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Year of agrarian contrasts

09:20, 29 December 2017
7 min. 1195

Ukraine’s agrarian sector saw plenty of contrasts this year. Despite a good harvest of cereals, an export boost, and revival of livestock farming, unpredictable tax policy, imperfect mechanism of state support, and reduction of profitability of crop production remain a significant problem.

The year of 2017 was less successful than the previous one for the Ukrainian agro-industrial complex, which is one of the key sectors of the national economy. According to the State Statistics Service, over the 11 months, the sector’s output decreased by 2.8% compared with the same period last year. Experts predict that the year’s results will be similar. For comparison, in 2016 agricultural output grew by 6.1%.

This year, Ukrainian farmers, mostly as a result of less favorable weather conditions failed to repeat last year's record in grain harvesting. According to the forecasts by the agrarian ministry, Ukrainian agri-producers in 2017 will have harvested about 62.34 million tonnes of grain. Even though the figure is lower than in the last year (65.95 million tonnes in 2016), it is still the second largest in the history of independent Ukraine, despite the fact that spring frosts and summer drought became a real challenge for domestic farmers.

"In 2017, the results of the agro-industrial complex exceeded expectations: despite pessimistic forecasts at the beginning of the season, the harvest was the second largest in history, while exports, in spite of logistical problems, also show a better-than-expected rate," Maksym Martyniuk, First Deputy Minister of Agrarian Policy and Food said, commenting on this year’s performance of the agrarian branch.

The ministry predicts that, despite a slight reduction in the grain harvest, the export of these crops in the current marketing year will be at a level comparable to last year's. As of December 21, domestic farmers supplied to external markets 19.5 million tonnes of grain, which is 8% below the level of the same period of the previous MY 2016-2017 (June 2016 - July 2017). In general, according to the ministry, in MY 2016-2017, Ukrainian agrarians exported 43.9 million tonnes of grains.


According to the U.S. Department of Agriculture, in the current marketing year, Ukraine will have supplied to foreign markets 42.4 million tonnes of these crops.

Dynamics of harvesting and exports of grain in Ukraine shows that the country has every chance in the foreseeable future to regain the glory of the world’s grain basket. However, to this end, it is necessary to resolve the existing logistical problems. Despite the fact that Ukrzalinytsia increased grain transportation by almost 23% compared to the previous year, domestic farmers continue to complain about the shortage of grain rail cars and failure of export contracts.

Dreaming to feed the world

This year Ukraine continued opening new regional markets and expanding the exports of agricultural products. In MY 2016-2017, the country took the first place in the world in terms of export volumes of sunflower oil, being second in barley exports, third - in supplies of corn, nuts and honey, and sixth – in exports of wheat and oilseeds.

According to the Ministry of Agrarian Policy, in the ten months of 2017, Ukraine increased by 22.7%, to $14.7 billion, its revenues from agricultural exports compared to the same period last year. The share of agricultural products was about 40% in the total volume of Ukrainian exports.

The main importers of Ukrainian agricultural products are India, Egypt, the Netherlands, Spain, China, Turkey, Italy, Poland, Iran, and Belarus. The total share of these states in the structure of Ukrainian agrarian exports in the ten months of 2017 was 55%.


According to the agrarian ministry, Ukraine is significantly increasing the volumes of supplies to the EU markets. In ten months of 2017, domestic enterprises exported to the EU agricultural products worth $4.69 billion, which is 41% more than in January-October last year. The agrarian ministry forecasts that by the end of 2017 the export of Ukrainian agrarian products to the European Union could grow by 15-20% compared to the previous year.

Also, the number of enterprises is growing that enjoy the right to supply their goods to European countries. While in 2016 there were 277 such companies, this year it’s 289.

But it is still doubtful whether the success of domestic producers in expanding their exports leads to the improvement of their financial situation. According to the National Research Center "Institute of Agrarian Economics", the yield of crop production in Ukraine in 2017 will have been reduced by almost a half compared to the previous year - down to 25.3%. But despite this fact, the production of all types of crop products will remain cost-effective.

Timid recovery of livestock farming

The profitability of livestock production after a long and rapid decline is finally demonstrating some positive dynamics. So, according to the data by the experts of the Institute of Agrarian Economics, in 2017 this figure will almost double compared to the previous year - to 14.6%. A total output of livestock products this year may amount to UAH 69.2 billion, which is only 0.6% less than last year.

"Gross livestock production is expected at the level of UAH 69.2 billion, which is only 0.6% less than in 2016, while last year the decline in the output of this type of products was 2%, and in 2015 it was 3, 7%. At the same time, in 2017 the volumes of livestock output will be the lowest since 2010," said Yuriy Lupenko, director of the Institute of Agrarian Economics, an academician at the National Academy of Sciences.


According to experts, this year production of cattle meat will grow by 2.3%, poultry meat - by 2.2%. Meanwhile, production of pork traditionally follows a declining trend. Scientists predict that by the end of 2017 pork production will have decreased by 5.8% and amount to about 950,000 tonnes.

One of the main factors that influenced the fall of pig industry was the epidemic of African swine fever (ASF). Since year-start, veterinarians reported 152 ASF outbreaks across Ukraine. In total, since 2012 and as of December 26, 2017, 300 cases of ASF have been registered in 24 regions against 91 cases in 2016.

The active spread of the ASF virus leads to a significant reduction in pig livestock in private ownership, a decline in production and exports of these products. Head of the State Service for Food Safety and Consumer Protection Volodymyr Lapa predicts that if the existing trend of the ASF spread continues, Ukraine by 2020 will have lost more than 1.2 million hogs, or UAH 4 billion, while indirect costs will increase by UAH 5-7.5 billion.


Being aware of the risks of the ASF spread, the government decided to increase funding to combat dangerous viral diseases of animals. The state budget for 2018 envisages UAH 687.2 million for these purposes, which is six times more than in 2017. The government expects that these funds will be sufficient to take effective measures that will help stop and overcome the consequences of the epidemic.

Budget hustle

Livestock support has become one of the main accents of state policy in the agrarian sphere for the next year. Of the UAH 6.3 billion provided for in the state budget-2018 for the development of the agro-industrial complex, UAH 4 billion will go to livestock farmers. It is expected that these funds will be used to reduce the cost of loans for the construction and reconstruction of livestock complexes. It would seem that such an unprecedented amount of financing for one of the most problematic branches of the Ukrainian agribusiness sector will have the most positive effect on the agricultural sector. However, experts do not rush to voice optimistic forecasts. First, the government has not yet approved a program for the distribution of funds, so no one knows which farms will ultimately receive subsidies. Secondly, the Cabinet allocated these funds at the expense of other equally important programs.

In general, budget funding of the agrarian sector in 2018 will grow by 16.6% compared to 2017 - up to UAH 6.3 billion from UAH 5.4 billion. In addition to UAH 4 billion on supporting the livestock sector, UAH 1 billion will be allocated for the program of farming development, and UAH 945 million - on partially compensating the cost of purchased Ukrainian-made agricultural equipment. Another UAH 66 million will be spent on the implementation of the program to reduce the cost of loans, and UAH 300 million will be distributed to the implementation of the program for supporting the development of hop production, setting up young gardens, vineyards and berry fields.


At the same time, the Cabinet does not provide for the financing of direct automatic grants to agricultural producers, for the payment of which UAH 4 billion was allocated this year. The agrarian ministry developed this mechanism in order to compensate for the losses agrarians suffer from the transition to the general taxation regime from January 1, 2017. It was assumed that this program is introduced on a permanent basis.

Subsequently, it became obvious that the mechanism of distribution of this UAH 4 billion had a number of shortcomings. Experts repeatedly stressed that due to the imperfect formula for calculating subsidies, the lion's share of budget funds was received by poultry farmers, in particular, the Myronivsky Hliboproduct agricultural holding owned by Ukrainian businessman Yuriy Kosyuk. At the same time, agrarian associations have repeatedly noted which changes must be made in the order of calculation to make the subsidy payment mechanism as effective as possible. After all, its main advantage was the automatic distribution of funds, depending on the amount of VAT paid, without the participation of any officials in the process.

However, instead of listening to market participants and finalizing the existing mechanism, the government completely abolished this budget program and, without consulting with the expert community, focused on implementing initiatives that, in the opinion of agrarian associations, are less effective.

"This is confirmed by the lack of transparent strategies for the development of the agricultural sector, the critical level of instability of legislation, and the growth of the share of the uncontrolled market. Not everyone is aware of the consequences and scale of changes that were launched in 2017, a year of a great shift, if you wish," said UkrAgroConsult CEO Serhiy Feofilov.

In addition, starting September 2018, the Ukrainian parliament abolished budget refunds of VAT on soybean exports, and from January 2020 – on rapeseed exports. At the same time, the agrarians insisted that the VAT refund would remain for sunflower exports. Initially, the deputies offered to abolish VAT refunds for exports of all oilseeds starting March 2018.

The unpredictability of the tax policy and the lack of transparency in state support leads to a decrease in profitability of domestic farmers and damages Ukraine’s investment attractiveness.

Plans for next year

The coming year promises to be no less intense for Ukrainian farmers and those involved in the processing industries.

Taking into account the cyclical nature of Ukrainian grain production, in case of favorable weather conditions, agrarians in 2018 can once again increase their gross grain harvest, approaching the record level of 2016.

The agrarian ministry next year plans to continue its efforts on harmonizing the Ukrainian legislation with the requirements of the European Union. According to Deputy Minister of Agrarian Policy for European Integration Olha Trofimtseva, the ministry plans by the end of next year to introduce some 150 European standards in the field of food safety and quality. This will lead to an improvement in quality and growth of exports of domestic agricultural products.

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In turn, the expansion of Ukrainian goods on world markets will contribute to the growth of the country's GDP and become a source of foreign exchange inflow into the economy and agricultural sector. By the end of 2017, the share of the agrarian sector in the country's GDP is at 12%.

Another important task for 2018 should be the comprehensive implementation of land reform and the long-awaited lifting of the moratorium on the purchase and sale of farmland, on which international creditors counted this year.

In addition, the agrarians hope that next year the Ministry of Agrarian Policy and Food will see a new chief. After the Minister, Taras Kutovyi, wrote a resignation letter May 23, the ministry has actually remained "decapitated." The Verkhovna Rada still has not voted for Kutovyi’s resignation, who stepped away from managing the sector, just nominally handing over controls to his first deputy, Maksym Martyniuk. At the same time, the first deputy head of the Ministry of Agrarian Policy does not even have the right to vote when making important economic decisions in the government. And this negatively affects the shaping of economic policy in the Ukrainian agribusiness.

Nadia Burbela

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