fishing (% of total GVA) 8.7
Source: Ukrstat
*Including occupied territories
Ukraine is one of the largest European countries by the area. In the west it borders with Poland,
Slovakia, Hungary and Romania, and with Belarus and Russia in the north and east. Ukraine has also
access to the year-round ice-free Black Sea. Ukraine has a relatively low population density.
Ukraine’s landscape is mostly flat, with small mountainous area in the West (about 5%). About 70.8% of
Ukrainian territory is occupied by agricultural land (Ukraine accounts for 1/3 of the world-wide stock of
the most fertile black soils, which are ideally suited for crop production (see Annexes, Figure 27), 17.6%
is occupied by forests, 4.9% is covered by water and 4.2% is land under buildings, the rest 3.4% is
occupied by other types of land. The predominant climate type in Ukraine is temperate continental and
semiarid in the South-East (see Annexes, Figure 25), only southeast of Crimea is subtropical. Average
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temperature ranges between -2 and -7.5 °С in January and 17.5 and 22 °С in July, with the maximum
temperature range from -40 °С to 42 °С across the country and year. Humidity declines from west to
east, creating milder and moister conditions in the west and making the ‘continental’ climate more
pronounced (see Annexes, Figure 26).
1.2 Macroeconomic developments
Table 2 Main macroeconomic indicators in Ukraine 2004–2013
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Average Population (million persons) 47.6 47.3 46.9 46.6 46.4 46.1 46 45.8 45.6 45.6
Real GDP growth rate (% change on
previous year) 12.1 2.7 7.3 7.9 2.3 -14.8 4.2 5.2 0.2 0.0
GDP at current prices (bill. UAH) 345 441 544 721 948 913 1083 1302 1411 1455
GDP per capita at current prices
(thousand UAH) 7.3 9.4 11.6 15.5 20.5 19.8 23.6 28.5 31.0 32.0
GDP per capita at purchasing power
(current prices; thousand USD) 6.1 6.5 7.2 8.1 8.4 7.3 7.7 8.3 8.5 8.8
GVA at current prices (billion UAH) 313 389 474 635 824 796 954 1120 1214 1268
GDP deflator (%) 15.1 24.5 14.8 22.7 28.6 13.0 13.8 14.3 8.1 3.1
Inflation (annual average, % change on
previous year) 9.0 13.5 9.1 12.8 25.2 15.9 9.4 8.0 0.6 -0.3
Total employment (million persons) 20.3 20.7 20.7 20.9 21.0 20.2 20.3 20.3 20.4 20.4
Unemployment rate (%) 8.6 7.2 6.8 6.4 6.4 8.8 8.1 7.9 7.5 7.2
Current account balance (% of GDP) 10.6 2.9 -1.5 -3.7 -7.0 -1.5 -2.2 -6.3 -8.1 -9.0
General government balance (% of GDP) -3.0 -1.9 -0.7 -1.1 -1.5 -2.4 -6.0 -1.8 -3.6 -4.4
Public and publicly guaranteed gross
debt (% of GDP) 24.7 17.7 14.8 12.5 19.9 33.0 39.9 36.0 37.4 40.1
Exchange rate, annual average
(UAH/EUR) 6.6 6.4 6.3 7.0 7.7 10.9 10.5 11.1 10.3 10.6
Exchange rate, annual average
(UAH/USD) 5.3 5.1 5.1 5.1 5.3 7.8 7.9 8.0 8.0 8.0
Consolidated government spending
(billion UAH) 101 142 175 226 309 307 378 417 492 506
Sources: Ukrstat, National Bank of Ukraine, World Bank
Over the last decade Ukrainian economy experienced the periods of boom (2004/08), bust (2008/09),
tepid recovery (2010/11), stagnation (2012-2013) and recession (2013/today). During the boom phase
Ukraine experienced large capital inflows and credit boom. Economic growth was also supported by
favourable prices for Ukrainian exports. Under fixed exchange rate regime (national currency Hryvnia
was pegged to the USD), this translated in double-digit inflation. Consumer prices almost doubled
between 2008 and 2013.
Overheating of domestic economy and global financial crisis caused the fall of Ukrainian GDP by almost
15% in 2009. As a result the National Bank of Ukraine had to devalue national currency from 5 to almost
8 UAH per USD in 2009. Devaluation improved external competitiveness and reduced external
imbalances.
In 2010/11 Ukrainian economy somewhat recovered but production remained below the levels of 2007.
Macroeconomic imbalances also remained. Fixed exchange rate (at new level) and populist social
policies allowed consumption to recover to the boom-time levels while investments and exports
remained depressed. This led to widening of current account deficit that was financed by external
borrowing.
In 2012 and 2013 economy experienced minimal economic growth and low inflation. This could be
outright recession but the economic stimulus from the Euro-2012 football championship and bumper
crop harvest in 2013 delayed it by significant infrastructure spending and robust growth in agriculture.
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Fiscal policy over the last decade was dominated by populist social policies leading to persistently
growing non-discretionary spending. Growth of revenues did not match the growth of expenditures.
Government debt grew from 12% to over 40% of the GDP as a result.
Labour market in Ukraine is characterized by comparatively low unemployment. Although
unemployment rate jumped from 6.4% in 2008 to 8.8% in 2009 it gradually went down ever since and is
significantly lower than in many EU countries. This can be explained by paternalistic labour policies,
unfavorable demographic tendencies and relatively low retirement age (60 years for women and 62 for
men). Significant incidence of subsistence farming in rural areas also contributed to low unemployment.
1.3 Macro-economic and other general policies
Ukraine appears to have unattractive business environment and generally has been reluctant in
undertaking urgently required reforms. The country is ranked 112th out of 189 in the World Bank’s
Ease-of-Doing-Business rating (World Bank, 2013), lower than all its neighbors and CIS peers (see
Erreur ! Source du renvoi introuvable.). In all of Eastern Europe and Central Asia, only Uzbekistan and
Tajikistan rank behind Ukraine. In the global, Ukraine’s business environment compares to that of the
Lebanon, Papua New Guinea and Pakistan. Regulatory barriers to start and operate a business are high,
and entry and operation costs are particularly burdensome for growing export sectors (World Bank,
2010b). Constraints related to the payment of taxes, trade, protecting investments in Ukraine are
among the worst in the world (see Erreur ! Source du renvoi introuvable.). In general, the businesses
have to comply with a long list of permits, licensing, unnecessary mandatory standards and certifications
and other hurdles imposed by the outdated Soviet-era regulatory system.
Figure 2 Ease of Doing Business in Ukraine and ECA region Source : World Bank (2013a)
Figure 3 Ranking of Ukraine on Doing Business Topics Source: World Bank (2013a)
It has to be mentioned that on a paper (nominally) Ukraine has implemented some of the best practices
to improve business environment legislation. For example, over the last five years tax laws were codified
and streamlined, new businesses received tax exemptions, SMEs received expanded access to simplified
taxation and reporting, number of business permits was reduced and starting new business became
simpler. Overall recent reforms in Ukraine were narrowly tailored to improve Ukraine’s performance in
the Doing business report. This was successful and Ukraine increased its ranking from 183th in 2013 to
112th in 2014. Real implementation of the improved business rules, however, has been seriously
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pervaded by glaring corruption. According to 2013 corruption perception index by Transparency
international, Ukraine ranks 144th of 177 countries1. Although this ranking somewhat overstates the
incidence of corruption in Ukraine, it does reflect the absence of trust in public institutions, as well as
limited degree of basic property rights and rule of law.
On a more disaggregated (regional) level the western regions of Ukraine appear to have better business
environment, especially compared to the eastern part of Ukraine. According to the recent IER (2014)
Investment Attractiveness Study, all regions of Ukraine were surveyed on so-called hard and soft factors,
were hard factors denoting mainly natural endowments, while the soft ones describing business
environment (see Erreur ! Source du renvoi introuvable. for the list of the soft factors). As Erreur !
Source du renvoi introuvable. shows the very western regions (Lviv, Ivano-Frankivsk, Volyn) significantly
outperform especially the very eastern regions (Donetsk and Luhansk) as well as Crimea in terms of
business environment in 2014. Erreur ! Source du renvoi introuvable. gives a more differentiated view
but the general impression is only magnified: western regions consistently outperform the rest of
Ukraine in terms of different aspects of business environment. For example, corruption is the lowest in
Lviv, Ivano-Frankivsk, Volyn, Ternopil and Chernivtsi regions (index converges to 2), while it is the
highest in Crimea (index converges to 1). Business expectations are also the highest in Lviv, Ivano-
Frankivsk regions (index converges to 2) and the worst in Donetsk and Poltava (index converges to 1).
Figure 4 Business Environment Ranking of Ukraine’s
regions Source : IER (2014) ; Note : index changes from 1 (worst) to 2 (best)
Figure 5 Ranking of Ukraine’s Regions on Business Environment
Topics Source: IER (2014) ; Note : index changes from 1 (worst) to 2 (best)
Despite the unattractive business environment the FDI inflows have been taking place. They were
attracted primarily by cheap labour, natural resources, large potential market and proximity to the EU.
In case of agri-food business Ukraine’s natural resources i.e land and climate were the main drivers of
FDI. Relative openness of the sector to foreign investment also contributed. Ukraine was among the ten
countries with the largest shares of agriculture in the total FDI inflows (World Bank, 2013), with 4 % of
agriculture in the total FDI inflows from 2005-2007 (compared to the typical share of less than 1%).
Since then, the share of agriculture in the total FDI decreased to about 1.3% in 2013 (Figure 6а). Unlike
primary agriculture, food processing’s share of the total FDI inflow has been relatively stable at about
5% over the last decade and generally speaking corresponds to its contribution to the GDP. 1 http://cpi.transparency.org/cpi2013/results/
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Ukraine’s capital investments have been growing continuously except for the shortfall in 2009, the year
of the global financial crisis. The share of agriculture that has been 6% in the total capital investments on
average over the last decade is closer to the contribution the sector makes to the GDP, while the food
processing’s share has been 5.5 % on average since 2007.
Figure 6 Development and structure of FDI and capital investments in Ukraine (Source: Ukrstat)
1.4 Institutional environment of the agro-food sector
Overall assessment
Ukraine’s institutional environment in agro-food sector is constructed in a way that agriculture receives
generous agricultural tax benefits, a low emphasis on the provision of public infrastructure and other
supporting services, and high transaction costs due to the excessive regulatory environment.
Agricultural policy in Ukraine is focused on sub-sector strategies rather than creation of a level playing
field. It is based on support to specific sub-sectors (field crops, pigs and cattle), primarily through
payments based on area (in hectares), animal heads and outputs, a large concessional credit program,
and tax privileges. In addition, some tariff and non-tariff protection of domestic producers exists, along
with domestic measures such as minimum purchase prices and the state procurement requirements.
Moreover, despite the existence of formally established governmental objectives and the state
programs, policy-making continues to be ad hoc and opportunistic, lacking a cohesive long-term
strategic perspective with state interventions aligned with economic principles (World Bank, 2013b).
Public support
The overall level of agricultural producer support is relatively high, about 1.62% of the GDP. This is high
compared to other emerging economies, as well as compared to the OECD average (about 0.34%, see
section 5.1.1 for details). Public expenditures in the overall support have declined and are not significant
at the moment. They generally have been shifting from coupled to decoupled measures. The lion’s share
of the agricultural producer support in Ukraine is channeled through tax exemption benefits. On average
agricultural tax benefits comprised 10% of the value added generated in agriculture (see section 5.1.1
for more details on the public support to agriculture).
Overall, Ukraine’s agricultural market and trade policy framework mean that exported agricultural
products tend to be taxed, while imported goods tend to receive support. Export restrictions on grains
were implemented five times in the last seven marketing years on the food security grounds, although
the mechanism by which such restrictions would improve the food security were not clear. Export
restrictions (in 2006/07, 2007/08, 2010/11 and in 2011/12) took the form of either quotas or export
taxes. In the 2012/13 marketing year, export restrictions took the form of voluntary export quotas.
Learning from the past experience, grain traders took action to reduce the uncertainty of such
restrictions and signed a Memorandum of Understanding with the Ministry of Agricultural Policy and
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Food by which they voluntarily agreed to cap their grain exports at 80% of the grain exportable volumes
(World Bank, 2013b).
Access to credits
Access to credits for farmers is very limited in Ukraine. Figure 7 shows that the share of agricultural
loans in the total volume of loans relative to the agriculture’s contribution to the GDP is by far lower in
Ukraine than in the EU. In Ukraine, 75% of companies in the agribusiness sector report poor access to
finance as a key barrier to further expansion and investment. Internal self-financing in the form of
retained earnings (60%) and personal savings (13%) remains the most prominent source of funding
among agribusiness enterprises (IFC, 2011). External financing through bank credit (28%) and
trade/supplier finance (5%) rarely appears to be a viable option for agribusinesses. About half of the
producers sell 80-100% of their new harvest immediately to finance their working capital.
Figure 7 Share of agricultural loans in the total volume of
loans in Ukraine and other countries
Source: World Bank/IFC (2014); Note: Ratio between loans to
agricultural companies in total corporate loans and the relative share of
the agricultural sector in GDP. For all countries the data is for 2010, for
Kyrgyzstan – average over 2010-12.
Figure 8 Outstanding loans from commercial banks in
Ukraine
Source: own presentation based on the data from the
National Bank of Ukraine
The banking sector has been the main source of external financing for agriculture. The share of
agriculture in banking sector’s loan portfolios is about 5.9% in the aftermath of the global financial crisis
(see Figure 8). The share of food processing sector in banks’ loan portfolios is comparable to the share of
primary agriculture, i.e. 5.2% over the same period. Accesses to financial resources have primarily large
agro-holdings or enterprises with considerable share in the food sector. The main financial source for
small and medium enterprises is retained revenues.
Other financial institutions play minor role in Ukrainian financial sector and specifically in agricultural
financing. Credit unions remain marginal and are slowly losing the small market share that they have.
Agricultural insurance is also underdeveloped. Agricultural producers generally do not trust insurance as
a result. The value of agricultural leasing is also small (1% of agricultural output). Nevertheless
agriculture constitutes 13% of all leasing transactions and continues to rapidly increase (World Bank,
2013b).
Most banks do not offer specific agricultural products. Thus even small and straightforward seasonal
loans require business-specific risk assessments. However the average profitability and growth potential
of farms is misleading. Current risk assessment tools cannot capture individual client’s risks in primary
agriculture and thus financial support for small and medium producers is often denied.
Main barriers for providing financial resources to farms include lack of professional bookkeeping in
farms, inability to use land as a collateral and strict National Bank of Ukraine (NBU) provisioning
regulations regarding foreign exchange lending (Otten 2012).
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Access to market information
Ukraine has a great need for modern agricultural information system. Lack of control and outdated data
management systems often makes data collected by the state statistical committee unreliable or
contradictory. Among other things, no accurate information on food production and demand is
available. As a result enterprises cannot effectively respond to food shortages and the government
undertakes harmful interventions. Also the subsidies information system is completely absent. Thus
there is no transparency in subsidies allocation and no public control over it.
Agricultural land ownership
The territory of Ukraine is 60.4 million hectares, 69% (41.6 million hectares) of which is agricultural land.
About 74% (30.8 million hectares) of this land is private, the other 26% is state and communal. About
8% (2.6 million hectares) of the agricultural area has been developed for irrigation. Close to 80% of this
area is served by pressurized sprinkler irrigation. Most of the irrigated area is concentrated in the
southern part of the country.
Ukraine went through a rapid agricultural land structure transformation in the 90s when the land area of
collective farms was distributed between the collective farm workers and rural social infrastructure
servants. Depending on the available land, each worker received a certificate for a “land-share” of 4-8
hectares in the unspecified location. Some 6.92 million citizens of Ukraine received these certificates. By
2013, 96.7% of them converted these land shares certificates into legally valid land deeds,2 and so
became owners of land plots with specified location.
There is a moratorium on agricultural land buy-and-sell transactions in Ukraine until 2016. Agricultural
producers operate predominantly on leased agricultural land, i.e. 84.5% (17.4 million ha) of cultivated
agricultural land. The current owners of “land-shares” are mainly pensioners (LRB 2013a) whose
children have typically moved away to work in urban areas. Land is now typically leased for 4-10 years,
with maximum periods of 49 years. The majority of land rental rates ranged from USD 25/ha to
USD 75/ha in 2012 (LRB 2013b), but a high proportion of rental payments is made in kind. The
government set the minimum rental value at 3% of the normative value of land, which now is about
USD 2,600 per hectare on average. This represents the floor price for rental agreements.
Agricultural education, research, and advisory services
Ukraine experiences shortage of adequately trained agricultural specialists at all levels. Overall, there
are 22 agricultural universities in Ukraine with a total of about 180,000 students and about 47,000
graduates in 2013. This exceeds any normal benchmark and has resulted in student’s weak technical,
managerial and analytical skills (Koester et al 2010). Farmers cannot easily recruit the experts they need
for a more efficient operation of their agricultural enterprises and have to draw on-job training
programs and schools. Large oversupply of students also means that there are not sufficient
employment opportunities for students. Such a situation is caused by the flawed system of university
financing and incentives framework. State financing (about 37.3% of the total agricultural budget) is
allocated on the number of students rather than performance criteria. There is no academic and
financial autonomy of universities in Ukraine. Also, low salaries, problems with recognition of degrees
from universities outside Ukraine, corrupted process of promotion and recruitment prevents the
reorganization of agricultural universities.
Ukraine’s agricultural research system appears to be disconnected from both the practical needs of
Ukraine’s farmers as well as international research efforts, and it suffers from the same institutional and
management weaknesses as the education system. The National Academy of Agricultural Science is
2 However, according to the land code of 2001 (as well as envisaged legislative changes), land ownership by foreign
physical or legal persons is not (and will not be) allowed. Agricultural land inherited by foreign physical and legal
persons and by persons without citizenship is even subject to alienation within a year.
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Ukraine’s main institution for agricultural research. It has a special status that provides it with complete
autonomy without independent auditing or any state control. Its involvement is limited to the teaching
of PhD students. It oversees 340 institutes and experimental farms, of which five are national research
centers, 52 research institutes, and more than 200 experimental farms (Koester et al 2010). Ukrainian
agricultural economists are not particularly visible in international research, with only a few publishing
their work in international journals and presenting papers at international conferences (see von
Cramon-Taubadel and Nivievskyi 2011).
Ukraine’s agricultural advisory services are underdeveloped. State support is marginal and the services
remain largely underfunded. The credibility of public advisory services is undermined and reliability of
extension officers is further undermined by low performance of governmental institutions to which they
are affiliated or from where they graduated. Most development in extension services is privately driven
and fee-based (World Bank, 2013a).
Sanitary and phytosanitary services or National Quality Infrastructure
Ukraine’s sanitary and phytosanitary control system is complicated and characterized by fragmented
supervisory agencies, significant bureaucracy and corruption, but low effectiveness in terms of
protecting the health of people, animals and plants. Ukraine continues to use sanitary and phytosanitary
regulations which are not largely WTO compliant. Total compliance costs of the sanitary control system
amount to between 2.6% and 4.9% of annual turnover of agricultural enterprises, depending on the
sector (Nivievskyi, 2013). The burden of the phytosanitary measures for private sector is 7.5 higher in
Ukraine than in the EU (IFC, 2014).
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2. SITUATION AND DEVELOPMENT OF THE
AGRICULTURAL SECTOR
2.1 Role of agricultural sector in the economy
Agriculture plays an increasingly important role in the Ukrainian economy. Its share in the GDP
(including forestry and fishery) increased from 7.5% in 2008 to 8.7% in 2013. The share of agriculture in
the total employment in Ukraine has stayed roughly the same, i.e. 18% in 2000 and 17% in 2013
(excluding rural households). Rural population constitutes 31% (14 million people) of the total
population.
If upstream and downstream industries of agriculture (input supply and food processing) are also
considered, the contribution of the sector to the Ukrainian economy increases roughly to 22% of GDP
(World Bank, 2013a).
The food industry also plays important role in the Ukrainian economy. Between 2001 and 2013, the food
industry’s share of the GDP in Ukraine has been in the range of about 7-9%, with the exception of 2004
when both agriculture and food industry suffered from the consequences of a severe crop winter-kill.
Employment in the food industry has been almost constant at about 4% of the total employment in
Ukraine.
Agri-food products play an increasingly important role in the country’s trade balance. The share of agri-
food exports in the total exports increased from 12% in 2005 to 27% in 2013. Such a significant increase
was mainly driven by the increased demand from the global food markets as well as the relatively poor
performance by the Ukrainian industry.
In the future, the share of agriculture may increase further as services usually grow slowly and the
agricultural productivity in Ukraine is far from potential. The increasing role of agri-food sector seems
especially likely against the current recession in the industry and ever-growing global demand for food.
2.2 Land use Table 3 Agricultural land use in Ukraine 2008–2013, thousand ha
2008 2009 2010 2011 2012 2013
Land area, total 60,355 60,355 60,355 60,355 60,355 60,355
Agricultural land, total 41,626 41,596 41,576 41,558 41,536 41,526
Arable land 32,473 32,478 32,477 32,499 32,518 32,526
Permanent crops in bearing age 304 300 291 293 291 289
Orchards 233 229 223 223 223 222
Vineyards 71 71 68 69 68 67
Permanent grassland 7,918 7,900 7,893 7,886 7,870 7,856
Hayfields 2,416 2,410 2,411 2,412 2,411 2,409
Pastures 5,502 5,490 5,482 5,475 5,460 5,447
Fallow land owned by
enterprises and individuals 192 193 180 164 147 148
Other agricultural land 738 725 736 716 710 708
Sources: Ukrstat
The territory of Ukraine is 60.4 million hectares, 69% (41.6 million hectares) of which is agricultural land
(see Table 3). About 5% (2.6 million hectares) of the agricultural area has been developed for irrigation.
Most of the irrigated area is concentrated in the southern part of the country. The area actually irrigated
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has declined from 2.2 million ha in 2003 to 1.5 million ha in 2013. About 31 million ha of agricultural
land is arable and 27.5 million ha are now used for crop production. More than half of the Ukraine’s
arable land is the world’s most productive black soil, providing an excellent basis for the production of
crops, livestock and energy crops (World Bank, 2008).
Overall, the area of agricultural land slowly decreases in Ukraine (100 thousands hectares ceased to be
agricultural land during 2008-2013 due to urbanization). Even more important is soil erosion, more than
500 million tons of soil is annually eroded in the country. Every year, erosion is causing a loss of soil
fertility over the entire arable land that can be valued currently at around USD 5 billion, in nutrient
equivalent (World Bank/FAO, 2014). So the potential for the land expansion and resulting growth in crop
production is not significant in Ukraine.
2.3 Farm structures (including land properties)
Table 4: Land use by farm type, 2013
Number of units Land area, total
(1000 ha)
Agricultural land,
total (1000 ha)
Arable land (1000
ha)
Average area of
arable land (ha)
Hayfields and
pastures (1000 ha)
Agricultural
holdings, private 55,858 21,167 20,437 19,187 343 1,047
Corporate farms 14,724 - 15,027 14,081 956 -
Peasant farms 40,856 - 4,452 4,310 105 -
Agricultural
holdings, state-
owned
278 1,144 959 796 2,863 128
Households 4.2 million 16,546 15,958 11,846 3 3,386
Source: Ukrstat
Table 5 Agricultural holdings by size classes by UAA
2010 2011 2012 2013
Area (ha)
Number of
agricultural
holdings
Area (ha)
Number of
agricultural
holdings
Area (ha)
Number of
agricultural
holdings
Area (ha)
Number of
agricultural
holdings
TOTAL 21,585,900 56,493 21,570,600 56,133 21,914,200 55,866 21,800,100 55858
0 - 7,669 - 7,877 - 8,214 - 8416
< 5.0 18,300 5,784 17,800 5,639 16,800 5,332 16,000 5026
5.1–10.0 31,900 4,038 31,400 3,983 30,000 3,809 29,600 3755
10.1–20.0 76,300 4,925 75,600 4,897 74,200 4,795 74,100 4784
20.1–50.0 519,800 13,707 512,200 13,535 504,300 13,334 504,000 13294
50.1–100.0 345,200 4,831 350,000 4,895 360,900 5,016 383,000 5275
100.1–500.0 1,743,100 7,181 1,757,400 7,195 1,777,400 7,261 1,770,900 7233
500.1–
1000.0 1,919,400 2,667 1,870,400 2,595 1,883,900 2,624 1,908,400 2666
1000.1–
2000.0 3,822,800 2,661 3,664,800 2,549 3,683,600 2,565 3,636,000 2531
2000.1–
3000.0 3,295,500 1,347 3,188,800 1,304 3,102,500 1,270 3,038,400 1251
3000.1–
4000.0 2,293,000 666 2,206,300 640 2,178,900 632 2,141,600 619
4000.1–
5000.0 1,670,500 376 1,577,900 355 1,481,800 334 1,434,000 323
5000.1–
7000.0 1,919,600 332 1,975,200 342 1,959,100 337 2,016,200 345
7000.1–
10000.0 1,479,600 178 1,456,000 175 1,504,300 179 1,379,000 165
> 10000.0 2,450,900 131 2,886,800 152 3,356,500 164 3,468,900 175
Sources: Ukrstat
The gross agricultural output (GAO) in Ukraine is generated by two groups of producers, i.e. enterprises
and households. There are more than 4 million small households (having 2.8 ha of land each on average)
producing food primarily for subsistence needs, but managing 38% of the Ukraine’s total agricultural
14
land and accounting for nearly 30% of the country’s GAO in 2013. The rest of agricultural output was
generated mainly by private agricultural enterprises, since the state-owned agricultural enterprises
generated only about 1% of the GAO in 2013.
Agricultural enterprises are of two types in Ukraine: corporate farms and peasant farms. These farms,
unlike households, are registered legal entities. There are about 14,724 corporate farms (mainly the
successors of the former collective and state farms) each cultivating about 956 ha of arable land on
average and generating 45% of the GAO in 2013. There are about 40,856 much smaller peasant farms
(mainly run by individual farmers) with an average of 105 ha of arable land each, altogether cultivating
only about 13% of the Ukraine’s arable land generating 7.6% of the total GAO in 2013.
Households dominate the production of the entire range of livestock products, i.e. their share is 78% in
raw milk, 74% in beef and veal, 35% in pork and 17% in poultry output in 2013. However, the share of
households has been shrinking due to the recovery of output of agricultural enterprises. Households
also prevail in the production of potatoes, vegetables and fruits, i.e. 97%, 88%, and 81% respectively in
2013. Agricultural enterprises (including peasant farms) play a leading role mainly in the cultivation of
export-oriented crops, they produced 79% of grains, 85% of sunflower seeds, and 98% of rapeseeds, and
84% of sugar beets in 2013. Peasant farms mainly produce crops rather than livestock, accounting for
about 12% of the total grains, 5.6% of sugar beets, 19% of sunflower seeds, 15.5% of soybeans and 18%
of rapeseeds, but only 2.6% of the total meat and 1.4% of raw milk produced in 2013. Peasant farms
employ the same cropping patterns as corporate farms yet produce at similar or lower rates of intensity,
which is the first hint that they face competitive disadvantages limiting their productivity growth.
Over the last decade Ukraine has been experiencing the process of land consolidation process that has
led to the emergence of large, vertically-oriented agri-holdings. The number of corporate farms has
shrunk from roughly 17,700 in 2004 to 14,724 in 2013. An increasing number of these farms is coming
under the control of agri-holdings, which were created with different purposes, in different sizes,
shapes, and organizational forms but share the common characteristics. Agri-holdings usually consist of
a mother company that, in most cases, is not involved in primary agricultural production but decides
overall strategy, production orientation and investments, and manages access to production factors,
including input and output markets, land and finance. This mother company is typically “holding” 5-50
individual corporate farms of about 2,000-15,000 ha each, with the size of the agri-holdings varying from
30,000 to 400,000 ha. The accumulation of these impressive “land banks” is the most visible and publicly
discussed feature of agri-holdings. In 2014, agricultural holdings farmed more than 6 million ha of
agricultural land in Ukraine (27% of the total area). The largest agri-holding is the UkrLandFarming with
the land bank of about 540 000 ha. These super large agri-holdings produced about 21% of the the GAO,
including 18.7% of the total crop output and 24.8% of the total livestock output in 2012 (UCAB, 2014).
2.4 Production and output (including major sectors and yields)
Since 2000, Ukrainian agriculture is experiencing a recovery after almost a decade of the transitional
recession. Still its output does not reach the pre-independence levels (see Figure 9). Agricultural
holdings’ output drastically dropped during the transition period. Households, on the other hand, used
agriculture for the subsistence during the period of transformation hardships and increased their level
of output. Over the last decade the share of agricultural holdings in the total output has been
persistently increasing.
15
Figure 9 Index of the Gross Agricultural Output (GAO) in Ukraine, 1990=100 (Source: Ukrstat)
Table 6 Agricultural output in 2004-2013 (million UAH, at current prices)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CROP OUTPUT 36,227 40,235 51,151 61,172 83,425 87,095 116,760 170,130 138,236 175,895
Wheat 8,634 7,764 7,350 11,104 19,491 16,533 18,297 29,760 24,386 30,478
Barley 4,286 4,384 5,453 5,318 10,587 8,519 8,104 12,273 10,947 10,941
Maize 3,881 2,459 3,326 6,186 8,273 8,906 14,895 31,199 31,761 24,666
Oats 369 264 289 406 796 461 352 795 951 910
Rye 628 334 241 474 854 587 369 742 889 717
Sunflower 3,509 4,604 5,364 7,793 8,923 12,073 20,441 28,120 29,956 32,993
Potatoes 12,667 17,688 24,957 27,215 31,559 35,890 47,752 57,572 31,477 41,421
Refined sugar 2,253 2,738 4,170 2,675 2,942 4,126 6,551 9,670 7,870 -
ANIMAL OUTPUT 25,507 34,816 32,055 41,180 54,398 57,276 70,302 77,504 82,764 76,964
Beef and veal 4,220 5,719 5,873 6,084 7,860 7,565 7,694 8,946 8,909 -
Pigmeat 5,073 7,004 6,138 7,375 10,890 10,952 11,441 14,030 16,464 -
Poultry meat 2,291 4,335 4,806 5,949 9,700 11,269 12,844 13,321 17,959 -
Milk 10,888 14,242 12,275 17,715 20,097 20,812 29,073 30,332 27,175 38,688
Eggs 3,035 3,516 2,964 4,057 5,851 6,677 9,251 10,875 12,257 12,881
AGRICULTURAL
GOODS OUTPUT
61,733 75,051 83,206 102,352 137,823 144,371 187,062 247,634 221,001 252,859
Sources: OECD, Ukrstat
16
Table 7 Share of individual products in agricultural output in 2004-2013 (%)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CROP OUTPUT 58.7 53.6 61.5 59.8 60.5 60.3 62.4 68.7 62.6 69.6
Wheat 14.0 10.3 8.8 10.9 14.1 11.5 9.8 12.0 11.0 12.1
Barley 6.9 5.8 6.6 5.2 7.7 5.9 4.3 5.0 5.0 4.3
Maize 6.3 3.3 4.0 6.0 6.0 6.2 8.0 12.6 14.4 9.8
Oats 0.6 0.4 0.4 0.4 0.6 0.3 0.2 0.3 0.4 0.4
Rye 1.0 0.5 0.3 0.5 0.6 0.4 0.2 0.3 0.4 0.3
Sunflower 5.7 6.1 6.5 7.6 6.5 8.4 10.9 11.4 13.6 13.1
Potatoes 20.5 23.6 30.0 26.6 22.9 24.9 25.5 23.3 14.2 16.4
Refined sugar 3.7 3.7 5.0 2.6 2.1 2.9 3.5 3.9 3.6 -
ANIMAL OUTPUT 41.3 46.4 38.5 40.2 39.5 39.7 37.6 31.3 37.5 30.4
Beef and veal 6.8 7.6 7.1 5.9 5.7 5.2 4.1 3.6 4.0 -
Pigmeat 8.2 9.3 7.4 7.2 7.9 7.6 6.1 5.7 7.5 -
Poultry meat 3.7 5.8 5.8 5.8 7.0 7.8 6.9 5.4 8.1 -
Milk 17.6 19.0 14.8 17.3 14.6 14.4 15.5 12.3 12.3 15.3
Eggs 4.9 4.7 3.6 4.0 4.3 4.6 5.0 4.4 5.6 5.1
Sources: OECD, Ukrstat, own calculations
Table 8 Gross Agricultural Output volume changes in 2004-2013 (% change from the previous year)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CROP OUTPUT
Wheat 386.77 6.73 -25.41 -0.07 85.72 -19.31 -19.32 32.47 -29.39 41.34
Barley 62.21 -19.03 26.36 -47.26 110.87 -6.17 -28.30 7.22 -23.76 9.00
Maize 28.97 -19.17 -10.34 15.49 54.25 -8.40 13.99 91.06 -8.22 47.65
Oats 7.05 -21.48 -12.71 -21.12 73.40 -22.56 -37.28 10.27 24.53 -25.79
Rye 155.21 -33.80 -44.64 -3.62 86.84 -9.23 -51.27 24.52 16.91 -5.78
Sunflower -28.31 54.29 13.14 -21.60 56.33 -2.48 6.40 28.04 -3.27 31.8
Potatoes 12.47 -6.23 0.02 -1.88 2.32 0.62 -4.89 29.63 -4.11 -4.3
Refined sugar -13.64 -0.37 21.18 -27.97 -15.85 -18.84 41.57 43.27 -17.13 -41.06
ANIMAL OUTPUT
Beef and veal -14.73 -9.09 1.00 -3.75 -12.16 -5.46 -5.69 -6.69 -2.66 10.12
Pigmeat -11.45 -11.65 6.56 20.64 -7.06 -10.75 19.89 11.60 -0.51 6.78
Poultry meat 16.23 30.88 18.61 16.98 12.88 13.33 7.39 4.37 7.12 8.71
Milk 0.35 0.04 -3.12 -7.71 -4.09 -1.28 -3.11 -1.44 4.14 -0.49
Eggs 4.00 9.13 9.11 -1.21 6.36 6.36 7.20 9.60 2.25 2.64
Sources: OECD, Ukrstat
2.4.1 Crop production and yields
Wheat, barley, maize and sunflower are the dominant crops, covering about 70% of the Ukraine’s total
arable land (Figure 10). Over the last decade the structure of the harvested area has somewhat
changed, mainly as Ukraine’s response to the global market developments. In absolute and relative
terms the harvested area of the main crops increased significantly, except barley. The most impressive
expansion was recorded for rapeseed and soybean, followed by sunflower and maize. This expansion
occurred at the cost of barley, rye, oats, millet, buckwheat and sugar beet. The fruit area was somewhat
reduced, while vegetable area gained additional 30 000 ha.
17
Figure 10 Structure of the harvested area of crops in 2004 and 2013, 1000 ha
Source: Ukrstat
Cereals
Figure 11 Structure of cereal production in Ukraine in 2004 and 2013, 1000 tons
Source: Ukrstat
Grains have traditionally been the leading crop in Ukraine, contributing 26.5% to the gross crop output
in 2013. Grain production already surpasses the pre-transition levels and reached a historical maximum
of 62 million tons in 2013. Ukraine has emerged as one of the world’s top grain exporters and continues
to increase its produce of exportable volumes of grains. Wheat and maize have been dominating the
grain production (Figure 11). The main reason for the dominance is growing livestock sector and thus
the consumption of the grain as feed is also increasing (in poultry and pig production), as well as
growing global demand for maize. The rest of grains (e.g. rye, oats and other grains) have been losing
their share over the last decade. In general, grain yields have increased by 40% over the last decade
(about 4 t/ha), with some short-term fluctuation. Better technologies, farm practices, management,
production and post-harvest logistics investments have been the main reasons for improved yields. Still,
the yield levels in Ukraine are far from the potential and from the countries with higher specific
intensities, i.e. in Western Europe in particular.
Wheat; 5
534
Barley; 4
515
Maize; 2
300
Other
grains; 2
013
Rape; 107
Sunflow
er; 3 427
Soya; 256
Sugar beet;
697
Potatoes; 1
556
Vegetables
; 468
Fruits; 281 Other; 5
340
2004
Wheat; 6
566
Barley; 3
233
Maize; 4
825
Other
grains; 791
Rape; 996
Sunflower;
5 089
Soya; 1 351
Sugar beet;
270
Potatoes; 1
394
Vegetables
; 494Fruits; 221
Other; 1
973
2013
Wheat; 17
520
Barley; 11
084
Grain
maize; 8
867
Oats; 1 007Rice; 80
Rye; 1 593
Millet; 459Buckweat;
294
Other; 93
2004
Wheat; 22
278
Barley; 7
561
Grain
maize; 30
900
Oats; 467
Rice; 145
Rye; 638
Millet; 102Buckweat;
179
Other; 356
2013
18
Balman et al (2014) also report that productivity of big agri-holding farms in winter wheat and maize
production was on average 17% higher than in independent farms in 2010-2012, and this tendency is
increasing over time. Higher productivity figures at agri-holdings resulted from more intensive
production technologies.
The positive development took place despite a persistent threat of the government to restrict grain
exports. Export restrictions (in 2006/07, 2007/08, 2010/11 and in 2011/12) were placed in the form of
either quotas or export taxes. In marketing year 2012/13, export restrictions took the form of voluntary
export quotas. Central Ukraine is the main region of grain production in Ukraine, with Poltava oblast
producing 5.64 million tons of grains in 2013 being the champion (Table 9).
Table 9 Production of grains in Ukraine regions 2004–2013, 1000 tons
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ukraine 41,809 38,016 34,258 29,295 53,290 46,028 39,271 56,747 46,216 62,997
Center 13,179 12,490 11,677 9,345 17,584 15,469 13,579 19,982 14,474 22,043
Vinnytsia region 2,097 2,035 2,075 1,686 3,378 3,092 3,111 4,244 3,625 4,844
Dnipropetrovsk region 3,057 2,908 2,635 1,672 3,694 2,817 2,709 3,456 1,554 3,710
Kirovohrad region 2,679 2,479 2,411 1,278 3,003 2,534 2,374 3,465 2,340 3,781
Poltava region 3,008 2,851 2,447 2,866 4,531 3,830 2,854 5,055 3,645 5,637
Cherkasy region 2,339 2,217 2,109 1,842 2,978 3,195 2,531 3,762 3,311 4,070
East 5,324 5,630 4,208 4,151 7,769 5,307 3,874 7,027 5,653 7,704
Donetsk region 2,045 1,912 1,646 1,187 2,332 1,724 1,797 2,286 1,643 2,210
Luhansk region 1,134 1,311 845 800 1,640 1,056 811 1,269 1,294 1,292
Kharkiv region 2,145 2,407 1,717 2,163 3,797 2,527 1,267 3,473 2,717 4,202
North 6,288 5,748 4,768 5,477 8,221 7,774 5,932 9,296 10,492 12,140
Zhytomyr region 821 750 725 741 1,102 1,238 1,087 1,507 1,695 2,103
Kyiv region 2,314 2,284 1,857 1,796 2,593 2,483 2,003 2,785 3,190 3,325
Sumy region 1,284 1,119 890 1,289 2,366 2,005 1,324 2,522 2,668 3,592
Chernihiv region 1,868 1,595 1,297 1,651 2,161 2,049 1,518 2,481 2,939 3,119
South 11,321 8,938 9,216 5,183 12,784 10,866 9,953 12,428 6,319 11,034
AR Crimea 1,205 1,160 1,221 1,228 1,734 1,663 1,404 1,931 908 766
Zaporizhia region 1,837 1,806 1,762 1,241 2,780 2,131 1,905 2,193 1,196 2,111
Mykolayiv region 2,697 1,763 1,951 641 2,386 2,465 2,201 2,628 1,278 2,803
Odessa region 3,647 2,669 2,808 1,263 3,682 2,839 2,929 3,194 1,880 3,670
Kherson region 1,936 1,539 1,474 810 2,202 1,769 1,515 2,481 1,055 1,684
West 5,697 5,210 4,390 5,140 6,932 6,613 5,933 8,014 9,279 10,076
Volyn region 780 677 524 573 717 640 579 748 869 902
Transcarpathian region 355 296 287 301 316 302 256 322 322 325
Ivano-Frankivsk region 358 335 293 300 399 402 347 537 616 678
Lviv region 678 627 587 612 837 823 623 962 1,066 1,186
Rivne region 636 599 483 569 770 696 636 791 918 1,101
Ternopil region 1,035 1,045 905 1,126 1,598 1,574 1,261 1,883 2,164 2,222
Khmelnytsky region 1,427 1,205 938 1,247 1,815 1,702 1,743 2,180 2,713 3,037
Chernivtsi region 427 427 373 414 480 475 489 593 612 626
Sources: Ukrstat
19
Oilseeds
Figure 12 Structure of oilseed production in Ukraine in 2004 and 2013, 1000 tons
Source: Ukrstat
Oilseed crops experienced the most impressive expansion over the last decade, i.e. from 3.5 million tons
in 2004 to a record 16.2 million tons in 2013. The impressive growth was possible due to the
combination of increased sowing areas (by almost 90%) and yields (from average 1 t/ha in 2004 to 2.15
t/ha in 2013). Balman et al (2014) also report that productivity of big agri-holding farms in sunflower
seed production was on average 16% higher than in independent farms in 2010-2012, and this tendency
is increasing over time. Higher productivity figures resulted from more intensive production
technologies at agri-holdings.
Sunflower seed dominates production of oilseeds in Ukraine and its production is trending upwards
(with some short-run fluctuations). The growth is especially pronounced in the last decade by
responding to the demand from growing crushing industry. Ukraine emerged as a top sunflower oil
exporter in the world and exported 3.85 million tons of sunflower oil in 2013.
Other oilseed crops - rapeseed and soy beans have been increasing in their production volume over the
last decade. Ukrainian farmers increased the rapeseed area and increased production from a meagre of
0.1 million tons in 2000 to 2.4 million tons in 2013, with a temporary maximum at 3 million tons in 2008.
This occurred mainly as a response to the high demand for rapeseed in the EU (mainly for biodiesel
production), 1.6 million tons of rapeseed were exported to the EU in 2013.
A remarkable growth of soybean production (from 0.3 million tons in 2004 to 2.8 million tons in 2013) is
mainly the response to the recovery of the domestic livestock sector that increasingly demand rich
protein fodder, as well as to the growing world markets. Sown area of soybean increased from 0.2
million ha to 1.35 million ha over the last decade. In regional perspective Central and Southern regions
of Ukraine dominate oilseed production, with Kirovohrad oblast (Central Ukraine) being the top
producer (1.55 million tons in 2013, see Table 10).
Rape;
149
Sunflow
er; 3
050
Soya;
363
2004
Rape; 2
353
Sunflow
er; 11
037
Soya; 2
763
2013
20
Table 10 Production of oilseeds in Ukraine regions 2004–2013, 1000 tons
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ukraine 3,562 5,604 6,820 5,944 10,212 9,281 9,921 12,454 12,074 16,232
Center 1,174 2,102 2,529 2,299 3,896 3,576 3,625 4,498 4,176 5,810
Vinnytsia region 93 130 244 241 610 556 512 644 660 980
Dnipropetrovsk region 384 655 835 678 991 903 924 1,115 841 1,342
Kirovohrad region 315 619 670 540 1,026 905 991 1,232 1,146 1,545
Poltava region 237 431 464 536 674 721 704 906 834 1,085
Cherkasy region 145 267 315 303 595 492 495 597 692 853
East 798 1,111 1,346 1,425 1,871 1,777 1,748 2,374 2,273 2,642
Donetsk region 353 477 560 495 753 683 600 785 746 796
Luhansk region 217 315 379 405 478 421 387 582 564 647
Kharkiv region 229 320 408 525 641 673 761 1,007 963 1,200
North 99 187 286 398 714 719 774 1,183 1,619 2,116
Zhytomyr region 5 14 38 33 105 113 113 165 288 330
Kyiv region 54 101 139 187 316 303 314 450 563 714
Sumy region 25 45 68 117 191 176 218 346 434 609
Chernihiv region 16 27 41 60 102 127 129 222 334 463
South 1,403 2,084 2,443 1,528 3,025 2,447 3,001 3,382 2,769 4,003
AR Crimea 42 48 69 60 87 68 92 131 132 166
Zaporizhia region 472 749 831 563 896 813 832 1,049 785 1,021
Mykolayiv region 279 460 558 318 739 630 734 762 738 1,062
Odessa region 293 372 422 217 640 436 605 647 527 989
Kherson region 317 454 562 371 664 500 737 793 587 766
West 88 119 216 295 706 762 773 1,018 1,236 1,660
Volyn region 4 6 11 14 35 38 55 65 90 122
Transcarpathian region 2 2 3 3 3 4 3 5 9 12
Ivano-Frankivsk region 4 4 6 8 25 36 25 55 79 102
Lviv region 11 12 23 25 57 92 102 101 145 200
Rivne region 5 17 33 35 70 83 68 87 109 136
Ternopil region 19 26 46 65 182 179 150 175 204 288
Khmelnytsky region 24 32 70 113 275 254 275 408 485 643
Chernivtsi region 19 19 25 34 58 75 97 121 114 158
Sources: Ukrstat
Fruits and vegetables
Figure 13 Structure of fruit and vegetable production in Ukraine in 2004 and 2013, 1000 tons
Source: Ukrstat
Fruit and vegetable production is already an important element of Ukraine’s rural economy given its
high labour intensity. Fruit and vegetable production accounts for about 21.7% of the gross agricultural
output and people employed in the sector occupy approximately 25% of the jobs available in the
agricultural sector. Fruit and vegetable production significantly increased over the last decade.
Vegetable production increased from 6.9 million tons in 2004 to 9.9 million tons in 2013. The growth is
especially pronounced in tomato sector (from 1 million tons in 2004 to 2.05 million tons in 2013) in the
South of Ukraine, where farmers achieve high yields by introducing modern irrigation technologies. Next
top performer is cucumber sector, its production doubled (from 0.5 million tons to 1 million tons) over
the last decade.
The growth of fruit production is comparable to the growth of vegetable production, i.e. by about 40%
(from 1.6 million tons in 2004 to 2.3 million tons in 2013). Top individual fruits in terms of production
Tomatoes;
1 024
Cucumbers
; 575
Table beet;
687
Pepper;
128
Carrots;
675
Onions;
722
Cherries,
sour; 179Apples;
717
Other
Fruits; 740
Other
Vegetibles;
3 154
2004 Tomatoes;
2 051
Cucumbers
; 1 044
Table beet;
927
Pepper;
194
Carrots;
930Onions; 1
020
Cherries,
sour; 201Apples; 1
211
Other
Fruits; 884
Other
Vegetibles;
3 706
2013
21
volumes are apples, cherries, pears and plums. The large export potential is almost untapped in Ukraine.
But for Ukraine to tap this potential, large investments to increase the productivity and reduce the
losses in the value chain are required. Key constraints in fruit production are the fragmented markets
and supply chains with low competitiveness and export capacity, difficulties in accessing finances, and
limited awareness and capacity among producers and processors for food safety and food quality.
Responding to the constant growth of the global consumption of fruits and vegetables, Ukraine has a
real opportunity to become a leading fruit and vegetable supplier to the EU and Russia (World Bank,
2013b).
Other crops
Due to the restructuring of the sugar sector and competitive disadvantage of beet sugar vis-à-vis cane
sugar, the production of sugar beets in Ukraine decreased from 44 million tons in 1990 to 11 million
tons in 2013 (with short-run fluctuations). Potatoes are mostly produced by households and their
production volume has been relatively stable around 19 million tons over the last two decades (22
million tons in 2013).
2.4.2 Animal production Livestock sector was severely hit after the collapse of the former Soviet Union. Livestock numbers have
dropped drastically by 2000. The number of cows continues to fall, while other sectors were able to
recover, e.g. pig and poultry sectors. As the Figure 15 shows, production of meat is dominated by
households, this is especially pronounced in beef sector. Poultry sector is a success story as it recovered
quite quickly after the transition collapse and turned into export-oriented sector. Production of pork is
catching up with the poultry sector. Overall, however, Ukraine is a net importer of meat but has all
chances to become a net exporter, mainly due to the domestically abundant grains.
Figure 14 Development of livestock numbers, 1000
Source: Ukrstat
22
Figure 15 Production of meat by categories of enterprises, tons
Source: Ukrstat
Table 11 Livestock number in Ukraine 2004–2013, 1000 heads
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Cattle (total) 6,903 6,514 6,175 5,491 5,079 4,827 4,494 4,426 4,646 4,534
of which cows 3,926 3,635 3,347 3,096 2,856 2,737 2,631 2,582 2,554 2,509
Pigs (total) 6,466 7,053 8,055 7,020 6,526 7,577 7,960 7,373 7,577 7,922
of which sows 482 501 546 433 440 518 518 472 488 502
Sheep 875 872 925 1,034 1,096 1,197 1,101 1,093 1,073 1,067
of which ewes 580 610 656 751 806 873 792 751 732 727
Goats 879 757 693 645 631 636 631 646 665 669
of which she-goats 606 548 502 477 469 473 467 479 497 501
Horses 591 555 534 498 466 443 414 396 377 354
of which she-horses 231 227 222 209 201 195 184 180 175 354
Poultry 152,783 161,994 166,531 169,290 177,556 191,446 203,840 200,761 214,071 230,290
hens and cocks - 142,573 - - 158,818 172,611 183,611 181,124 195,256 209,733
geese - 8,099 - - 6,820 5,939 6,269 6,304 5,628 5,116
Rabbits 5,219 5,436 5,199 5,136 5,387 5,621 5,355 5,643 5,658 -
Bee-hives 2,980 3,369 3,456 3,422 3,250 3,151 2,922 2,891 2,936 -
Sources: Ukrstat
23
Figure 16 Structure of meat production in Ukraine in 2004 and 2013, 1000 tons
Source: Ukrstat
Pork
Pork production has been on a fragile upward trend with some short-term fluctuations (Table 12). As
Ukrainian consumers favour pork, production volume of the sector has not dropped as drastically as in
beef production. At the moment large corporate pig farms are gaining market share, while pork
production of household and peasant farms is stagnating. Regionally, in Poltava (top grain producer) and
Ternopil regions pork production increased the most, i.e. more than 3 times over the last decade. The
next top performer is Donetsk region where pork production increased 2.28 times in the same period.
Production of pork decreased only in Rivne, Kharkiv, Chernihiv, and Sumy regions (Table 12).
Table 12 Pork production in Ukraine’s regions 2004–2013, 1000 tons
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ukraine 558.8 493.7 526.1 634.7 589.9 526.5 631.2 704.4 700.8 748.3
Center - 105.2 - - 143.7 119.3 147.0 164.8 159.9 180.1
Vinnytsia region - 12.6 - - 22.7 14.2 21.1 25.5 20.1 20.8
Dnipropetrovsk region - 30.3 - - 45.8 44.8 46.9 53.2 50.4 49.3
Kirovohrad region - 19.3 - - 21.5 15.8 21.3 23.1 26.9 26.9
Poltava region - 14.4 - - 20.9 17.6 25.6 28.2 28.3 46.9
Cherkasy region - 28.6 - - 32.8 26.9 32.1 34.8 34.2 36.2
East - 72.9 - - 73.8 69.2 84.1 102.3 96.3 107.0
Donetsk region - 30.0 - - 38.0 39.2 49.4 61.1 64.7 68.3
Luhansk region - 10.7 - - 11.7 8.3 12.2 13.0 11.8 12.7
Kharkiv region - 32.2 - - 24.1 21.7 22.5 28.2 19.8 26.0
North - 95.8 - - 93.6 81.9 94.8 107.6 106.5 111.0
Zhytomyr region - 20.9 - - 17.3 19.4 21.9 24.6 24.7 26.5
Kyiv region - 39.5 - - 41.0 39.0 44.1 53.0 58.0 58.3
Sumy region - 19.8 - - 16.8 9.7 12.3 14.0 11.3 12.0
Chernihiv region - 15.6 - - 18.5 13.8 16.5 16.0 12.5 14.2
South - 81.1 - - 113.6 106.6 120.6 140.7 136.2 132.5
AR Crimea - 18.3 - - 32.2 30.1 34.3 39.7 37.3 36.6
Zaporizhia region - 19.7 - - 31.8 31.3 34.4 41.0 39.9 37.6
Mykolayiv region - 6.9 - - 8.9 5.9 7.2 10.6 11.1 9.5
Odessa region - 19.9 - - 23.3 20.8 24.4 26.1 25.6 25.0
Kherson region - 16.3 - - 17.4 18.5 20.3 23.3 22.3 23.8
West - 138.7 - - 165.2 149.5 184.7 189.0 201.9 217.7
Volyn region - 24.5 - - 35.3 31.1 38.2 35.3 33.6 35.2
Transcarpathian region - 17.9 - - 22.4 19.2 21.6 23.2 28.8 29.0
Ivano-Frankivsk region - 15.9 - - 16.0 14.6 20.7 25.4 28.7 30.3
Lviv region - 21.0 - - 21.8 24.8 31.5 29.8 32.4 39.1
Rivne region - 24.2 - - 25.1 21.1 22.0 20.6 20.7 20.9
Ternopil region - 7.2 - - 13.7 11.8 17.7 19.0 19.9 23.6
Khmelnytsky region - 17.0 - - 13.5 10.7 15.6 17.8 20.4 21.7
Chernivtsi region - 11.0 - - 17.4 16.2 17.4 17.9 17.4 17.9
Sources: Ukrstat
Beef and
veal; 618
Pork; 559
Sheep and
goat meat;
17
Poultry;
376
Other
meat; 312004
Beef and
veal; 428
Pork; 748
Sheep and
goat meat;
19
Poultry; 1
168
Other
meat; 26
2013
24
Poultry
The decline in the total meat production since 2000 has been mitigated by the impressive growth in the
large-scale poultry sector, from 0.2 million tons in 1995 up to 1.2 million tons in 2013. This was probably
triggered by the short production cycle and the corresponding investment cycle. Poultry meat can be
produced in a short period of time, with high efficiency in transforming feed grain into meat. Large agri-
holdings dominate poultry production (about 77% market share). Two of the largest agri-holdings, MHP
and Agromars, dominate the poultry meat market (MHP’s share is about 50%). Whereas, the largest
agri-holding, UkrLandFarming, dominates the egg market. Distribution of poultry production across the
regions basically reflects the availability of grains/fodder, and production of poultry is mainly located in
the Central, North and in the West of Ukraine (Table 13).
Table 13 Poultry production in Ukraine’s regions 2004–2013, 1000 tons
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ukraine 375.5 496.6 589.3 689.4 794.0 894.2 953.5 995.2 1074.7 1168.3
Center - 142.8 - - 299.6 379.8 454.1 468.1 496.0 575.6
Vinnytsia region - 10.3 - - 17.2 18.9 16.3 18.1 40.8 132.3
Dnipropetrovsk region - 75.7 - - 125.7 141.1 149.7 162.9 166.3 165.1
Kirovohrad region - 5.7 - - 5.4 6.3 6.9 7.1 8.1 8.1
Poltava region - 7.3 - - 7.8 10.0 8.2 5.6 10.1 7.6
Cherkasy region - 43.8 - - 143.5 203.5 273.0 274.4 270.7 262.5
East - 77.7 - - 91.8 98.3 95.1 92.4 104.6 105.8
Donetsk region - 34.0 - - 39.4 40.7 37.6 41.4 47.7 44.1
Luhansk region - 13.8 - - 22.4 22.4 20.6 23.5 24.3 25.3
Kharkiv region - 29.9 - - 30.0 35.2 36.9 27.5 32.6 36.4
North - 108.6 - - 171.7 166.9 150.3 160.5 174.2 186.4
Zhytomyr region - 3.9 - - 3.0 3.5 4.5 4.2 4.5 5.3
Kyiv region - 93.2 - - 156.2 150.6 131.5 142.6 154.4 163.7
Sumy region - 7.0 - - 6.2 6.3 9.0 8.2 9.2 9.9
Chernihiv region - 4.5 - - 6.3 6.5 5.3 5.5 6.1 7.5
South - 103.1 - - 100.4 105.9 105.8 108.6 113.0 101.4
AR Crimea - 75.5 - - 77.3 81.7 80.9 84.5 88.4 72.1
Zaporizhia region - 10.5 - - 9.0 8.4 10.1 9.6 10.8 13.5
Mykolayiv region - 5.6 - - 6.3 8.5 9.1 9.4 8.2 9.5
Odessa region - 7.2 - - 4.2 3.5 2.4 2.4 2.2 2.1
Kherson region - 4.3 - - 3.6 3.8 3.3 2.7 3.4 4.2
West - 64.4 - - 130.5 143.3 148.2 165.6 186.9 199.1
Volyn region - 15.4 - - 33.0 39.7 41.4 43.9 47.1 56.0
Transcarpathian region - 4.9 - - 6.8 8.6 7.2 7.5 8.5 8.5
Ivano-Frankivsk region - 12.0 - - 15.8 16.5 16.1 19.7 20.8 21.0
Lviv region - 16.6 - - 42.9 43.8 47.6 50.5 59.8 60.3
Rivne region - 4.9 - - 11.0 11.9 12.2 17.6 18.3 20.3
Ternopil region - 5.2 - - 6.4 5.8 5.7 6.5 7.7 8.3
Khmelnytsky region - 2.5 - - 7.3 7.7 9.3 9.5 10.9 12.6
Chernivtsi region - 2.9 - - 7.3 9.3 8.7 10.4 13.8 12.1
Sources: Ukrstat
Beef
Beef in Ukraine is mainly produced as a by-product of dairy farming and about 75% of beef is supplied
by households (Figure 15 beef). This is very close to the share of households in the total milk supplies
(see below). Beef sector is underdeveloped in Ukraine. As beef production needs long-term
investments, limited access to long-term money has been one of the main reasons for the
underdevelopment.
25
Table 14 Beef production in Ukraine’s regions 2004–2013, 1000 tons
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ukraine 618.0 561.8 567.4 546.1 479.7 453.5 427.7 399.1 388.5 427.8
Center - 98.7 - - 92.8 89.2 84.6 76.1 74.8 87.9
Vinnytsia region - 23.8 - - 25.1 25.1 23.1 19.6 19.8 22.6
Dnipropetrovsk region - 11.3 - - 12.3 10.2 9.9 8.9 7.9 11.9
Kirovohrad region - 19.1 - - 16.2 16.8 16.6 14.1 12.6 14.0
Poltava region - 17.6 - - 14.4 15.7 15.5 15.7 19.1 21.9
Cherkasy region - 26.9 - - 24.8 21.4 19.5 17.8 15.4 17.5
East - 75.2 - - 51.6 49.4 47.0 43.8 43.9 48.3
Donetsk region - 21.1 - - 17.5 14.5 13.0 11.6 11.5 11.2
Luhansk region - 22.4 - - 10.0 11.4 11.3 10.1 9.3 11.1
Kharkiv region - 31.7 - - 24.1 23.5 22.7 22.1 23.1 26.0
North - 106.3 - - 74.4 69.2 66.4 62.2 62.2 70.0
Zhytomyr region - 18.9 - - 22.6 18.6 18.5 17.5 18.0 19.1
Kyiv region - 30.5 - - 16.7 14.6 15.3 13.4 13.1 16.9
Sumy region - 27.8 - - 16.9 19.0 17.2 16.6 17.7 18.7
Chernihiv region - 29.1 - - 18.2 17.0 15.4 14.7 13.4 15.3
South - 91.9 - - 88.0 79.2 77.9 70.0 66.7 68.6
AR Crimea - 19.0 - - 23.7 22.2 22.2 17.6 15.0 15.6
Zaporizhia region - 19.8 - - 13.1 12.7 11.5 11.2 9.9 10.1
Mykolayiv region - 14.0 - - 12.6 9.9 11.7 10.6 11.2 11.6
Odessa region - 21.2 - - 17.9 16.6 15.4 15.3 15.2 16.0
Kherson region - 17.9 - - 20.7 17.8 17.1 15.3 15.4 15.3
West - 189.7 - - 172.9 166.5 151.8 147.0 140.9 153.0
Volyn region - 17.7 - - 16.0 16.2 14.0 11.6 11.2 12.8
Transcarpathian region - 18.2 - - 17.9 18.8 17.1 16.9 16.9 17.0
Ivano-Frankivsk region - 27.4 - - 30.9 28.8 26.7 25.8 25.4 26.7
Lviv region - 41.3 - - 38.5 36.3 33.1 33.5 28.2 30.8
Rivne region - 16.2 - - 15.4 15.9 14.8 16.0 15.9 16.6
Ternopil region - 26.0 - - 16.6 15.9 12.4 11.6 11.8 14.4
Khmelnytsky region - 27.0 - - 23.5 22.5 22.0 21.2 20.9 23.7
Chernivtsi region - 15.9 - - 14.1 12.1 11.7 10.4 10.6 11.0
Sources: Ukrstat
Milk production
Production of milk in Ukraine decreased from about 24.5 million tons in 1990 to nearly 11 million tons in
2013, i.e. by more than 50%. Against the background of falling dairy herd numbers (from more than 8
million cows in 1990 to 2.5 million cows in 2013), the annual milk yield per cow, however, increased
from 2.86 tons to almost 4.17 tons. This is still a very low milk yield compared with western standards.
The average productivity of a cow in Germany, for example, is in the range of 6-7 tons/year and 11-12
tons per cow in Israel. Milk productivity of large agri-holding farms in Ukraine, though, on average was
11% higher than in independent farms in 2010-2012 (Balman et al, 2014).
Milk production is dominated by households, currently they account for 80% of the total milk
production, as compared to 24% in 1990. This adds extra costs to the entire dairy value chain via
problems associated with quality, difficulty to capture economies of scale both in dairy farming and in
the upstream and downstream industries, problems to guarantee a large and stable supply of high
quality milk, seasonality of supplies, high collection costs and other transaction costs (see Nivievskyi,
2013 for details).
Domestic demand for milk is very strong due to the strong external demand for dairy products and
exportable dairy products. The falling domestic raw milk supply has been constantly increasing a
competition for raw milk among dairy processors. In fact, there is a shortage of raw milk supplies to fully
utilize the existing processing capacities. Processing capacity utilization is 60-65% (UCAB, 2012).
Since recently, the situation of decreasing raw milk supplies from households and increasing milk
supplies from dairy farms can be observed in dairy farming of Ukraine. This has happened due to the
decreasing number and aging of rural population, shrinking areas for grazing (due to the expansion of
crop areas), expensive milk collection from households and the need to ensuring high quality of milk
(UCAB, 2012). Also, consolidation of dairy farms can be observed, the number of dairy farms has been
decreasing against the background of growing herd size.
26
Table 15 Raw milk production in Ukraine’s regions 2004–2013, thousand tons
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ukraine 13,710 13,714 13,287 12,262 11,761 11,610 11,244 11,081 11,373 11,483
Center - 3,011 - - 2,717 2,757 2,699 2,701 2,776 2,824
Vinnytsia region - 849 - - 840 842 836 839 847 857
Dnipropetrovsk region - 494 - - 381 359 340 342 343 348
Kirovohrad region - 395 - - 346 347 343 332 309 322
Poltava region - 754 - - 656 718 701 725 778 785
Cherkasy region - 519 - - 494 491 479 464 499 512
East - 1,490 - - 1,179 1,158 1,091 1,076 1,128 1,141
Donetsk region - 514 - - 371 360 339 327 333 325
Luhansk region - 409 - - 319 316 284 276 282 280
Kharkiv region - 567 - - 489 481 467 473 513 537
North - 2,557 - - 2,154 2,126 2,041 2,005 2,080 2,083
Zhytomyr region - 732 - - 614 602 578 569 595 598
Kyiv region - 693 - - 506 476 451 439 476 476
Sumy region - 498 - - 455 456 431 418 427 427
Chernihiv region - 634 - - 580 592 581 578 581 582
South - 2,127 - - 1,773 1,755 1,683 1,644 1,639 1,639
AR Crimea - 347 - - 363 367 348 331 306 292
Zaporizhia region - 384 - - 304 287 262 248 258 265
Mykolayiv region - 432 - - 369 368 364 366 367 371
Odessa region - 606 - - 416 414 404 397 398 402
Kherson region - 358 - - 321 319 306 302 311 309
West - 4,531 - - 3,938 3,814 3,729 3,656 3,750 3,796
Volyn region - 551 - - 485 462 450 451 467 467
Transcarpathian region - 396 - - 394 385 392 389 401 410
Ivano-Frankivsk region - 576 - - 495 486 465 452 466 471
Lviv region - 930 - - 731 683 656 630 621 619
Rivne region - 502 - - 456 448 433 420 443 453
Ternopil region - 485 - - 424 419 417 418 460 486
Khmelnytsky region - 723 - - 625 620 608 598 595 592
Chernivtsi region - 368 - - 328 312 308 298 298 298
Sources: Ukrstat
Sheep and goats
This sector plays a marginal role in Ukraine.
2.4.3 Organic production
Official statistics on organic farming is not existent in Ukraine. According to the International Federation
of Organic Agricultural Movements, however, organic farming is growing in Ukraine and the area under
organic farming increased from 164 000 ha in 2002 to almost 279 000 ha in 2012 (see Erreur ! Source du
renvoi introuvable.). This equals approximately 0.7% of the total agricultural land in Ukraine. At the
same time, over the last decade the number of organic producers has increased more than 5 times
reaching 164 in 2012.
Formal certification of organic production was established in 2007 within a Swiss-Ukrainian project
“Organic Certification and Market Development in Ukraine”. Most of certified producers are situated in
the West and South of Ukraine (Vinnytsky, Zakarpatsky, Lvivsky, Ternopolky, Zhytomyrsky, Odesky,
Khersonsky, Poltavsky regions).
Table 16 Area under organic production and number of organic farms in Ukraine
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Area (thousand ha) 164.4 239.5 240.0 242.0 242.0 249.9 270.0 270.2 270.2 270.3 278.8
Number of certified organic
producers 31 69 70 72 80 92 118 121 142 155 164
Size of domestic market (in EUR m) - - - - - 0.5 0.6 1.2 2.4 5.1 7.9
Sources: International Federation of Organic Agricultural Movements, http://www.ifoam.org/; Organic Federation of Ukraine
The legislative framework for organic market was introduced only in 2013 with the approval of the Law
“On the production and circulation of organic agricultural products and raw materials” No 425-VII (with
amendments of the President) on the 3rd of September. The law defines the legal and economic basis
27
for the production and circulation of organic agricultural products and raw materials, control and
supervision of such activities and aims to ensure fair competition and proper functioning of the market
for organic products and raw materials, improvement of the basic health indicators of the population,
environmental protection, sustainable use of soil and other natural resources, and it also ensures
consumer confidence in products and raw materials labeled as organic.
An important achievement of the Law is the introduction of clear definition for organic products, which
helps to protect organic producers from unfair competition of those producers, who use the labels
“eco”, “bio”, “organic”, but do not meet requirements of organic standards. It is now commanded by
the law that only certified organic producers are allowed to use “organic” label, which should result in
higher trust to the “organic” label from the side of consumers.
Although the Law legally came into effect on the 9th of January, 2014, it could not be fully applied
because not all required by-laws and regulations were approved. It also contains a number of important
deficiencies, which should be corrected for the effective functioning of the organic market. Most
importantly, the process of certification and functions of different responsible bodies should be
described more clearly. Secondly, requirements for organic products should be harmonized with the
international standards as much as possible, so that transaction costs for producers are minimized.
2.5 Prices, costs and income
2.5.1 Prices
Table 17 Agricultural output price indices; nominal (previous year=100)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CROP PRODUCTS 93.3 95.5 114.1 157.7 95.2 109.1 139.8 115.7 105.6 91.8
Grain and leguminous crops 83.8 91.8 123.2 161.5 92.5 101.9 140.3 121.4 109.1 90.8
wheat 77.6 84.3 126.9 151.2 94.5 105.1 137.2 122.8 116.3 88.3
rye 92.8 80.4 130.3 204.1 96.4 75.7 128.9 161.7 102.5 85.6
corn 90.1 78.4 150.9 161.1 86.7 117.5 146.7 109.6 110.9 79.9
barley 76.1 126.3 98.4 184.9 94.4 85.8 132.7 141.2 117.0 91.7
Oilseeds 131.2 84.6 102.2 184.6 92.9 120.1 142.6 112.2 107.5 90.8
sunflower seeds 134.3 85.0 96.0 202.3 72.0 138.7 159.1 107.4 110.1 83.7
soybean - - - 158.7 104.3 151.0 97.4 112.5 116.8 101.3
rape - - - 120.7 119.2 108.6 123.9 141.1 94.8 78.3
Sugar beet 96.5 130.3 105 84.7 138.8 188.4 115.4 107.7 82.4 92.1
Potatoes 85.4 126.8 156.1 97.2 111.5 112 164.3 95.5 47.6 146.4
Vegetables 119.2 125.6 108 120.6 115.4 99.7 143 90.9 74.1 92.8
Fruits and berries 168 133.6 146.5 111 124.9 101.7 118 131.7 92.9 96.0
ANIMALS AND LIVESTOCK PRODUCTS 134.2 129.5 88.8 115.8 147.4 101.4 114.3 109.2 108 102.4
Livestock and poultry (live weight) 144.8 134.8 89.9 102.4 158.5 102.9 104.2 110.8 111.6 95.4
cattle 159.3 135.0 90.0 110.6 160.8 92.5 108.1 128.5 103.8 85.6
pig 168.1 141.4 82.7 90.4 173.2 107.4 88.5 109.5 117.7 98.1
poultry 110.8 131.0 93.0 103.6 149.6 102.3 109.2 107.5 111.8 96.5
Milk and milk products 119.2 134.3 94.4 154.6 123.4 91.5 155.5 103.4 86.7 125.0
Eggs 123.2 105.5 76.4 142.1 137.5 107 116.3 110.2 117.4 104.8
Wool 128.5 128 95.2 95.7 127.3 74 120.7 166.8 119.3 81.5
AGRICULTURAL GOODS 105.7 108.1 102.4 138 110.3 106.4 130 113.6 106.8 97.1
Sources: Ukrstat
Global prices for agricultural commodities have been on an upward trend, but increasingly volatile.
Growing global population drives the prices up, but weather has been a primary driver of the increased
volatility. The number of reported droughts, floods and extreme temperatures seem to be increasing,
resulting in production losses in major (grain) producing regions and decreasing stocks, with an
attendant food market response.
At the same time, there are strong linkages between energy and agricultural markets due to the high-
energy content of some fertilizers, energy needs for field operations and transportation, as well as
feedstock costs for biofuel production. The same demand and supply factors that drive up agricultural
markets are also expected to increase prices for energy and fertilizers.
28
As Ukraine is tightly integrated into the world economy, these global tendencies transmit to the
domestic agricultural prices. Particularly, during 2004-2013 the strongest price increase was
demonstrated by gourds (325% rise from 0.14 to 0.59 UAH per kg), flax (318% rise from 1.27 to 5.30
UAH per kg) and fruits (307% rise from 0.74 to 3.01 UAH per kg). Among cereals, the most prominent
was increment of barley price from 0.39 to 1.45 UAH per kg (274%). Amid oilseeds, the largest was
increase in sunflower seed price from 1.15 to 2.99 UAH per kg (160%), which in turn was also followed
by the increase in sunflower seed production.
Rise in animal product prices was considerably lower than increase in the crop product prices. For
instance, cattle price increased by 147% (from 4.36 to 10.75 UAH per kg), pig price increased by 120%
(from 7.20 to 15.84 UAH per kg), and poultry price grew by 145% (from 4.97 to 12.17 UAH per kg). Ratio
between maize price (as a major feed grain) and livestock price remained roughly the same during 2004-
2013 period: 0.11 for cattle, 0.18 for pigs and 0.23 for poultry. Milk experienced the largest increase in
price among animal products; its price has risen by 303% from 0.84 to 3.36 UAH per kg. Nevertheless,
milk production has declined by 16% due to the long production cycle.
2.5.2 Costs
Crops
Table 18 Cost structure in crop production, %
2008 2009 2010 2011 2012 2013
Fixed costs 29.6 31.7 31.0 28.9 31.9 31.4
Depreciation 5.6 6.6 5.9 5.4 5.7 5.9
Rents 8.5 10.4 10.6 9.1 10.9 12.4
Labour 10.2 9.3 8.6 8.8 9.5 7.1
Other costs 5.3 5.5 5.9 5.6 5.8 6.0
Variable costs 70.4 68.3 69.0 71.1 68.1 68.6
Social events 2.5 2.8 3.1 2.9 3.5 2.6
Seeds and planting material 12.4 11.7 12.1 11.7 12.6 12.6
Other agricultural goods 0.6 0.6 0.6 0.6 1.2 0.6
Mineral fertilizers 17.6 16.9 16.1 17.2 15.5 16.1
Motor fuels and lubricants 15.1 13.2 13.3 13.9 12.1 11.8
Electricity 1.0 1.1 1.1 1.0 0.9 1.0
Other fuels and energy 1.0 1.0 0.8 1.0 1.0 1.1
Spare parts, repair 5.8 6.2 5.9 5.9 5.5 5.3
Services performed by outside organizations 14.4 14.9 16.0 17.0 15.8 17.4
Sources: Ukrstat
The share of variable costs has gradually decreased from 70.4% in 2008 to 68.6% in 2013 (Table 18)
reflecting increasing technological/capital intensity of Ukrainian agriculture. The main expenditures in
crop production are on mineral fertilizers (16.1%), seeds (12.6%), fuels and lubricants (11.8%). Share of
rent in total expenditures increased the most: from 8.5% in 2008 to 12.4% in 2013. Still rents and labour
costs have rather modest share in the total costs which reflect relatively low prices of these factors. At
the same time percentage increase in re
Animal production
Table 19 Cost structure in animal production
2008 2009 2010 2011 2012 2013
Fixed costs 21.4 20.2 17.9 17.6 17.5 17.6
Depreciation 3.9 4.2 3.9 3.6 4.1 4.4
Rents 0.1 0.1 0.0 0.1 0.0 0.0
Labour 11.8 10.7 10.0 9.7 9.2 9.0
Other costs 5.6 5.2 4.0 4.2 4.2 4.2
Variable costs 78.7 80.0 81.9 82.4 82.6 82.2
Social events 2.8 3.2 3.6 3.6 3.4 3.3
Feed 54.5 54.0 55.6 58.0 55.2 57.5
Other agricultural goods 5.1 5.4 4.6 3.3 6.5 3.3
Motor fuels and lubricants 3.6 3.1 3.1 2.9 2.8 2.8
Electricity 3.0 3.0 2.8 2.9 2.8 3.0
Other fuels and energy 1.3 1.6 1.6 2.1 2.1 2.0
Spare parts, repair 2.7 3.4 2.7 2.7 2.8 2.7
29
Services performed by outside organizations 5.7 6.3 7.9 6.9 7.0 7.6
Sources: Ukrstat
As a result of much smaller rents compared to crop production, variable costs make about 80% of the
total costs in animal production. The largest part of variable costs (57.5%) is feed, however almost half
of the feed farms produce by themselves. The share of labour costs is relatively small (9.0%).
2.5.3 Farm income
Table 20 Index of income from agricultural activities (2008=100)
2009 2010 2011 2012 2013
Crop production 1.32 1.64 2.15 2.86 2.73
Wheat 1.21 1.10 1.55 1.91 1.77
Barley 0.92 0.98 0.94 1.08 0.94
Maize 1.82 2.25 4.12 6.05 5.86
Sunflower seed 2.23 3.76 4.06 6.14 5.20
Soya 1.72 3.20 4.34 7.50 8.19
Rape seed 0.77 0.74 0.91 0.99 1.33
Potatoes 1.41 2.37 2.62 1.77 2.98
Vegetables 1.24 1.40 1.64 1.62 1.73
Animal production 1.09 1.39 1.70 1.89 2.13
Cattle 0.90 0.93 1.10 1.11 1.07
Pigs 1.24 1.35 1.80 2.01 2.26
Sheep and goats 1.21 1.69 1.58 1.78 1.56
Poultry 0.79 1.19 0.81 1.33 1.25
Milk 1.08 1.67 2.01 1.97 2.58
Eggs 1.19 1.48 1.92 2.38 2.51
Total farm income 1.26 1.57 2.03 2.60 2.57
Sources: Ukrstat
In the period 2008-2013, the farm income in Ukraine grew by 157%. Income growth was stronger in crop
production (173%) than in animal production (113%). The greatest increase in the income was
experienced in maize production (486%), sunflower seed (420%) and soybean production (719%). This
can be explained by the large demand for maize as feed and rapidly growing prices of oilseeds. Income
from growing of barley was the only to decrease in the period 2008-2013 (-6%), this correlates with the
significant decline in the output of barley. In animal production, the largest increase in the total income
was from milk (158%), egg (151%) and pork (126%) production. Increase in the income from cattle
production was only marginal (7%).
Table 21 below compares the performance of large agri-holdings vs. independent agricultural
enterprises in terms of yields, costs, and profits.
Table 21 Performance of agri-holdings vs. independent agricultural enterprises
Agri-holdings Individual enterprises
2010 2011 2012 2010 2011 2012
Winter wheat
Yield, dt/ha 30 39 35 28 34 27
Costs, UAH/t 995 976 1,321 843 909 1,287
Profit, UAH/ha 423 1502 962 630 1350 653
Profitability, % 14 39 21 27 44 19
Maize
Yield, dt/ha 48 75 61 46 67 46
Costs, UAH/t 795 732 1,043 795 746 1,146
Profit, UAH/ha 2188 5070 3038 2014 3759 1615
Profitability, % 57 92 48 55 75 31
Sunflower seeds
Yield, dt/ha 17 20 18 16 20 17
Costs, UAH/t 1 640 1814 2,298 1558 1625 2,216
Profit, UAH/ha 2409 2814 2385 2340 3200 2322
Profitability, % 86 78 58 94 98 62
Source: Balman et al (2013)
30
3. SITUATION AND DEVELOPMENT OF UPSTREAM AND
DOWNSTREAM SECTORS
3.1 Input production and use
3.1.1 Input production
Agrochemicals
Fertilizer production in Ukraine is represented by nitrogen, potassium, and phosphate fertilizers.
Ukraine produces mainly nitrogen fertilizers. In 2013, Ukraine produced 6.6 milion tons of nitrogen
fertilizers, including 64.6% of liquid (anhydrous) ammonia, 20.7% carbamide (urea) and 11.8% -
ammonia nitrate. Export of nitrogen fertilizers constituted 97.8% of all fertilizer export in 2013 and 1.8%
of the total export. Ukrainian share in the global nitrogen fertilizer market is about 10%. Ukraine sells
fertilizers to about 70 countries all over the globe (main export destinations are Brazil, Turkey, Mexico,
Vietnam and India). Urea amounts to 70% and ammonia nitrate - 18% of Ukrainian nitrogen fertilizer
exports. Share of imports in the domestic supply of nitrogen fertilizers varies from 14% (ammonia
nitrate) to 30-40% (urea, sulphate ammonia). The main supplier of nitrogen fertilizers is Russia. All
production of saltpeter, 80% of the total production of carbamide, and 75% of ammonia in Ukraine is
concentrated in one holding.
Chemical plants are traditionally situated around coke enterprises (in Eastern Ukraine) or around natural
gas processing enterprises (Western Ukraine). Ownership of plants is highly concentrated. There are six
main producers; four of them (Cherkasy “Azot”, “Stirol”, Severodonetsk “Azot”, “Rivneazot”) are owned
by the Ostche Holding, “DniproAzot” is owned by the financial-industrial group “Privat” and
Odesa Port Side Plant is still state-owned but already announced for sale.
Potassium fertilizers are mainly produced in Western Ukraine (in Kalush and Stebnyk towns) near the
large natural reservoir of potassium salts. The main producer is “Stebnytsky potassium plant”.
Potassium fertilizers are also produced by the Zaporozhye Titanium & Magnesium Combine as an
addition to their main production. According to the latest available statistics (2007-2009), Ukraine
produces on average 8.7 thousand tons of potassium fertilizers annually and the production decreases
with each year. However, the market of potassium fertilizers is heavily dominated by imports from
Belarus (97% of all imports of potassium fertilizers)
Phosphorus fertilizers are mainly imported. The main Ukrainian producers are PJSC Sumykhimprom and
PJSC Dneprovsky Plant of Chemical Fertilizers.
Production of plant protection chemicals is almost non-existent in Ukraine; about 95% of the supply is
imported from abroad.
Agricultural Machinery and Equipment
Production of agricultural machinery in Ukraine steadily declines due to the growing preference of
Ukrainian farmers towards the imported agricultural machinery. In 2013, Ukraine produced 4,325
tractors (25% less than in 2004), 68 combines (78% less than in 2004), 1,590 disk harrows (61% less than
in 2004) and 3,480 seeders (65% less than in 2004). The share of Ukrainian producers on the domestic
market equals only 10% of the sales. Imports of agricultural machinery and equipment are mainly
supplied by the USA, Germany and France. In 2013, the market shares of the main suppliers were the
following: USA – 40%, Germany – 22% and France – 7% (UCAB, 2014).
The main Ukrainian producers are “Kharkiv Tractor Plant” (Kharkiv), “SerpiMolot” (Kharkiv),
“ChervonaZirka” (Kirovograd), PA Yuzhmash (Dnipropetrovsk), LLC “Ukravtozapchastyna” (Kyiv).
Seeds
31
Ukraine’s agricultural producers have poor access to modern seed varieties. Given the deficiencies in the
Ukraine’s agricultural research system, there is an increasing need for imports. At the moment, the
market structure is the following: 50% - seeds of domestic selection, 25% - seeds of foreign selection are
produced in Ukraine, 25% - are imports. Seed market volume is estimated at about USD 1.5 billion.
Financial services
As of January 2014, 180 banks were operating in Ukraine (14% more than in 2004). Majority of them
(72%) are small banks with assets of less than 3 million UAH created to serve the needs of particular
businesses. There are 21 banks with assets of more than 21 million UAH. Foreign capital equals 34% of
the total stock capital; its share was rapidly increasing starting from 2005 (when it was 10%). During
2013, the share of foreign capital decreased by 5.5 p.p. while three foreign banks ceased to operate in
Ukraine.
Ukrainian financial system was seriously struck by the 2008-2009 financial crises and is still recovering
from it. The average UAH term deposit interest rate increased from 10.0% in the beginning of 2008 to
17.2% in the beginning of 2009. The average UAH loan interest rate increased from 13.0% to 29.0%
during the same period. Afterwards the interest rates gradually decreased. Nevertheless, in the
beginning of 2014, the average interest rates for UAH term deposits and loans where respectively 13.2%
and 17.2%. Because of high interest rates, amount of new credits loaned to enterprises has dramatically
decreased. Before 2008, the annual average increase in corporate loan portfolio was 58%, after 2008 it
is only 10%.
In 2013, loans to agricultural enterprises equaled 4.3% of the total loan portfolio (5.4% of corporate loan
portfolio). About 69% of agricultural loan portfolio consists of loans in national currency, of which 88%
are short or middle-term loans. It is expected that the amount of long-term loans will further decrease
in 2014 due to the social and economic instability in Ukraine.
3.1.2 Input use
Seeds and other genetic material
Ukraine’s agricultural producers have a poor access to modern seed varieties, especially for grains and
oilseeds. This is due to the inadequate domestic seed research and testing systems and insufficient
domestic seed production capacity, resulting in sub-optimal performance of the sector. Agricultural
productivity is strongly influenced by the genetic potential of seeds, adapted to the local agro-climatic
environment. Given the deficiencies in Ukraine’s agricultural research system, there is an increasing
need for imports. However, Ukraine employs a tedious and costly testing and registration system for
imported seed varieties, thereby increasing the transaction costs for producers. The testing and
registration of imported seed varieties could be facilitated by harmonizing the technical standards with
Ukraine’s trading partners. Private seed companies could fill the gap in the availability of adapted
technologies given a more appropriate business and regulatory environment. In particular, the
internationally accepted system of plant variety protection needs to be fully implemented in Ukraine
and effectively enforced. In addition, a comprehensive and effective varietal testing program is needed
in the major production regions, with their results widely publicized. Ukraine will also need to improve
its seed production capacity. In animal production, non-trade barriers also impede imports of new
genetic material and reduce domestic livestock productivity.
32
Fertilizers
Table 22 Fertilizers’ use in Ukraine in 2010-2013
2010 2011 2012 2013
Fertilizer use, total 1,061 1,263 1,343 1,489
N, total 775 899 928 1,041
P2O5, total 157 195 220 236
K2O, total 129 169 194 213
Fertilized area, 1000 ha total 12,614 14,152 14,593 15,342
NPK, kg of active substance per hectare of arable land 34.3 40.8 43.3 48.0
Sources: Ukrstat
Fertilizer use has increased modestly since 2001 in Ukraine. The average fertilizer application per
hectare has increased from 22 kg/ha in 2002-2007 to 48.0 kg/ha in 2013 (albeit with a significant
regional variation). This is still very low intensity level compared to the EU, where intensity levels in
Germany and France, for example, are about five times higher than in Ukraine (World Bank 2013b). Low
fertilization levels are a long-term concern because if fertilizer application rates continually stay below
the rate of nutrient extraction by crops, gradual nutrient depletion will take place and soil fertility will
decline, eventually reducing the soil’s yield potential.
Plant protection
Plant protection chemicals are widely available in Ukraine and the domestic demand is growing. The
market volume increased from USD 86 million in 2002 to USD 710 million in 2012 and is expected to
grow further. The world’s leading agro-chemical manufacturers have established representatives in
Ukraine and increasingly effective distribution systems for their products. They also offer advisory
services along with their products. Research and demonstration farms have been established by these
companies to convince farmers of the relative advantage of their products. Credit programs have been
developed in order to make these inputs available. However, the state has not yet matched these
private sector efforts with an effective regulatory system for the verification of the effectiveness and
desirability of agri-chemicals used in Ukraine.
Agricultural Machinery and Equipment
Table 23 Number of tractors in Ukraine in 2010-2013
2010 2011 2012 2013
Tractors 310,248 313,480 322,209 323,111
Agricultural enterprises 137,757 134,554 137,958 134,177
Households 172,491 178,926 184,251 188,934
Tractors per 100 hectares of arable land 1.00 1.01 1.04 1.04
Sources: Ukrstat
Demand for modern farm machinery and equipment is strong in Ukraine. Major manufacturers are
represented in the country and are growing their businesses. However, their expansion is constrained by
farmers’ limited access to finance. Ukraine’s current needs for agricultural machinery and equipment
are believed to exceed the world’s annual supply of equipment. Yet farms, especially SMEs, have
limited access to finances, thereby constraining investment in machinery. In addition, time-consuming
and costly certification and testing requirements for imported agricultural equipment, based on
technical norms developed by the Ministry of Agricultural Policy and Food, increase transaction costs
and ultimately prices for agricultural producers. Machinery imports could be facilitated by harmonizing
the technical standards with Ukraine’s trading partners. Modern equipment can also be used through
leasing arrangements or contract services. These services exist and are used in Ukraine.
33
3.2 Food industry
3.2.1 Food production
Production of food products was rapidly increasing during 2004-2007 – on average by 14% annually. Due
to the financial crisis, production of food decreased by 6% in 2008. This was followed by a period of
stagnation in 2009-2012 with annual average growth of 2.4% yoy, followed by a new wave of recession
in 2013 (-5.1% yoy).
Figure 17 demonstrates the structure of the production of food and beverage industry in Ukraine in
2013. Meat and meat products comprised 13.8% of the food and beverage sales (29.9 billion UAH), 1.5
million tons of meet were produced in 2013. There is, however, a shift in the production structure, with
increasing shares of poultry and pig meat, and declining shares of beef meat production. The structure
of the sector in 2013 was following: poultry meat – accounted for 60% of the production of meat and
meat products, prepared meat, canned meat and sausages products - 20% of the production volume,
swine meat – 15% of the production volume, cattle meat – 5% of the production volume. In 2012, there
were 58 thousands workers employed in meat and meat product sector (14% of food sector workers).
Figure 17 Sales of main food products in Ukraine in 2013, billion UAH (Sources: Ukrstat)
Processing and preserving of fish, crustaceans and mollusks is one of the smallest food industry
subsectors in Ukraine. In 2013, it accounted for only 1.1% of the total sales value of food and beverages
(2.4 billion UAH, 19.5% yoy growth). About 7 thousand workers were employed in the sector (1.8% of
food sector employment) in 2012. It remains to be seen how profound will be a negative effect of the
occupation Crimea peninsula by the Russian Federation on the sector production in 2014.
Processing and preserving of fruit and vegetables is mainly concerned with production of juices
(0.7 million tons, 9.6 billion UAH - 4.4% of the total sales of food and beverages). Canned fruits and
vegetables are only moderately popular in Ukraine because of increasing all year round availability of
more healthy fresh and frozen fruits (vegetables) and existing tradition of home-maid canned food.
Nevertheless canned products have their stable consumer base as a result of relatively small price (in
comparison to fresh products) and long shelf-life. Employment equaled 22 thousands workers (5.3% of
food sector employment) in 2012.
Vegetable oils and animal fats dominate the structure of the food and beverage industry production:
15.8% of the total sales (34.3 billion UAH) and 3.7 million tons of production, with sunflower oil being
the prevailing product (91% of the total oils and fats output). Production of sunflower oil is
characterized by natural seasonality – production is approximately the same in the first, second and
fourth quarter of the year, but significantly falls in the third quarter. As consumers care more about
Meat
and
meat
product
s; 29,9
Processing
and
preserving of
fish; 2,4
Processing
and
preserving of
fruit and
vegetables ;
9,6
Vegetable
oils and
animal fats ;
34,3
Dairy
products ;
28,3
Grain mill
products; 6,9
Bread and
bakery ; 18,1
Other food
products ;
36,0
Prepared
animal feeds
; 7,0
Beverages ;
33,2
Tobacco
products ;
11,5
34
their health, there is a downward consumption tendency for butter, cooking fats and margarine and
upward tendency for olive oil, and functional spreadable oils and fats. About 23 thousand workers were
employed in the vegetable oils and animal fats sector in 2012 (5.5% of food sector employment).
A dairy products sector is almost equivalent with meat production in terms of the sales volume, the
sector accounts for 13.1% of the total sales (28.3 billion UAH, 1.8 million tons produced) of food and
beverages. In the structure of dairy production the largest shares belong to milk and cream (30% of all
dairy products) and cheese (18%). Dairy production is a significant source of employment, in 2012 there
were 66 thousands workers (15.7% of food sector employment), as well as the significant source of
foreign exchange for the country.
Manufacture of grain mill products, starches and starch products accounts for 3.2% of the total sales
value (6.9 billion UAH, 3.0 million tons produced). Employment equaled 20 thousands workers (4.7% of
food sector employment) in 2012.
According to the official statistics, production of bread and bakery products is annually decreasing in
Ukraine: it amounted to 2.16 million tons in 2006 and decreased to 2.05 million tons in 2013. In terms of
sales value its share equals 8.4% (18.1 billion UAH) of the total sales of food and beverages. The
decrease is mainly explained with the growing bread production by small private bakeries and
supermarkets that are not included in the official bread production statistics. About 50% of breads and
bakery products are breads produced from wheat and 30% - breads from barley; other 15% are loaves
and buns, and the rest of 5% are different cookies. It is the food industry subsector with the largest
employment; in 2012 it employed 89 thousand workers or 21.4% of the total food sector employment –
the largest share in the food and beverage industry.
Share of manufacture of other food products in the total production of food and beverages equals
16.6% in the total sales value (36.0 billion UAH, 1.8 million tons produced). Two main products in this
sector are sugar (22.1% of the total sector’s sales value) and chocolate/chocolate products (42.7% of the
total sector’s sales value). Employment in the sector is the second largest in the food industry after
bakery – 67 thousands workers (16.1% of food sector employment) in 2012.
Manufacture of prepared animal feeds accounts for 3.2% of the total sales value of food and beverages
(7.0 billion UAH). About 8 thousand workers are employed in the sector (2% of food sector employment)
in 2012.
Beverages have been the second largest sub-sector of the food industry in value terms. It comprised
15.3% of the total sales value (33.2 billion UAH) of food and beverages in 2013. Alcohol drinks dominate
this subsector comprising about 56% of the sub-sector’s production volume (beer – 47% and stronger
alcohols – 8%, respectively). Non-alcohols made up approximately 44% of the sub-sector production
volume. About 95% of non-alcohols are consumed domestically and only 5% is exported and import of
non-alcoholic drinks is insignificant. In alcohol segment, about 9% of beer and 25% of vodka and 7% of
wines are exported. Import in these segments is also not significant, only in wines the import made 11%
of the output volume. About 52 thousands workers were employed in the beverages production (12.5%
of food industry production) in 2012.
Manufacture of tobacco products stands for 5.3% of the total sales value (11.5 billion UAH) of food
industry. Number of cigarettes produced decreased from 130 billion pieces to 86 billion pieces because
of financial crisis, increase in taxes, prohibition to smoke in public places, pictorial warnings on packages
and increased awareness of negative effects of smoking. It is estimated that circa 9.3 million Ukrainian
citizens smoke on average 17 cigarettes per day (IER, 2014). This corresponds to a domestic market of
58 billion cigarettes annually. Actual consumption of cigarettes in 2012 equaled 62 billion pieces. Thus
Ukrainian market is larger than any market of the EU countries except Germany, Italy and France. About
4 thousand workers are employed in the sector (0.9% of food industry employment) in 2012.
35
3.2.2 Structure of the food sector
In 2012, there were 786 enterprises producing meat and meat products in Ukraine. The largest share of
the production – 60% - belongs to poultry meat. This market is dominated by a few vertically integrated
agriholdings. The largest of them - OJSC Myronivsky Hliboproduct controlled 32% of the poultry market
in 2011, second largest – Agromars Kompleks OOO controlled 16% of the market in 2011. Together top
10 producers produced 74% of the total poultry meat in Ukraine.
As was mentioned previously, prepared meat, canned meat and sausage products account for 20% of
the total volume of meat products. Ten largest companies produced 46% of the total prepared meat
products in 2010 and 51% in 2011 – thus there is a centralization tendency in the sector. Three largest
producers are OJSC Myronivsky Hliboproduct (9% market share in 2011), Favoryt Ltd. (8% market share
in 2011) and Globynsky MK TOV (6% market share in 2011). Peak of prepared meat, canned meat and
sausage production was in 2008, when 335 thousand tons were produced. Production decreased to 272
thousand tons in 2009. Starting from 2010 a slow recovery began, in 2013 production was still below the
level of 2008 with 294 thousand tons manufactured.
Chilled processed food is an important part of everyday diet of average Ukrainian. As for today majority
of consumers do not differentiate between healthy and unhealthy (i.e. containing harmful artificial
colours, flavours and preservatives) chilled products – thus health and wellness products account for
less than 1% of the retail sales value of chilled processed food. Top companies in this subsector are all
local players with long history. They include Yatran’ Myasokombinat VAT, Kremenchukmyaso VAT,
Globynsky MK TOV and Yuvileinyy Myasokombinat TOV and are expected to hold a combined 36% value
share in 20133.
Demand for frozen processed food (in Ukraine it is first of all frozen dumplinks) is continuously rising
due to the increase in the number of entrepreneurs and office workers who do not have time for
cooking. As a result there is a tendency to switch from consumption of fresh or frozen meat, poultry or
fish to a consumption of semi-prepared frozen meat products (cutlets, steaks etc.). The leading company
in this subsector is Drygalo PP with approximately 14% market share. The company has been rapidly
expanding its product range under several brands (e.g. Drygalo, Vanka-Vstanka, Nostalgiya) and has
introduced frozen ready meals in various types. Moreover, its products are reasonably priced and have
good distribution4.
Cattle and swine meat production is less centralized than production of poultry and prepared meat
products. Two largest companies (Globynsky MK TOV and APK-INVEST LLC) both produced 7% of the
total output in 2011. Top 10 companies produced 29% of the total output of cattle and swine meat in
Ukraine in 2011. Their share in the total natural output has increased by 4% compared to the previous
year.
In total 438 companies were producing vegetable oils and animal fats in 2012. Among them the
prominent place belongs to sunflower oil producers. Two largest sunflower oil producers are Kernell
Holding S.A. (main plant Prykolotnyansky OEZ OAO) with 7% of the total retail sales value of sunflower
oils and Bunge International (main plant Dnipropetrovsky OEZ ZAT) with 10% of the total retail sales
value in 20135. The most successful brands of these companies are Chumak and Stozhar (Kernell) and
Oleina (Bunge). Contrary to other sectors, the share of ten largest producers in the total output
decreased from 61% to 56% in 2010-2011.
In 2012, there were 417 companies in Ukraine producing dairy products. As was mentioned before, the
largest dairy subsector is production of milk and cream. Top 10 companies produced one third of all
domestic milk in 2010, and their share continues to grow. Lustdorf TOV is set to lead the drinking milk
3 http://www.euromonitor.com/chilled-processed-food-in-ukraine/report
4 http://www.euromonitor.com/frozen-processed-food-in-ukraine/report
5 http://www.euromonitor.com/oils-and-fats-in-ukraine/report
36
product segment with 26% share of the retail value sales in 2013, followed by Unimilk TOV (14%)6. Both
companies own a large number of milk processing plants and collaborate with the largest retailers.
Ukraine has a well-developed culture of cheese consumption. Consumption of cheese is moderately
increasing due to the growing popularity of foreign cuisines (Italian and French among others) and
educational efforts of producers (printing recipes on cheese packages and launching dedicated
websites). The main cheese market players - Shostkynsky Miskmolkombinat VAT, Dniprorudnensky
Syrorobny Kombinat VAT, Pyryatynsky Syrzavod KP, Mensky Syr VAT, each held approximately 5-6%
retail value share in cheese segment in 2013. These producers benefit from a large demand for low-
price cheese and a high penetration of unpackaged cheese (many supermarkets stock a wide range of
unbranded packaged cheese cut from much larger blocks of cheese and sold by weight)7.
3.2.3 Prices, costs and performance indicators Prices of main food products, beverages and tobacco products have been on an upward trend in Ukraine
(Figure 18). On average prices were annually increasing by 14.2% in 2007-2013. Prices increased
uniformly among all food categories with the exception of dairy products and sugar that accelerated
their growth since 2008. It was caused by the global dairy price developments coupled with the shortage
of raw milk supplies for processing. Sugar prices decreased by 20% in 2011, driven by the oversupply of
sugar on the domestic market.
Figure 18 Price index of main food products in 2007-2013, % (2006=100%) (Source: Ukrstat)
In the period 2004-2011, labour productivity in Ukrainian food and beverages industries increased by
21.1%, labour productivity in tobacco production increased by 14.2%. Total factor productivity also
increased by 14.7% in food and beverages production and by 4.2% in tobacco production in Ukraine
during the same period.
Gross agricultural profit in Ukrainian food industry is highly volatile and differs greatly between industry
sectors (see Table 24). For instance, meat and dairy sectors were among the industries with the largest
gross profit in 2012. However, two consecutive years before 2012 dairy sector had a negative gross
profit and meat sector had a negative profit in 2010. Losses were mainly caused by two factors: large
number of small and medium enterprises in the industry (which have limited access to financial
resources and are more vulnerable to downward economic shifts) and tax evasion schemes which are
used to hide real value of profits.
6http://www.euromonitor.com/drinking-milk-products-in-ukraine/report
7 http://www.euromonitor.com/cheese-in-ukraine/report
37
Table 24 Gross operating profits in 2010-2012, million UAH
2010 2011 2012
Manufacture of food products 1,711 1,145 5,820
Processing and preserving of meat and production of meat products -165 677 1,313
Processing and preserving of fish, crustaceans and mollusks -69 -59 -20
Processing and preserving of fruit and vegetables -33 39 74
Manufacture of vegetable and animal oils and fats 504 606 816
Manufacture of dairy products -860 -488 1,285
Manufacture of grain mill products, starches and starch products 126 -548 -58
Manufacture of bakery and farinaceous products 286 101 -121
Manufacture of other food products 1,819 845 2,466
Manufacture of prepared animal feeds 103 -28 65
Manufacture of beverages 921 1,283 2,343
Manufacture of tobacco products 2,267 2,344.4 2,257.9
Sources: Ukrstat
3.2.4 Food law
Ukraine’s sanitary and phytosanitary control system is complicated and characterized by fragmented
supervisory agencies, significant bureaucracy, corruption, burden for the private sector, but low
effectiveness in terms of protecting the health of people, animals and plants. Ukraine continues to use
sanitary and phytosanitary regulations which are not largely WTO compliant.
Overall, the main characteristics of Ukrainian food safety regulatory system include (see World Bank,
2013a):
• Fragmented and contradictory primary and secondary legislation. Outdated overly-prescriptive
mandatory product-focused standards (GOST and DSTU)8 dating back from the Soviet era, and other
requirements which add up to 2,352 standards to produce 48 strictly-regulated dairy products. For
example, on average, a typical dairy value chain (“from farm to fork”) needs to: comply on average
with up to 161 food safety related permits, authorizations, and other regulatory requirements;
comply with a minimum average of 49 mandatory product standards (GOST and DSTU) for each
dairy product; comply with a minimum of 52 orders and mandatory guidelines from the Ministry of
Health and other supervision agencies for each dairy product; comply with a total of 112 prescribed
testing methods, in spite of the fact that 63% of them are not in line with international best
practices; and receive repeated and overlapping inspections from several different inspecting
agencies. As long as Ukraine continues to subject quality specifications to regulatory control,
producers have little flexibility to respond to changing consumer preferences, thereby experiencing
critical constraints in market access and in building their export competitiveness.
• Little appropriate communication or coordination between food safety government agencies,
resulting in scattered and overlapping competencies, redundant inspections, and overall inefficient
control. Overall, there are around 25 different regulatory agencies that are directly or indirectly
involved in ensuring compliance with food safety regulations by businesses. The State Committee of
Ukraine for Technical Regulation and Consumer Policy (DSSU), the State Committee for Veterinary
Medicine of Ukraine (VET), and the Sanitary Service of Ukraine (SES) together are responsible for
72% of the total administrative burden incurred by businesses in complying with food safety
8 GOST (Gosudarstvennyi Standard – State Standard) is a pre-1991 standard used in the former Soviet Union and
refers to a set of technical standards maintained by the Euro-Asian Council for Standardization, Metrology and
Certification (EASC), a regional standards organization operating under the auspices of the Commonwealth of
Independent States (CIS). DSTU (Derzhavniy Standart Ukrainy – State Standard of Ukraine) is the official standard
that is being developed and used in Ukraine since its independence.
38
regulations. More specifically, DSSU accounts for 33% of the overall burden, while VET accounts for
21% and SES for 18%.
• Safety control is based mainly on pervasive sample collection, compulsory certification, and
frequent on-site inspections (on average 12 inspections for a total duration of 28 working days for
one company), instead of a comprehensive and robust risk-based control system of production
process (such as Hazard Analysis and Critical Control Points [HACCP]). The current system of controls
is not aligned with EU directives nor is it recognized in export markets. Therefore only about 11% of
food processing companies have an internationally-recognized quality certification, in spite of the
heavy compliance burdens imposed by the domestic controls system.
• Laboratory services (testing) are a core element of a country's food safety related quality assurance
system. Although many of the most critical labs are accredited according to Ukrainian standards,
accreditation by an international accreditation body is rare and the option of accreditation by an
internationally recognized national accreditation body does not yet exist. Many laboratories
therefore undertake testing which does not conform to international standards and even if they do,
the results are not internationally recognized.
• Lack of traceability. The absence of a well-functioning traceability system does not enable prompt
recall of unsafe products, nor identification and sanctioning of non-compliant producers for alleged
food safety violations.
Total compliance costs of the sanitary control system amount to between 2.6% and 4.9% of annual
turnover (in dairy sector), depending on the sector (Nivievskyi, 2013).
As far as phytosanitary measures are concerned, the main characteristics of Ukrainian measures is non-
compliance with risk assessment criteria required by the WTO. Domestic and export trade suffers the
most. Phytosanitary regulatory regime contains very high risk of corruption. The burden of the
phytosanitary measures for private sector is 7.5 higher in Ukraine than in the EU (IFC, 2014).
3.3 Bioenergy production
Bioenergy sector is still developing relatively slowly in Ukraine compared to the EU countries. The share
of biomass in the gross final energy consumption of Ukraine is 1.78%, while in the EU-27 it is on the
average at 8.39% and in a number of countries even much higher (Geletukha et. al., 2014). Table 25
shows that the annual use of biomass for energy production is about 2 Mtce9 and 80% of this is
represented by wood biomass. At the same time, theoretical biomass potential estimated by the
Ukrainian bioenergy association is at the level of 20-25 Mtce/yr (2013 data), including about 11 Mtce/yr
from agricultural waste (straw, maize stalks, sunflower stalks etc.) and more than 10 Mtce/yr from
energy crops (Geletukha et. al., 2014). Hence, Ukraine is currently using only about 8-10% of its available
biomass potential.
9 Mtce - million tons of coalequivalent.
39
Table 25 Consumption of biomass and biofuels in Ukraine (2012)
Annual consumption* Share in the annual
consumption, % natural units ktce10
Straw of grain crops and rape 84 kt11
43 2.0
Firewood (population) 1.7 million m3 413 19.0
Wood biomass (apart from consumption by population) 3.8 Mt 1296 59.6
Sunflower husk 627 kt 343 15.8
Bioethanol 52 kt 48 2.2
Biodiesel ~0 ~0 ~0
Biogas from agricultural waste 20 million m3 12 0.6
Landfill gas 26 million m3 18 0.8
Total - 2173 100
Sources: (Geletukha et. al., 2014)
* Consumption for energy production in Ukraine. Export of biomass pellets/briquettes is not taken into account.
The main reason to a huge gap between the current level of biomass production and its potential is due
to the direct subsidies to conventional energy sources, government support to below-market energy
prices for households, and relatively week environmental legislation. Considering that significant
increase of energy prices was always a highly unpopular decision, Ukrainian politicians decided to
concentrate on “green” tariffs and tax preferences to support the development of renewable energy in
Ukraine. Although new Cabinet of Ministers took first important steps12 to increase energy prices for
population, there is still a long pathway towards complete elimination of cross-subsidisation of
households by industrial consumers and the distortions on the energy market.
The government of Ukraine introduced13 a special “green” tariff for producers of electricity from
renewable sources in 2008. National Electricity Regulatory Commission approves “green” tariffs on case-
by-case basis, which are defined by multiplying retail electricity tariff (for 2nd class of consumers) by
“green” coefficient for particular type of energy and by peak time coefficient (if applicable). Minimal
value of the “green” tariff is guaranteed and it is also linked to the EUR exchange rate to protect
investments from currency depreciation14. It is envisioned by the legislation that “green” tariffs for new
plants or considerably reconstructed old plants will be reduced by 10% after 2014, by 20% after 2020
and by 30% after 2024 and completely phased-out by 2030. Initially, the Law of Ukraine “On Electric
Power Industry” No 575/9715defined “biomass” as products which are partially or fully composed from
substances of plant origin. Notably, biogas and municipal waste were not considered as eligible for
“green” tariff, which created certain barriers for investments. Since 1st of April, 2013, a new definition
of the “biomass”16 came into effect, which corrected old problems but introduced new ones. In
particular, it is now covers biogas and municipal waste. However, it incorporates only waste and
residues (not products) from agriculture, forestry and fishery. Thus, a number of widely-used materials
and products (e.g., maize silage, wood chips, etc.) are excluded, which impedes investments to a wide
range of biomass-to-energy projects. An important limitation is also a local component requirement
(i.e., certain percentage of equipment and work in the total value of the project should be of Ukrainian
origin) for renewable energy projects to be eligible for “green” tariff. This requirement is especially
problematic for biomass projects as necessary equipment is not produced in Ukraine. Moreover,
business representatives17 argue that 2.3 “green” tariff coefficient for bioenergy projects is too low to
10 ktce – thousand tons of coalequivalent. 11 kt - thousand tons. 12Resolution of the Cabinet of Ministers(№ 81 as of 25th of March, 2014, http://zakon4.rada.gov.ua/laws/show/81-2014-
%D0%BF)envisionsstepwiseincrease of gas and heattariffs in the next 3 years.Electricityprices for householdswereincreased by 10-40%
(Resolution of the National EnergyRegulation Commission№ 749 as of 23rd of May, 2014, http://www.nerc.gov.ua/?id=11057)since of 1st of
June. 13The Law of Ukraine “On amendingsomelaws of Ukraine to establishment of “green” tariff”№601-VI as of 25th of September, 2008.
http://zakon1.rada.gov.ua/laws/show/601-17 14
Minimal value of the “green”tariff for biomass-based projects equals 0.12 EUR/kWh 0.05 EUR/kWh =(retail
electricity price for 2nd
class consumers)*2.3 (“green” coefficient for biomass). 15
http://www.youtube.com/watch?v=3wkuqRFXNvI 16
Law No. 5485-VI“On amendments to the Law of Ukraine “On Electric Power Industry” (promoting electricity
production from renewable energy sources). 17
Bioenergy Association of Ukraine
40
guarantee acceptable for investors pay-back period and should be increased to 2.7 for plants using solid
biomass, to 3.0 for biogas projects based on agricultural materials, and to 2.7 for biogas projects of
other types (landfills, waste water treatment systems, etc.).
Other support mechanisms theoretically available for renewable energy producers (REPs) are fiscal
incentives and preferential regime of connection to electricity grid. Tax preferences include the
following incentives:
(1) Exemption from VAT and excise duties for the import of equipment for renewable energy
production (which is not produced in Ukraine and should be specified in the list approved by the
government of Ukraine);
(2) REPs are exempted from paying a special surcharge on energy production (3% from produced
electricity);
(3) REPs are exempted from paying a corporate profit tax (energy should be produced only from
renewable sources and this should be the main income of the company) until 1st of January, 2021;
(4) Reduction of the land tax by 75% for the lands used for renewable energy facilities;
(5) REPs are subject to smaller land rent on state and municipal lands.
REPs are guaranteed the rights to connection to power grids. Grid connection costs are partially funded
via funds provided by the electricity transmissions tariffs and the remaining 50% is repayable financial
assistance up to 10 years (IFC, 2013). However, these state support mechanisms for the facilitation of
energy production from renewable sources and biomass are not sufficiently effective (for biomass in
particular) because of bureaucracy and corruption.
3.4 Food retail and consumption patterns
3.4.1 Food retail sector
Retail food sector has been quickly growing over the last decade, with some slight short-run decline
during the financial crisis. The annual retail turnover of food products has increased from 304 UAH per
capita (7.7 billion UAH) in 2000 to 3909 UAH per capita (147.8 billion UAH) in 2013 (see Figure 19). The
share of food sales in the total retail sales has remained fairly constant – 41.6% in 2005, 41.1% in 2013.
Figure 19 Per capita food and nonfood products sales in Ukraine in 2005-2013, 1000 USD
Source: Ukrstat
There is a considerable difference between sales in the regions of Ukraine. Sales are the largest in Kyiv
city – 11.2 thousand UAH per capita. This is caused by the higher salaries and the greater demand for
41
labour in the capital city. Kyiv is followed by Dnipropetrovsk oblast (5.1 thousand UAH per capita) which
is a large industrial center in the Central Ukraine and Odesa oblast (5.0 thousand UAH per capita) – large
export-import center and tourist-oriented region. Sales are the lowest in agricultural regions (1.8
thousand UAH per capita in Khmelnytskyi and Vinnytsia oblast) where average salaries are lower and
people are more likely to have gardens. Retail take place via: i) super- and hypermarkets, ii) chain
convenience stores, iii) kiosks and petrol stations, iv) traditional outlets – independent grocery stores
and open air markets. The floor space of retailers has increased by 4-7% annually.
Despite growing number of supermarkets, traditional groceries and open-air markets remain to be
popular retail outlets. Some are operating successfully in distant small districts of large cities and small
provincial towns and villages, where the construction of supermarkets or modern chain stores is not
viable. In Kyiv that captures approximately 1/5 of the food products market and where 1/6 of the
country’s hypermarkets and supermarkets are located, open-air markets sales account for between 30-
35% of prepared food and 70-80% of fresh meat. Open-air outlets account for 22% of the national retail
sales, while soviet style stores account for 10-15% (USDA, 2012). Also, open-markets are leading sellers
of vegetables, fruits, meat, honey and dried fruits. At the same time, sales of dairy products, sunflower
oil, and alcoholic drinks are gradually moving from open markets to outlets of other types. These
traditional stores, however, are likely to be quickly replaced by the chain grocery stores (300 - 500
square meters), which are gaining more and more weight. The overwhelming majority of these stores
(except small ones with 150-200 square meter floor space) procure products through wholesale
companies. Smaller stores buy products in Cash&Carry stores or from large wholesale open-air markets.
Super- and hypermarkets’ share in the retail food sales has been expanding and is estimated at about
40-50%.
Table 26 shows the top super- and hypermarkets chains. The average floor space of a Ukrainian
supermarket grew from 822 square meters in 2005 to 1200 square meters in 2009. Traditional retailers
are losing their clientele due to new and improved services that are provided by large retailers. Key
success factors of supermarkets are: higher quality, attractive prices through better logistics and
substantial discounts, comfortable shopping conditions, and additional services.
Kiosks (usually 8-25 square meters) survived at road intersections, bus stops, underground stations, near
open-air markets, in bedroom communities, and in rural areas. Kiosks are becoming more specialized;
for example, producers of meat and bakery products have opened kiosks to sell their own products near
public transportation stops. Another possibility with rapidly growing prospects and increasing retail sales
is petrol stations. Approximately 10-15% of all Ukrainian petrol stations sell packaged food. At the
moment the petrol station stores account for 1-2% of all food stores in Ukraine.
Chain convenience grocery stores have been gaining the share in food retail. This partly reflects the food
chain strategies to changing consumer after-crisis behaviour. Chains scaled down and increasing rely on
smaller formats to recapture market share. Small mini markets and “shop near home” became
predominate formats. Retailers believe that smaller stores allow for retail industry growth in the
turbulent post-crisis market environment. The Fozzy Group is developing a network of Fora and Bumi-
market grocery stores. The Rainford group also has a network of 32 “convenience stores.” Their
competitor in the Dnipropetrivsk region (ATB Corporation) has a network of 372 stores. Usually
groceries are located in suburbs, offer a narrow product range and have limited floor space. These new
groceries are quickly replacing the Soviet-style food stores. The average floor space varies from 300 to
500 square meters. Stock lists include an average of 1,500 to 3,500 items. Grocery outlets became
rather popular among pension-age consumers who prefer to shop close to home. These outlets also
target consumers with below average incomes and who generally purchase goods daily. These products
tend to have a short shelf life (bread, dairy products, fruits and vegetables, etc.). Market analysts note
that convenience stores lack regular customers and their market share is small. Nevertheless, grocery
stores are very successful in small Ukrainian towns (USDA, 2012).
42
Table 26 Top 7 hypermarkets and supermarkets chains in Ukraine (rating from larger to smaller chain)
Retailer name/outlet
type
Owner/turnover Total store area, 1000
sq m
Number of outlets in
2012
Location
Silpo Fozzy Group ($2.6
billion in 2011) 362.2
206 Nation-wide
Fozzy, C&C 5 Nation-wide
Metro Metro Cash and Carry
(Metro AG Germany) 227 27 Nation-wide
Real 37.1 4
Furchet Furchet LLC 184.3 117 Nation-wide
Velyka kychenia Retail Group Holding 113.2 43 Nation-wide
Tavria-V, Kosmos Tavria-V LLC 105 34 Southern/Central
Ukraine
Auchan Auchan Ukraine 85 8 Nation-wide
Eco-Market Bayadera Ltd 81.7 82 Nation-wide
Source: USDA (2012)
3.4.2 Consumption
On average Ukrainian households spend about 50% of their incomes on food and drinks, excluding
alcohol and tobacco products. Including alcohol and tobacco products this share increases to almost
54%.
Food consumption patterns in Ukraine have been following the world patterns. As the income of
population grows, more protein rich products tend to replace the staple food. For example, according to
the State Statistics Committee of Ukraine, per capita consumption of meat and meat products increased
from 33 kg per person (per year) in 2000 to about 56 kg in 2013, while consumption of bread and bakery
products has decreased from 125 to 108 kg per person over the same period (Table 27). Moreover,
there have been shifts in consumers’ preferences toward poultry. Poultry (as it is cheaper and often
considered as healthier) has been gradually replacing beef and pork in the diets of Ukrainians. Financial
crisis accelerated this shift. The majority of Ukrainians are not ready to pay a premium price for beef
from beef cattle. In addition, consumers prefer purchasing fresh meat (animals slaughtered the day
before sale) that they purchase in open-air markets and chilled beef sold in supermarkets. No frozen
meat is usually available for sale in retail chains.
Table 27 Food consumption per capita in Ukraine, kg /year
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Grains 125.6 123.5 119.5 115.9 115.4 111.7 111.3 110.4 109.4 108.4
Vegetables 115.4 120.2 126.7 118.4 129.2 137.1 143.5 162.8 163.4 163.3
Potatoes 141.4 135.6 133.6 130.4 131.8 133.0 128.9 139.3 140.2 135.4
Fruits 33.9 37.1 34.8 42.1 43.5 45.6 48.0 52.6 53.3 56.3
Bread products 125.6 123.5 115.9 115.4 111.7 111.3 111.3 110.4 109.4 108.4
Sugar 38.4 38.1 39.5 40.0 40.9 37.9 37.1 38.5 37.6 37.1
Vegetable oil 13.0 13.5 13.6 14.3 15.0 15.4 14.8 13.7 13.0 13.3
Meat and meat products 38.5 39.1 42.0 45.7 50.6 49.7 52.0 51.2 54.4 56.1
Beef & veal, - - - 11.6 10.5 9.6 9.8 9.1 8.5 9.2
Pig meat - - - 15.4 17.7 16.1 18.0 18.6 21.1 21.5
Poultry - - - 17.7 21.5 23.0 23.2 22.5 23.8 24.4
Milk and milk products 226.0 225.6 234.7 224.6 213.8 212.4 206.4 204.9 214.9 220.9
Eggs (pcs) 220.0 238.0 251.0 252.0 260.0 272.0 290.0 310.0 307.0 309.0
Fish and fish products 12.3 14.4 14.1 15.3 17.5 15.1 14.5 13.4 13.6 14.6
Source: Ukrstat
Per capita consumption of milk and milk products decreased from 226 to 205 kg over 2005-2011.
Consumption of hard cheese was replaced by spread cheese; consumption of yogurts was replaced by
cheaper traditional sour milk products. In 2012 and 2013, consumption of milk and milk products rapidly
43
increased by 8% to 221 kg per capita. This may be caused by the trade war with Russia in 2012 when a
range of Ukrainian producers were banned from Russian market and resulting decrease in domestic
price from 3.04 to 2.66 UAH per kg. Despite a significant contraction of premium market segment,
imports of high quality cheese (mainly from the EU countries) continue. Imported cheese remains
significantly more expensive than domestic competitors at the top segment, but has by far superior
quality. Imports of cheese and other milk products are expected to increase in the next 7 years as a
result of 4-8% decrease in prices – consequence of Deep and Comprehensive Free Trade Area (DCFTA)
implementation.
Per capita consumption of fish has almost doubled from 8 kg in 2000 to 15 kg in 2013. Another positive
development is a strong growth in consumption of vegetables from 101 kg in 2000 to 163 kg in 2013.
Consumption of bread and bread products, on the contrary, has decreased from 124 kg in 2000 to 108
kg in 2013. Interesting tendency is that vegetable fats have been gradually replacing animal fats, the
consumption of vegetable oil jumped from 9 kg in 2000 to 15 kg in 2009, after it gradually decreased to
13 kg in 2013.
44
4. AGRI-FOOD TRADE AND TRADE RELATIONS 4.1 Agri-food trade
4.1.1 Overall agri-food trade
During 2004-2013, the value of agri-food export increased by 4.2 times, value of import increased by 3.1
times. Their share in the total export (import) increased from 9.8% to 26.3% (from 6.4% to 9.9%) in the
same period. Since 2009, the average annual growth for export was 17.8% and 12.5% for import.
Agricultural trade balance has always been positive in Ukraine it equaled 9.1 billion USD in 2013 (Figure
20).
Figure 20 Agricultural trade in Ukraine in 2004-2013, billion
USD
Sources: DESA/UNSD, United Nations Comtrade database
Figure 21 Top agricultural export products in Ukraine in
2004-2013, billion USD
Source: DESA/UNSD, United Nations Comtrade database
Figure 22 Top agricultural import products in in Ukraine
2004-2013, billion USD
Sources: DESA/UNSD, United Nations Comtrade database
Ukrainian agri-food export is dominated by raw products and their share is constantly increasing. For
instance, the share of cereals in the total export increased from 26% in 2004 to 38% in 2013; the share
of oil seeds increased from 5% to 12%. At the same time, the share of prepared meat and fish products
decreased from 0.8% to 0.4%. Vegetable oils are the only processed good among the top three exported
agri-food goods: its share increased from 17% in 2004 to 21% in 2013.
Ukrainian agri-food import is much more diversified than export. Edible fruits and nuts are the largest
imported group and held 16.4% of all agri-food import in 2013. Other significant imported goods are fish
45
and mollusks (11.4%), tea, coffee or mate products (8.7%), meat (8.3%), cocoa products (6.1%) and
tobacco products (6.0%).
4.1.2 Agri-food trade by trading partner In 2013, Ukraine exported to the EU agri-food goods worth of 4.5 billion USD. Over the last ten years the value of Ukrainian
agri-food export to the EU has increased by 5.9 times, however the share of the EU countries in the total agri-food export
remained fairly constant – 24% in 2004, 27% in 2013. Ukraine exports to the EU mostly raw products (cereals – 39% of the
total agri-food export to the EU; oilseeds – 28%) or products with low value added (vegetable oils, animal fats – 11%; food
industry wastes, animal fodder – 11%). Spain was the largest export recipient in 2013 – it imported 17.0% of Ukrainian agri-
food exports. Maize accounted for 69% of this export, 13.7% was sunflower oil and 6.7% soya beans. Other large EU
importers were Netherlands (15.5% of export to the EU), Italy (13.4%) and Poland (11.8%), see
Figure 23. They were mainly importing maize, rapeseed and sunflower oil. France is notable as the
world’s largest consumer of Ukrainian rapeseed; it imports 23% of the total Ukrainian rapeseed export.
Figure 23 Geographical structure of agri-food exports of
Ukraine, 2013
Sources: DESA/UNSD, United Nations Comtrade database
Figure 24 Geographical structure of agri-food imports of
Ukraine, 2013
Sources: DESA/UNSD, United Nations Comtrade database
Six CIS countries and Georgia received from Ukraine agri-food exports worth of 3.6 billion USD in 2013.
Value of Ukrainian agri-food export to the CIS and Georgia has increased by 2.3 times in the period
2004-2013, although the share of these countries in the total agri-food exports has fallen from 49.4% to
21.6%. Russia remains the main agri-food partner of Ukraine among the CIS countries; however its share
in the total agri-food export has dramatically decreased from 35.4% in 2004 to 11.8% in 2013. Such a
rapid change is due to the political tension between two countries and resulting trade restrictions
mainly from the Russia’s side18. Nevertheless Russia remains the largest consumer of Ukrainian food
products. In 2013, it imported 74% of the total Ukrainian meat/fish food products export, 60% of cocoa
products export, 56% of beverages export, 55% of dairy products export, 46% of meat export and 46%
of vegetables export (Figure 23). All other CIS countries and Georgia accounted for 9.9% of Ukrainian
agri-food export in 2013 – almost the same as in 2004 (14.1%). Interesting detail is that the trade with
Belarus – the second largest CIS consumer of Ukrainian agri-food export - remained virtually the same:
3.5% of agri-food export in 2004 and 3.0% in 2013 despite the fact that Russia and Belarus are both
members of the Custom Union and should implement unified trade policy.
Apart from the EU and CIS countries, important trade partners of Ukraine are Arabian countries of
Middle East and North Africa which consume a large share of Ukrainian cereals export (for instance
18
ban of Ukrainian meat in 2006, meat and dairy products in 2010, confectionery, dairy products and meat in
2011, confectionery in 2013
46
Egypt imported 24.8% of Ukrainian wheat export), and India which is the largest importer of Ukrainian
sunflower oil (32.5%).
Together EU countries account for 40.6% of the total agri-food import to Ukraine (Figure 24). The four
largest exporters to Ukraine are Germany (8.3% of the total Ukraine’s agri-food import), Poland (6.1%),
France (3.8%), Netherlands (3.3%) and Italy (3.1%). Germany specializes in extracts of tea, coffee, mate
(13.1% of German agri-food export to Ukraine, largest supplier to Ukraine), ice-cream (8.7%) and meat
(swine – 10% and poultry- 4.8%). Poland exports to Ukraine apples (14.4% of Polish agri-food export to
Ukraine), animal feed (9.3%) and pig fat (9.1%). France is the large supplier of maize (23.9% of France’s
agri-food export to Ukraine), oil-cakes (12.3%), sunflower seeds (8.6%) and wine (8.0%). Italy exports
mostly wine and citrus fruits. Spain is also important supplier of citrus fruits – 12.2% of all citrus import.
CIS countries and Georgia account for 15.4% of the total agri-food imports to Ukraine of which 71.5%
are imports from Russia. The share of imports from the Russian Federation in Ukrainian agri-food
import has decreased from 15.0% in 2004 to 11.0% in 2013. As of 2013 Russian import consisted of
cocoa products (14.5% of agri-food import from Russia), manufactured tobacco other than cigarettes
(6.8%) and animal feed preparations (5.9%). Main imported goods from other CIS countries and Georgia
are beverages (50.2% of agri-food imports from these countries), fruits (16.9%) and dairy products
(12.5%).
Other important agri-food importers are Brazil (the main pig meat importer), Iceland, Norway and the
USA (all three are large fish importers), and Turkey with Egypt (fruit importers).
4.1.3 Agri-food trade by products
Over last five years export of cereals has increased from 3.6 to 6.8 billion USD. Steady annual growth of
exports was interrupted only in 2010 when government implemented export prohibition. Luckily it was
lifted the next year and resulted to a signing of Memorandum between the government and exporters
in which they negotiated affordable amount of export.
Ukraine is the largest producer of sunflower oil in the World. Its share has been about 24% for the last
three years. Sunflower oil industry is predominantly export-oriented, exporting above 90% of the
produced sunflower oil abroad. This makes Ukraine the leading sunflower oil exporter in the world. As
was mentioned before the main buyer of Ukrainian oil is India (32.5% of Ukrainian sunflower oil export).
The main competitor is Russia which has been competing against Ukrainian product with USD 10-20
lower prices (USDA 2014a).
As a consequence of increasing export of sunflower oil, Ukraine’s export of sunflower seed is constantly
diminishing due to the attractiveness of domestic market: export has fallen from 98 million USD in 2004
to 49 million USD in 2013. Turkey is the main consumer of Ukrainian sunflower – in 2013 it imported
50.4% of the total sunflower export.
Cheese is the main product of Ukrainian dairy export (52.3% of dairy export) and 86% of it was destined
to Russia. The exported amount was gradually falling over last ten years as a result of competition from
European producers. It is expected that cheese export will considerably fall in the near future due to the
2014 prohibition of Ukrainian cheese export to Russia. Ukrainian producers are unlikely to find new
markets but still will be able shift to skimmed milk powder and butter exports and thus minimize their
loses (USDA 2014b).
47
Figure 25 Development of main Ukrainian agri-food exports
in 2004-2013, million USD
Sources: DESA/UNSD, United Nations Comtrade database
Figure 26 Development of main Ukrainian agri-food imports
in 2004-2013, million USD
Sources: DESA/UNSD, United Nations Comtrade database
Implementation of the DCFTA with the EU is expected to be a main factor determining the changes in
Ukrainian agri-food trade in the near future. In particular it is assumed that Ukrainian agri-food export
to the EU will increase by 18-20% in the next ten years. In particular, elimination of EU import tariffs
should lead to 38.0% increase in the export of meat to the EU, 14.4% increase in milk export and 46.5%
increase in cereals export (Ryzhenkov et al, 2013).
On the import side, implementation of DCFTA with the European Union should lead to 4-8% increase in
import from the EU. Ukraine will lift its trade barriers slower than the EU, thus a full effect of DCFTA for
import from the EU will be perceptible not sooner than 2019. Nevertheless it is expected that import of
beverages will increase by 29.5%, import of meat by 14.0%, vegetable oils and animal fats by 12.0%
(Ryzhenkov et al, 2013).
4.2 Trade policy and infrastructures
4.2.1 Measures directly affecting trade imports and exports
Overall, Ukraine’s agricultural trade policy framework is functioning in a way that exportable agricultural
products tend to be taxed, while importable ones tend to receive support. World Bank (2013b)
illustrates that poultry, pork, beef and sugar have emerged as the sub-sectors receiving the largest state
support, whereas the implicit taxation of the most important exported cereal and dairy products is
taking place on an equal or even higher level. Moreover distortions created in Ukraine’s agricultural
incentives framework appear to be systemic and consistent. The high levels of support received by the
poultry and pork sector and the large implicit taxation of major cereal products suggests that the
agricultural policy framework is biased toward livestock producers and processors at the expense of
crop producers (World Bank 2013b).
Import tariff and non-tariff measures
Protection of agriculture via import duties is generally modest. The rest of the economy is, however,
more open to international competition.
Table 28 shows that the simple average applied import duty for agricultural commodities is 9.5% — well
below the corresponding final bound 11%.
48
Table 28 Tariffs and imports - summary (percent)
Year Total Agricultural
commodities
Non-Agricultural
commodities
Simple average final bound - 5.8 11.0 5.0
Simple average MFN
applied 2012 4.5 9.5 3.7
Trade weighted average 2011 2.7 9.1 2.2
Source: WTO
Note: MFN= most-favored nation.
On a more disaggregated level, sugar is the most protected agricultural product in Ukraine. Ukraine
applies a Tariff Rate Quota (TRQ) on sugar imports at the level of 267.8 million tons (under WTO
commitment). Within quota import duty is 2%, while the above quota duty is 50% (see Table 29).
Sunflower oil is the second most protected agricultural commodity. The import duty for sunflower oil is
at a prohibitive 30% rate (see Erreur ! Source du renvoi introuvable.), whereas the export duty for
sunflower seed has been annually decreasing by 1 percentage point from 17% in 2008 to 10% in 2014.
Although the average import duty for cereals is higher than for oilseeds, fats and oils (see Table 29), it is
rather irrelevant as cereal exports by far exceed imports.
Nominally animal products are moderately protected with an average 11% import duty (see Table 29). In
reality, however, the gap between domestic and world prices is much higher (World Bank, 2013b). To
some extent, excessive non-tariff trade barriers in the form of demanding import procedures and
regulations are responsible for this state of affairs.
Table 29 Tariffs and imports by agricultural product groups in 2013, in %
Product groups Final bound duties MFN-applied duties Imports
AVG Duty-free MAX AVG Duty-free MAX Share Duty-free
Animal products 13 0 20 11 9 20 1 15
Dairy products 10 0 10 10 0 10 0 0
Fruit, vegetables, plants 13 10 20 10 19 20 1 55
Coffee, tea 6 35 20 6 35 20 1 42
Cereals and preparations 13 3 20 13 4 20 1 27
Oilseeds, fats and oils 11 11 30 8 20 30 1 90
Sugars and confectionery 18 1 50 18 0 50 0 0
Beverages and tobacco 8 26 64 12 26 424 1 24
Cotton 1 40 5 1 40 5 0 61
Other agricultural products 8 24 20 6 45 20 1 19
Source: WTO
Note: AVG= average; MAX= maximum; MFN= most-favored nation.
The completion of the customs clearance process requires 7-10 days including additional required
laboratory tests. Imported agricultural produce is subject to obligatory certification, sanitary-
epidemiological, radiological and — for certain types of produce — veterinary and phytosanitary
control. The following documentation is required for customs clearance (World Bank, 2013b ):
(a) Certificate of conformity. This document confirms that agricultural products are properly
identified and comply with the requirements of the obligatory quality and safety norms and
standards in force in Ukraine. It is issued by the State Committee of Ukraine on Standardization,
Metrology and Certification or an authority that is authorized (accredited) by the State
Committee. There are more than 100 institutions authorized to conduct certification in the
Ukrainian Certification System UkrSEPRO. Foreign certificates are taken into account only in
cases when mutual recognition of such certificates is included in provisions of respective
international agreements. In such cases, a certificate of recognition of the foreign certificate of
conformity is required. The certificate of conformity can be received for a series of shipments if
49
all consignments are shipped to one single recipient or for each specific consignment in all other
cases.
(b) State sanitary and epidemiological expertise certificate. The State Sanitary and Epidemiological
Service of the Ministry of Health Care of Ukraine issues to the importer the certificate of state
sanitary and hygiene testing stating that the produce does (or does not) conform to the medical
requirements of safety for human life and health.
(c) Veterinary certificate. Every consignment imported into Ukraine is inspected and sampled,
regardless of the statements made in the accompanying veterinary health certificate. The
importer/exporter will have to bear the costs associated with testing in the border laboratory or
in the Central State Veterinary Laboratory in case of appeal. The costs of testing vary between
USD 80 and USD 500, depending on the number of tests required and the number of uniform
lots in the shipment. The testing procedure takes up to 7 days, making the import of some
highly-perishable goods impossible.
(d) Quarantine import permit/phytosanitary certificate. The phytosanitary certificate confirms that
quarantine materials correspond to the requirements of safety standards. Ukrainian
phytosanitary inspectors conduct an initial inspection of the cargo at the port of entry and take
product samples for the laboratory test to verify that live quarantine pests are not present in
the cargo. If the exporting country has no state bodies on quarantine and plant protection,
import is allowed after a quarantine import permit is granted. The quarantine import permit is
issued by Golovderzhkaranteen (the Main State Inspection on Quarantine of Plants of Ukraine),
and confirms that the product corresponds to the requirements of safety standards.
Export restrictions
Export restrictions on grains were implemented five times in the last seven marketing years in 2006/07,
2007/08, 2010/11 and in 2011/12 and took place in the form of either quotas or export taxes. In
marketing years 2012/13 and 2013/14, export restrictions took the form of voluntary export quotas.
Traders voluntarily agreed to cap their grain exports at 80% of the grain exportable volumes to reduce
the uncertainty of restrictions. The economic effects from export restrictions were devastating. In the
short-term, Ukraine and farmers lost important export revenues. World Bank (2013a) assesses (using
OECD PSE tables and other studies) that these forgone revenues amounted to: USD 1.3 billion in 2007,
USD 3.9 billion in 2008, from USD 1.9 billion to USD 2.6 billion in 2010/11 marketing year. However, in
the medium to long-term, export restrictions created major disincentives for domestic and foreign
investors to undertake capacity-enhancing investments in production, marketing infrastructure and
related services.
4.2.2 Logistics and infrastructure
Agricultural products within Ukraine are transported by railways, road, and river. About 2/3 of grains are
delivered to ports by railway, 1/3 by trucks, and only 3% by river. Approximately 700 grain and oilseed
silos operate in Ukraine, with total storage capacity of 36 million tons and daily loading capacity of 1.5
million tons, and these numbers are continually growing. Around 15% of the country’s grain and oilseed
silos are state-owned, while the remainder belongs to either agricultural companies, farmers, or other
private owners. Grain terminal capacities increased from approximately 7 million tons/year in
1998/1999 to 47.1 million tons/year in 2012/2013, with most of the investments made in the past five
years. Ukraine has 16 state-owned ports (with a total storage volume of about one million tons of grain
and transshipment capacity of 17 million tons per year), as well as seven private ports.
Overall transportation capacity for agricultural products seems to be adequate, with some bottlenecks
remaining in the rail transport system, bad quality of roads, relatively underdeveloped river transport
infrastructure. Still, transportation and handling costs are about 30% above comparator countries due to
persistent logistical inefficiencies (World Bank, 2013b). The World Bank 2014 Logistics Performance
Index for Ukraine (2.98) is almost 30% lower compared to the top performer Germany (4.12) but a bit
higher than average in the ECA region (Table 30). Trade and transport related component of the
50
Ukraine’s LPI (2.65) scored the least among other components. Poland, Ukraine’s neighbor, significantly
outperforms Ukraine in all components of the LPI. As the Table 31 shows, Ukraine’s logistics efficiency
has been on an upward trend, but there is still large room for improvement. When it comes to the grain
sector, experts in the field assess the cost of inefficiency in the whole value chain (due to infrastructure,
low performance, regulations etc.) at about US$ 30/t, and this a potential source of increased revenues
and investments into agriculture.
Table 30 Ukraine’s Logistics performance compared to top performers and ECA, 2014
Country LPI
Rank LPI Score Customs Infrastructure
International
shipments
Logistics
competence
Tracking
&
tracing
Timeliness
Germany (top
global
performer)
1 4.12 4.1 4.32 3.74 4.12 4.17 4.36
Turkey (top in
the ECA region)
30 3.5 3.23 3.53 3.18 3.64 3.77 3.68
Poland
(neighbor)
31 3.49 3.26 3.08 3.46 3.47 3.54 4.13
Ukraine 61 2.98 2.69 2.65 2.95 2.84 3.2 3.51
Region: Europe &
Central Asia -ECA
2.76 2.51 2.59 2.83 2.67 2.77 3.2
Source: World Bank
Table 31 Development of Ukraine’s Logistics Performance Index
Year LPI
Rank
LPI
Score Customs Infrastructure
International
shipments
Logistics
competence
Tracking &
tracing Timeliness
2014 61 2.98 2.69 2.65 2.95 2.84 3.2 3.51
2012 66 2.85 2.41 2.69 2.72 2.85 3.15 3.31
2010 102 2.57 2.02 2.44 2.79 2.59 2.49 3.06
2007 73 2.55 2.22 2.35 2.53 2.41 2.53 3.31
Source: World Bank
4.2.3 Main trade agreements
The current trade regime, in particular for agricultural goods, mainly arises from Ukrainian membership
in the World Trade Organization and number of bilateral and multilateral agreements with trading
partners.
Commitments under WTO
Ukraine became a WTO member on 16 May 2008 (after almost 15 years of negotiations). This process
resulted in a significant liberalization of trade. Ukraine’s main commitments under WTO are the
following (UNDP, 2011):
• Import tariffs – reduction of binding import duties, including reduction of binding import duties
for agricultural goods (see Table 32) and close to full substitution of specific duties with the ad
valorem tariffs. Maximum import duty rates are set for sugar (50%) and sunflower seed oil
(30%).
51
Table 32 MFN structure of import duty rates for agricultural goods in Ukraine after the WTO accession
At the accession Final bound rates (2011)
Zero rate tariff lines (% of all tariff lines) 9.6 10.0
Ad valorem tariff lines (% of all tariff lines) 62.7 95.5
Average arithmetic rate of the applied import tariff* 13.84 11.16
Average weighted rate of the applied import tariff 18.19 10.07
Minimum rate 0.0 0.0
Maximum rate (for ad valorem rates only) 30.0 50.0
International tariff peaks (% of all tariff lines)** 44.3 21.4
Noise' rates (% of all tariff lines)*** 5.2 2.8
Source : UNDP (2011)
* calculations by the Ministry of Economy of Ukraine and USAID based on trade data for 2004-2005
** international tariff peaks are determined as rates higher than 15%
*** ‘noise’ rates – import rates varying between 0% and 2%
• No quantitative import restrictions of non-tariff measures should be introduced, reintroduced or
applied. The only tariff rate quota was set for imports of raw cane sugar (260 thousand tonnes
annually and increasing to 267.8 thousand tonnes by 2010).
• Export duty rates – Duty rates should be gradually lowered; moreover, no obligatory minimum
export prices should be applied.
Table 33 Changes in export duty rates according to Ukraine’s commitments to the WTO (agricultural goods)
Commodity Duty before WTO
accession Duty immediately after accession Annual rate reduction step
Final rate after
WTO accession
Sunflower seeds 17% 16% 1% 10%
Livestock
50%, 55%, 75%
depending on
livestock type
50 5%
10%
Source: UNDP (2011)
• No export subsidies in agriculture should be applied.
• Ukrainian national technical regulations, standards and conformity assessment procedures
should be based on the international ones. Ukraine committed to reduce number of mandatory
certification and to move to the voluntary standards.
• Sanitary and phytosanitary measures should be applied according to the provisions of WTO
Agreement, Agreement on Application of Sanitary and Phytosanitary Measures, and Agreement
on Import Licensing Procedures.
• Investment regime should be in line with WTO Agreement and Agreement on Trade-Related
Measures (TRIMS).
• Ukraine should comply with the Agreement on Trade-Related Aspects of Intellectual Property
Rights.
• Ukraine bound itself with commitments regarding market access and national treatment in 11
key sectors and several other sectors
• Government procurement – Ukraine hasn’t joined the WTO Agreement on Government
Procurement but has observer status in GPA Committee.
52
Free Trade Areas
During the first decade of transition and afterwards Ukraine concluded both bilateral and multilateral
free trade agreements within CIS framework (see Table 34). Ukraine has concluded FTAs with Armenia,
Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan,
Uzbekistan, which regulate mainly merchandize trade-related issues. The CIS Free Trade Agreement was
signed on 15 April 1994; however, it was replaced by a new CIS FTA, which was signed on 18 October
2011. The new FTA cancels the previous agreement and includes provisions for the parties to stop
bilateral free trade negotiations on the previously signed FTAs. An important advantage of the new
within-CIS trade framework is the implementation of WTO principles as the basic ones. Parties
committed to provide each other with national treatment regime. Also, practices and principles of WTO
should be applied for sanitary and phytosanitary measures, technical regulations, standards, conformity
assessment procedures, antidumping and countervailing measures, regulation of goods and vehicles
transit, government procurement, subsidies, export- and import-related formalities. This FTA implies
minimization of nomenclature exemptions for import duty elimination and fixation of export duties with
further gradual elimination. Finally, CIS FTA is aimed at liberalization of international freight
transportation and improvement of tariff policy effectiveness (UNDP, 2011).
Other directions of trade liberalization also activated starting from 2000s (see Table 34). First, Ukraine
signed FTA with Macedonia. This agreement mainly covers trade in goods, however, the minor issues
also include protection of intellectual property rights, customs procedures, antidumping measures and
rules of origin. Free trade area should be established by a transition period of 10 years. On 24th of June
2010 Ukraine signed FTA with European Free Trade Association (EFTA), which includes Republic of
Iceland, the Principality of Liechtenstein, the Kingdom of Norway and the Swiss Confederation. It came
into force on 1 June 2012 with accompanying three special Agreements on Agriculture between Ukraine
and EFTA members. This Agreement is based on WTO principles and rules. FTA with EFTA includes
principle of asymmetric commitments, which allows Ukraine to adapt its economy in ten-year staging
period for trade with EFTA countries. On 18 November 2011 Ukraine signed FTA with Montenegro;
additionally parties signed a special protocol on goods and services market access as a part of
Montenegro’s WTO accession process.
After Ukraine became a WTO member in 2008, it started negotiations with the European Union on Deep
and Comprehensive Free Trade Area (DCFTA) as an integral part of Association Agreement. This process
was launched on 18 February 2008 and signed on 27 July 2014. The DCFTA is pending ratification by
Ukraine and each of 28 EU member states.
Economic part of this Agreement contains provisions on DCFTA (Title IV and related Annexes and
Protocols) and commitments in different sectors (Title V and related Annexes and Protocols). DCFTA-
related Title contains provisions on: National treatment and market access for goods, Trade remedies,
Technical barriers to trade, Sanitary and phytosanitary measures, Customs and trade facilitation,
Establishment, Trade in services and electronic commerce, Current payments and movement of capital,
Public procurement, Intellectual property, Competition, Trade-related energy, Transparency, Trade and
sustainable development, Dispute settlement, Mediation mechanism. In its turn, sector-related issues,
among many others, contains provisions on agriculture and fisheries.19
19
Betliy et al. (2014) Economic Component of Ukraine-EU Association Agreement: consequences for business,
households and government
53
Table 34 Ukraine’s regional trade agreements: concluded and under negotiations
Trade partner Type Coverage Date of signature Date of entry into force
Post-soviet countries
Armenia RTA, bilateral Goods (GATT Art.XXIV) 07 October 1994 18 December 1996
Azerbaijan RTA, bilateral Goods (GATT Art XXIV) 28 July 1995 02 September 1996
Belarus RTA, bilateral Goods (GATT Art.XXIV) 17 December 1992 11 November 2006
Georgia RTA, bilateral Goods (GATT Art.XXIV) 09 January 1995 04 June 1996
Kazakhstan RTA, bilateral Goods (GATT Art.XXIV) 17 September
1994 19 October 1998
Kyrgyzstan RTA, bilateral Goods (GATT Art.XXIV) 26 May 1996 19 January 1998
Moldova RTA, bilateral Goods (GATT Art.XXIV) 13 November 2003 19 May 2005
Russian Federation RTA, bilateral Goods (GATT Art.XXIV) 24 June 1993 21 February 1994
Tajikistan RTA, bilateral Goods (GATT Art.XXIV) 06 June 2001 11 July 2002
Turkmenistan RTA, bilateral Goods (GATT Art.XXIV) 05 November 1994 04 November 1995
Uzbekistan RTA, bilateral Goods (GATT Art.XXIV) 29 December 1994 01 January 1996
CIS* RTA,
multilateral Goods (GATT Art.XXIV) 18 October 2001 20 September 2012
CEZ** RTA,
multilateral Goods (GATT Art.XXIV)
19 September
2003 20 May 2004
Europe
Macedonia RTA, bilateral Goods (GATT Art.XXIV) 18 January 2001 05 July 2001
Montenegro RTA, bilateral Goods & Services
(GATT Art.XXIV & GATS Art.V) 18 November 2011 01 January 2013
EFTA*** RTA, bilateral Goods & Services
(GATT Art.XXIV & GATS Art.V) 24 June 2010 01 June 2012
EU**** RTA, bilateral Goods & Services
(GATT Art.XXIV & GATS Art.V) 27 June 2014 upcoming
Serbia RTA, bilateral Goods (GATT Art.XXIV) negotiations
Turkey RTA, bilateral Goods & Services
(GATT Art.XXIV & GATS Art.V) negotiations
America
Canada RTA, bilateral Goods (GATT Art. XXIV) negotiations
Asia
Singapore RTA, bilateral Goods & Services
(GATT Art.XXIV & GATS Art.V)
negotiations
Source: WTO
Notes:
*Commonwealth of Independent States: Armenia; Belarus; Kazakhstan; Kyrgyz Republic; Moldova, Republic of; Russian
Federation; Tajikistan; Ukraine;
** Common Economic Zone: Belarus; Kazakhstan; Russian Federation; Ukraine
***Iceland; Liechtenstein; Norway; Switzerland
**** EU-28: Austria; Belgium; Bulgaria; Croatia; Cyprus; Czech Republic; Denmark; Estonia; Finland; France; Germany;
Greece; Hungary; Ireland; Italy; Latvia; Lithuania; Luxembourg; Malta; Netherlands; Poland; Portugal; Romania; Slovak
Republic; Slovenia; Spain; Sweden; United Kingdom;
Briefly, DCFTA imply tariff and non-tariff protection liberalization, as well as legislative approximation.
Both parties committed to reduced or eliminate import tariffs during the staging period of 10 years. Pre-
DCFTA level of protection in the EU for imports of agricultural goods is higher than in Ukraine, it applies
more specific tariff rates. However, asymmetric character of tariff liberalization allows Ukraine to adjust
its economy before full access of European goods to its market. Three main differences for agri-food
tariff lines can be observed: (a) Ukraine keeps non-zero tariff rates for more goods; (b) EU reduce its
rates almost immediately, whereas in Ukraine reduction will last mainly for 5-7 years; (c) EU uses
54
instrument of tariff-rate quota (TRQ) more actively.20 Considering agricultural, food and related goods,
EU will eliminate its tariff protection to zero except for wheat (3.1% as of the end of staging period),
miscellaneous food products (1.2%), fruit and vegetables (0.8%), drinks (0.6%) and sugar (0.4%). In its
turn, Ukraine keeps non-zero, but significantly reduced protection in 14 out of 19 relevant product
groups (2 digits of HS classification). This is a result of TRQs usage by the EU (33 quotas by EU vs. 4 by
Ukraine) and incomplete tariff reduction by Ukraine. Among other commitments gradual elimination of
export duties (gradual elimination for oilseeds and livestock in 10 years, special safeguard mechanism is
applied for oilseeds for 15 years), non-application of export subsidies, harmonization of TBT and SPS,
approximation of Ukrainian both sectoral and horizontal legislation to the Directives of European Union
(including customs matters, doing business, competition policy rights, public procurement, intellectual
property rights, geographical indications etc.) can be mentioned. Additionally, Association Agreement
lists European legislation on agriculture, which should be implemented in Ukraine (44 directives).
Ukraine also conducts negotiations on free trade area with other countries. For example, currently
negotiations with Turkey, Canada, Serbia, Singapore and Syria are in progress. Other perspective
agreements include FTAs with Israel, Vietnam, Lebanon, Morocco and other trading partners.
20
Ryzhenkov et al. (2013) The impact of the EU-Ukraine DCFTA on agricultural trade. German-Ukrainian
Agricultural Policy Dialogue, Policy Paper Series, APD/PP/01/2013, Kyiv, October 2013
55
5. AGRICULTURAL POLICY AND INSTITUTIONAL
ENVIRONMENT
5.1 Agricultural policy framework
5.1.1 Agricultural policy objectives and mechanisms
The Law on “Basic Principles of the State Agrarian Policy up to 2015” contains the objectives of
agricultural policy of Ukraine. They include: (i) food security; (ii) efficiency and international
competitiveness; and (iii) integrated development of rural areas and improvement of social conditions
of the rural population. The “State Targeted Program for the Development of the Ukrainian Countryside
Until 2015”21 translated these policy objectives into specific tasks. It identified financing needs and
sources, and it was a first attempt at developing a coordinated approach to the implementation of
agricultural policy. In the fall 2013 a National Strategy for Agricultural Development 2020 was adopted22.
But this strategy was highly criticized by a private sector that was not involved in its development, so the
practical implementation of the strategy was terminated and most likely a new strategy is to be
developed.
In general, Ukraine’s agricultural policy is characterised as unreliable and inconsistent in pursuing its
objectives (see World Banks, 2013). It continues to be ad hoc and opportunistic, it lacks transparency in
application of policy measures and it creates significantly inequitable distribution of benefits.
Governance issues have eroded public trust and confidence in the state initiatives (see World Banks,
2013).
Agricultural state support is defined in the Law of Ukraine “On State Support of Agriculture in Ukraine”
(No. 1877-IV of June 24, 2004), defining most of the instruments and programs of agricultural support.
The state support in Ukraine as a percentage of farm receipts has been lower compared to the OECD
average. Table 35 shows that the total transfers to farmers were almost 8% of their receipts in 2010-12,
while in OECD area it was 12% in the same period (OECD, 2013). On the other hand, Ukrainian farmers
receive larger transfers as a percentage of the GDP than their OECD counterparts, i.e. 1.62% in Ukraine
compared to 0.34% in OECD in 2010-12.
The state support in general is characterized by modest levels of public expenditures and generous tax
benefits. As Figure 27 shows tax benefits made almost 90% in the total transfers to farmers in 2011-
2012. Tax benefits accrue from two sources: a fixed agricultural tax (FAT), and a special value-added tax
regime in agriculture (AgVAT). The FAT is a flat rate tax that replaces a number of taxes and duties,
including profit and land taxes. Its rate varies from 0.09% to 1.00% of the normative value of farmland.
In 2012, the FAT resulted in an average tax payment of only roughly 7 UAH/ha (0.8 USD/ha) of arable
land, leaving farm profits in Ukraine essentially untaxed. As far as AgVAT is concerned, farmers retain
the VAT from their sales to recover VAT on inputs and for any other production purposes. In 2012, the
benefits from the AgVAT accrued to UAH 11.2 billion (USD 1.4 billion).
Financing of public services, institutions and infrastructure dominate in the public expenditures (without
tax benefits) since 2009, being at almost 63% of the expenditures in 2012 (see Figure 29). The rest is
attributable to direct payments to farmers that have mainly been sub-sectors specific (field crops, pigs,
cattle), primarily through payments based on area, animal numbers or output as well as a large
concessional credit program (see Figure 28). The budgeting and timing of public expenditures, however,
remains ad hoc and undermines trust in the government. The state support programs in Ukraine are
considerably underfinanced. The gap between the planned and actual public expenditures has been
widening over the last couple of years (from 97% in 2007 to 73% in 2012). Moreover, the rules for public
21
Regulation of the Cabinet of Ministers No. 1158 of September 19, 2007 22
Regulation of the Cabinet of Ministers No. of November , 2013
56
funds allocation under different support programs are usually approved on an annual basis and are
often changed from one year to another.
In addition, some tariff and non-tariff protection for domestic producers is implemented in Ukraine,
complemented with some domestic measures such as minimum purchase prices and state procurement.
All of these policy interventions alter the domestic market price of a commodity as compared to its
border price. Market price support (MPS) indicator allows to assess the combined effect of a variety of
government market and trade policy measures and it is one of the components of the Producer Support
Equivalent (PSE). Figure 30 shows that overall Ukraine’s agricultural policy framework is functioning in a
way that exportable agricultural products tend to be taxed, while importable ones tend to receive
support. Figure 30 illustrates that poultry, pork, beef and sugar have emerged as the sub-sectors
receiving the largest state support. Ukraine’s sugar sector enjoys import Tariff Rate Quota (TRQ) of
267.8 million tons with 2% within the quota and 50% above the quota duty. The most important
exportable goods (grains, oilseeds and dairy products) are implicitly taxed. Negative MPS for grains
reflects export restrictions in 2010-12 that took place in the form of either quotas or export taxes. In
marketing years 2012-14, export restrictions took the form of voluntary export quotas, whereby traders
bounded themselves to export up to 80% of exportable surpluses. Sunflower seeds exports are taxed at
10%.
Table 35 Budgetary and other transfers (BOT) to Ukraine’s Agriculture in 2004-2012, in USD million
2004 2005 2006 2007 2008 2009 2010 2011 2012
Transfers to producers (PSE BOT) 1,141.4 1,247.0 1,574.1 1,945.6 2,065.2 1,372.6 1,813.8 1,699.5 2,076.5
Payments based on output (A2) 298.7 432.1 444.2 725.1 784.1 176.5 258.6 4.5 75.0
Payments based on
area/animal/receipts/income (C)
379.8 290.9 578.2 468.6 431.5 106.5 352.9 393.1 437.0
Subsidies to variable inputs and on-
farm services (B1+B3)
412.3 412.7 466.5 603.3 669.7 1,023.4 1,066.5 1,183.4 1,444.3
Transfers reducing the on-farm
investment cost (B2)
50.6 111.3 85.2 148.7 179.9 66.2 135.8 118.5 120.2
Other producer support (D+E+F+G) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Financing of public services,
institutions and infrastructure (GSSE
BOT)
361.1 557.4 509.4 666.5 714.4 485.7 613.3 675.8 774.8
Agricultural knowledge generation
and transfer (H)
134.0 204.0 172.7 236.4 367.4 245.8 264.3 302.7 355.0
Food inspection and control (I) 86.7 153.4 116.3 146.7 152.6 92.0 169.0 171.5 199.2
Development and maintenance of
rural infrastructure (J)
110.5 169.1 189.2 230.3 160.0 116.0 127.5 150.0 162.3
Marketing and promotion (K) 1.3 1.3 1.5 1.6 4.7 6.5 6.2 2.0 4.6
Other general support (L+M) 28.6 29.6 29.7 51.5 29.6 25.3 46.4 49.5 53.6
Transfers to consumers from
taxpayers (TCT BOT)
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total budgetary and other transfers
(Total BOT)
1,502.5 1,804.4 2,083.4 2,612.1 2,779.6 1,858.3 2,427.1 2,375.2 2,851.3
Total BOT as a share of value of
production at producer prices (%)
10.6 10.1 10.3 10.5 8.6 8.2 8.2 6.3 8.2
Source: OECD (2013), ‘Producer and Consumer Support Estimates’, OECD Agriculture statistics (database)
57
Figure 27 Types of budgetary and other transfers,
million USD Sources: OECD (2013)
Figure 28 Budgetary and other transfers by implementation,
million USD Sources: OECD (2013)
Figure 29 Breakdown of general services support, million USD Source: OECD (2013)
Figure 30 Market price support as the share of production
value at farm gate, 2010-12 avg. Source: OECD (2013)
5.1.2 Institutional arrangements
Institutional setup in agricultural policy making and implementation in Ukraine is rather centralized with
a little power delegated to the local governments. On a high level of a decision making process, the
following hierarchy exists: 1) the President and Presidential Administration, 2) the Prime Minister and
the Cabinet of Ministers (GoU), 3) Ministry of Agricultural Policy and Food (MoA), 4) other ministries,
but primarily the Ministry of Economy and Trade (trade and business regulations issues) and the
Ministry of Finance (state support issues), 5) the Parliament of Ukraine (Verkhovna Rada). Draft laws can
only be initiated and registered by people’s deputies (PD) or a group of PDs, the President, the Cabinet
of Ministers, or the National Bank (i.e., the ‘subjects of legislative initiative’). The President has a power
to veto the laws. Resolutions of the Cabinet of Ministers or/and Decrees of the corresponding
responsible ministries are implementing the norms of laws.
On the lower level, the MoA via its subordinated agencies implements policies in agriculture, the main
agencies are:
1) The State Agency for Land Resources deals with (agricultural) land policies
implementation. It maintains the State Land Cadastre of Ukraine. The Register of land
rights, however, is maintained by the Ministry of Justice.
2) The Agrarian Fund is responsible for the implementation of market interventions with
the dual objective: i) price stabilization and ii) maintaining a strategic reserve. Due to
the lack of state financing and intransparency of this agency’s operations, Agrarian Fund
intervention has no effect on the market (see World Bank, 2013).
58
3) State Veterinary and Phytosanitary Services is dealing mainly with SPS measures. In
September 2014 this agency was included into the single Food Safety and Consumers’
Protection Agency under the Cabinet of Ministers of Ukraine23.
4) State Agricultural Inspection of Ukraine. This agency was established in 2011 with a
mandate of significant controls in a variety of areas. In September 2014 it was
liquidated24.
Moreover, the GoU and the MoA have their state owned enterprises (SOEs) to affect the agricultural
markets. The largest is the State Food and Grain Corporation of Ukraine (DPZKU). It is a public joint stock
company that was founded in 2010. DPZKU is a relatively large grain trading state enterprise with about
10.5% of the total certified storage facilities, 12% of the total port facilities of the country and significant
assets in food processing sector. The DPZKU implements so called ‘Chinese credit deal’. In 2012, Ukraine
and China agreed on a deal of USD 3 billion. According to this deal, China granted USD 3 billion credit
line to Ukraine in the exchange of Ukrainian exports of grain (mainly maize) to China and Chinese
agricultural machines, equipment, agrichemicals, and seeds imports to Ukraine in 50-50 proportions, i.e.
USD 1.5 billion for Ukraine’s exports and USD1.5 billion for the Chinese imports25.
Major external factors that shape the agricultural policy making in Ukraine are its WTO membership and
recently signed Association Agreement with the EU (AA) with its Deep and Comprehensive Free Trade
Agreement (DCFTA). WTO commitments are substantial. The AA is expected to trigger comprehensive
institutional and regulatory reforms.
23
Resolution of the Cabinet of Ministers of Ukraine #422 as of 10.09.2014 24
Resolution of the Cabinet of Ministers of Ukraine #422 as of 10.09.2014 25
Resolution of the CMU #857 as of 13.08.2012
59
6 FUTURE PERSPECTIVES FOR THE AGRICULTURAL AND
FOOD SECTOR
6.1. Strengths and weaknesses of the agricultural and food sector
Agri-climatic and geographical endowments make Ukraine exceptionally positioned in the currently
growing global food markets: 1/3 of the world-wide stock of the most fertile black soil, which is ideally
suited for crop production, favorable temperature and precipitation regimes, access to the year-round
ice-free deep Black Sea ports. This excellent background allows Ukrainian agriculture to develop despite
unfavorable investment environment, inefficient logistics and infrastructure, ineffective and rather
counterproductive public services and agricultural policy. Below SWOT analysis is summarized as
follows:
� Strengths: o favourable agri-climatic conditions with 1/3 of the world’s stock of the most fertile black soil; o advantageous geographical position relative to major sales markets: Europe and CIS; o year-round availability of ice-free and deep port capacities to handle large vessels; o investments into the sector despite unfavourable doing business environment; high capital
return; o developed railway and main connecting roads infrastructure; o relatively cheap labour o competitive advantage (cheap feed and raw materials supply) for livestock and food processors
due to the competitive crop sector
� Weaknesses: o low productivity, high share of households in production;
o great number of conservatively disposed agrarians;
o lack of qualified staff (especially highly skilled); lack of modern technologies and modern
managerial practices;
o underdeveloped national quality infrastructure (sps measures); shortage of elevator capacities
and cold storage capacities; undeveloped marketing infrastructure in rural areas;
o high dependence on agro-climate conditions, inefficient system of insurance of agricultural risks;
underdeveloped agri-finance infrastructure;
o high administrative burden; inefficient logistics and transaction costs as a result;
o ad-hoc and opportunistic state agricultural policy; absence of equal level-playing field for all
producers and sectors; continued delay of introduction of farmland market sales and purchases;
� Opportunities:
o growing world population and increasing global demand for food products;
o increasing demand for alternative energy – market for agricultural raw materials;
o substantial scope for productivity increase in the sector;
o possibility of a large-scale agricultural production and substantial export potential due to the
relatively low density of population per ha of arable land;
o global climate change and possibility of two crops seasons;
o underperforming agricultural science, research and development, and education systems;
o further integration of Ukraine into the international trade: Association Agreement between
Ukraine and the EU; better investment climate
o shift from supply to demand-driven paradigm of international agriculture and westernization of
diets
60
o technology transfers from the EU in general, including national quality infrastructure (sps
measures), education, extension services; decreased losses due to better technologies;
� Threats:
o decreasing content of nutrients in soils, erosion, worn-out melioration systems;
o imperfect system of budget support, delays in VAT refund to exporters;
o inadequacy of the expert training system, low level of integration into the international scientific
community;
o continued ad-hoc and opportunistic state agricultural policy, quantitative restrictions of foreign
trade; continued high administrative burden and unfavourable investment climate due to status-
quo in reforms;
o depopulation and urbanization of rural population, thus lack of labour for agriculture.
o Status-quo in bringing the national quality infrastructure to the best world practices – threat for
export expansion o Continued market protection from the Customs Union/Russia
6.2. Potential of production and yields by sectors
Average yields have generally increased in Ukraine since 2000. But sector performance is still lagging
behind in comparison to other countries. Average grain yields in Ukraine are about half of the EU-27
level, despite the fact that growing conditions in Ukraine are certainly above average. For example, in
2012, yields for barley were 2.1 t/ha vs. 4.4 t/ha average for the EU-27; for maize, 4.8 t/ha vs. 6.05 t/ha;
for wheat, 2.8 t/ha vs. 5.34 t/ha.
Average yields mask an enormous variation between farms. In the case of winter wheat, for example,
average farms produce about 2.2 t/ha, while top 30% farms reach 5-7 t/ha (World Bank, 2013b). Farms
with high capital intensity that use modern machinery, high-quality seeds and fertilizers and original
plant protection agents tend to achieve higher productivity and reach and surpass the East European
comparable farms yields (6 t/ha wheat; 6.2-7.1 t/ha maize, 2.4-3.9 t/ha rapeseed).
Another potential area for increasing production volumes has been decreasing the level of losses due to
bad technologies in the value chain. For example, due to the fact that about 70% of agricultural
machinery is physically outdated, Ukraine loses 5-6 million tons of grain during harvesting annually.
6.3. Growth attractiveness for specific commodities
It is difficult to talk about growth attractiveness for specific commodities, as the sector specific
development depends on complicated set of often unpredictable factors. Generally, more detailed and
in-depth analysis would be required to define a competitiveness position of different Ukraine’s
agricultural products internationally and domestically, thus a potential for growth. Below only an
‘intellectual or substantiated hint’ on the sectors that ‘reveal’ already the signs of competitiveness on
export markets are provided.
Figure 31 compares Ukraine’s annual increase in the world market share (horizontal axis) with the
annual growth of international demand (vertical axis) between 2009-2013. Figure 31 also distinguishes
between growing and declining products/sector using the average nominal growth of the total exports
of the world for the period 2009 to 2013 (red horizontal reference line), which was 10%. So the
products, whose world imports have grown below 10%, are classified as declining products, as their
shares in world trade are declining, while products located in the upper quadrants are growing products,
as they are growing faster than the world market. The vertical and horizontal axis divide the chart into
four quadrants with different characteristics: Winners in growing sectors, Winners in declining markets,
Losers in growing sectors, Losers in declining sectors (ITC, 2013). Figure 31 shows that on aggregate
level Ukraine’s agri-food commodities are classified either ‘winners in growing markets’ or ‘winners in
declining sectors’. This means that these products are characterized by increasing shares of the
country’s exporters in the world import markets that are growing above or below the world average
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rate. Either way it implies further growth potential and allows to take advantage of the changing world
markets.
Ukraine reveals its comparative advantages and growth for a sufficiently significant number of agri-food
commodities, they are commodity groups HS: 04 (dairy products), 10 (cereals), 12 (oilseeds), 15
(vegetable and animal fats), 19 (cereal, flour etc preparations), 20 (vegetable, fruits etc preparations), 23
(residues of food industry, animal fodder), see Figure 31.
Figure 31 Ukraine’s exports growth versus world import growth, 2009-2013, product groups in 2-digit Harmonized System
Source: http://www.trademap.org/
Figure 31 also demonstrate that fruits and vegetables on an aggregated level do not perform well in
terms of capturing growing shares of the world market. On a more disaggregated level (4 digits HS),
however, performance of individual products has been more heterogeneous, showing some really
strong competitiveness and export potential. Figure 32 shows that some individual vegetables
(cabbages, cucumbers, onions, leguminous vegetables, frozen vegetables) reveal considerable growth
potential, while the performance of virtually all fruits on world markets remains poor (see Figure 33).
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Figure 32 Ukraine’s vegetables exports growth versus world import growth, 2009-2013, product groups in 4-digit HS
Source: http://www.trademap.org/
Figure 33 Ukraine’s fruits exports growth versus world import growth, 2009-2013, product groups in 4-digit HS
Source: http://www.trademap.org/
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7. RECOMMENDATIONS
Ukraine’s agriculture is still performing well below its potential. Given its fertile black soils and
supportive climate, Ukraine is capable to reach the average yields in the EU, i.e. to increase them by
about 2 times. By closing this productivity gap Ukraine’s agriculture could make a much larger
contribution to the country’s economy and welfare. This will require more capital-intensive agriculture,
financed by unleashing the potential domestic and foreign investments into the sector. At the moment,
the inflow of FDI and total capital investments into Ukraine’s agriculture is low in comparison to other
sectors considering agriculture’s contribution to the GDP.
Key constraints to investment and growth in agriculture are well formulated in the recent World Bank
Agricultural Policy Review for Ukraine (World Bank 2013b), i.e.:
(i) Policy and Business Environment Constraints: ad hoc policy making and resulting uncertainties
for investors; lack of transparency in the implementation of policy; and privileged treatment of
favored enterprises and sub-sectors, resulting in uneven playing field for enterprises.
(ii) Private Sector Markets for Land, Finance, Inputs and Services: constrained access to land,
finance, private agricultural services and technology, especially for small and medium sized
enterprises.
(iii) Public Infrastructure and Services: inefficiencies and gaps in public infrastructure, logistics,
technical knowledge and managerial skills; significant gaps in public institutions and efficiency of
public services and regulatory agencies, resulting in high costs of doing business.
Table 36 below summarises the key reform priorities to address these constraints and unleash
investments and ensure sustainable agricultural growth in Ukraine.
Table 37 Reform Agenda for Unleashing Investments and Agricultural Growth
REFORM PRIORITIES SOLUTIONS AND RECOMMENDATIONS
Non-interventionist trade
policy
Closing the productivity gap would mean more excess supplies that should
be taken off the domestic market; otherwise they would have a dampening
effect on domestic prices and on farmers’ incomes. Facilitating exports
would create incentives for investors to undertake capacity-enhancing
investments in production, marketing infrastructure and related services. On
the other hand, modern and largely imported inputs (seeds varieties,
machinery and equipment, agri-chemicals) transfer new technologies and
innovations into the sector.
• In the process of implementation of the DCFTA with the EU,
make a long-term and binding commitment of non-
interventionist trade policy.
• Ensure agricultural policy consistency: adopt a more consistent
long-term policy approach to reduce decision making risks for
investors and further embrace public private consultation in
policy making.
• Avoid sub-sector and enterprise bias: establish an even playing
field across the sectors rather than focusing on individual
strategic sub-sectors or favoured enterprises. This would help to
ensure that the allocation of private investments is unbiased
and directed towards their most economically efficient purpose.
• Abandon price regulation: this creates further bias between
sub-sectors and further uncertainty for investors. Investments
do not flow into the sectors with price regulations.
• Minimum possible administrative burden: comprehensively
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review regulatory procedures for imports/exports/production
and marketing of agricultural inputs/outputs and harmonize
them with best international practices to reduce transaction
costs.
Enabling Business and
Regulatory Environment:
Agribusiness and investments need stable and consistent policy
environment. Excessive regulations (e.g. cumbersome state licensing,
testing, certification and registration systems) ultimately decrease
producers’ incomes and thus should be minimized.
Functional Agricultural Land
and Finance Markets
A free land market would allow the transfer of land from less efficient to
more efficient farmers, thus increasing overall productivity. It would also
allow land to serve as collateral, thus increasing investment in agriculture.
Supportive Fiscal and
Educational Framework
The current agricultural tax system and farm support programs in Ukraine
leaves farmers virtually untaxed, distort farm production decisions and have
a highly questionable effect on overall sector competitiveness. Agribusiness
suffers from a glaring shortage of human capital at all levels (extension
workers, skilled analysts, innovative researchers, agronomists, veterinaries
etc) thus questioning the performance of agricultural research and
education system.
• Consider reforming the Fixed Agricultural Tax (FAT) and the
special VAT regime.
• Continue to shift agricultural public support from production-
based support to the programs that support agricultural
research and education, infrastructure, market information etc.
Modern National Quality
Infrastructure (Sanitary and
Phytosanitary Measures)
Ukraine’s current and largely Soviet-type SPS system does not ensure
effective food safety control but rather undermines agriculture’s export
potential and competitiveness through high compliance costs. The
Government of Ukraine should lead a joint public-private reform effort to
streamline its SPS measures according to the requirement of the Art. 64 of
the Association Agreement with the EU.
Source: Own presentation and World Bank (2013b)
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8. CONCLUSION
Ukraine’s agriculture is well positioned to rapidly secure an increasing share of the growing global food
market. Growth of global world’s population by an additional 2.3 billion by 2050, shift to western-style
high protein diets, and increased demand for biofuels significantly increase the global demand for
additional agricultural output. Growth in demand is primarily expected in cereals, oilseeds and
vegetable oils (World Bank, 2013b). These are the products for which Ukraine has a growing share in
expanding world export markets. Ukraine could also exploit growing regional markets for fruits and
vegetables.
Ukraine can take advantage of these emerging opportunities by raising farm yields to their potential (as
demonstrated by Ukraine’s best farms), and by building capacity to rapidly respond to export markets.
World Bank (2013b) reports that the impact on the economy could be very substantial; a 30%
productivity increase in agriculture could increase Ukraine’s GDP by 4.4% in the medium term (five
years) and 12.5% in the long term (ten years). This growth would be especially beneficial for the poor, as
unskilled wages and incomes of rural poor households could increase by 11.2% in the medium term and
27% in the long term.
This would require more capital intensive agriculture and much more domestic and foreign direct
investment in Ukrainian agriculture. This would require a political will and significant efforts from the
government to remove the policy uncertainties faced by investors and to adopt a more consistent policy
approach that would be characterized by an equal level playing field for all sub-sectors and enterprises.
Significant regulatory burden on businesses should also be reduced, while public spending programs
should be focused on stimulating technical innovation. Upgrading national quality infrastructure
(technical regulations and SPS measures) should also be a priority, for it would facilitate the excess of
Ukrainian agri-food commodities to export markets.
Recent Association Agreement between Ukraine and the EU is seen especially promising for Ukraine’s
agriculture. Aside from different tariff reductions and import facilitation opportunities, Ukraine should
strive for harmonization of its TBT and SPS, that in fact implies approximation of Ukrainian both sectoral
and horizontal legislation to the 44 Directives of EU.
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10. ANNEXES
Figure 34 Annual precipitation
Source : GeoNova
Figure 35 Climate diversity
Source : GeoNova
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Figure 36 Global Land Quality Map
Source : Natural Resource Conservation Service, USDA