Return of Agriculture Ministry, price hikes, and disappointing harvest: Year's results in agricultural sector
The past year was a difficult test for the Ukrainian agricultural sector: drought and poor harvest led to an increase in food prices – the trend set to prevail this year as well. Nevertheless, the year has also brought some positive news with the government reviving the Ministry of Agrarian Policy and the Verkhovna Rada finally lifting a moratorium on farmland sale.
The past year was a massive turbulence zone for Ukrainian farmers, while continuous shake-ups created both problems and new opportunities.
Towards the end of 2020, the government decided to revive the Ministry of Agrarian Policy and Food, realizing the importance of a specialized agency to deal with one of the key sectors of the national economy, which literally feeds Ukraine and multiple foreign markets.
The ministry had been liquidated in August 2019 through a merger with the Economy Ministry to become the Ministry for Development of Economy, Trade and Agriculture. At the same time, market players and agrarian associations categorically opposed the idea, originally promoted by President of Ukraine, branding it "reformist populism."
Already in January 2020, Volodymyr Zelensky eventually changed his mind, stating said that the Ministry of Agrarian Policy should be put back in place.
"Time has shown that some ministries should be unbundled. There are questions concerning the Ministry of Economy, because it deals with agriculture and everything. Now we need a new concept and approach," the head of state said.
After the change in the Cabinet composition in March last year, the new Prime Minister, Denys Shmyhal spoke more substantively about the revival of the Ministry of Agrarian Policy and Trade, emphasizing that the move should be taken as soon as possible. He stated that the formation of a full-fledged agricultural ministry could be expected in early 2021.
Just two weeks before the new year, on December 17, the Verkhovna Rada appointed Roman Leshchenko, ex-head of the State Geocadastre, as new minister. Then, on December 28, the Cabinet gave a formal start to the creation of an independent ministry.
"Restoration of historical justice and the renewal of a profile ministry is a question of concern to all agrarians in our country without exception... One of the priorities of the new ministry will be to put things in order in land legal relations," Leshchenko said from the parliament rostrum, while accepting the new post.
Also, the new minister announced the launch of a large-scale investment program in the irrigation of the south of Ukraine, an intensified fight against illegal schemes in VAT refunds, de-shadowing of land relations, and "adequate" taxation of farmland.
It should be noted that the law on the state budget for 2021 approved by the Rada does not include a single hryvnia for the renewal of the Ministry of the Agro-Industrial Complex, and this may slow down all announced initiatives.
On the night of March 31 last year, in a historic move the Rada adopted a long-awaited law opening the farmland market. At the final stage of legislative work, which took several months, the opposition impeded progress, introducing countless amendments, and the appealing the already adopted bill to the Constitutional Court. By the way, the latter is yet to pass a final judgment as to whether the law is in line with the Constitution.
The final version of the law is somewhat at odds with the initial proposals put forward by authors: it's only citizens of Ukraine (no foreigners!) who will be allowed to sell and buy farmland plots with a cap set at 100 hectares per owner.
Prime Minister Shmyhal has noted that even in this form, the opening of the market will allow eliminating shadow schemes and lay the foundation for civilized land relations.
"The lifting of the moratorium on farmland sales is a significant incentive for the development of the economy, farming, and the agrarian complex in Ukraine," the head of government said.
The farmland market is expected to open in July this year. By this time, MPs will have to pass a number of additional land-related laws, and the government – to launch cheap loan programs required by farmers to acquire land plots.
In parallel lines, decentralization of land relations is underway. Last year, the State Geocadastre, following the decree issued by President Zelensky, started transferring all state-owned farmland, which amounts to over 2 million hectares, to community ownership.
Also, a nationwide land inventory will soon be completed. The relevant information will be available on an interactive map.
"Millions of hectares of land are in the shade, grain is grown there while no taxes are paid... And over the past 20 years, 5 million hectares of farmland have been stolen under the free privatization scheme," admitted Minister Leshchenko.
There's hope that these mistakes will start to be gradually fixed in 2021.
Ukrainian farmers failed to maintain record highs in their harvest after two consecutive years of new records. Despite optimistic forecasts, the 2020 harvest was 7 million tonnes below last year's. In total, Ukraine harvested 65.4 million tonnes of grain, reducing primarily the production of key export crops – wheat and corn.
This is due to the abnormal drought that ruined part of the harvest in the country's south. Many Ukrainian farmers were left without grain and money ahead of a new sowing campaign. In Odesa region alone, agrarians suffered losses worth UAH 15 billion, while one of the local farmers even committed suicide on the harvest loss news.
"This year, the farmers have harvested fewer grains and oilseeds. At the same time, this will be enough to cover domestic demand. besides, grain exports has remained at the top-five level over the last period," said Deputy Minister for Development of Economy Taras Vysotsky.
Manwhile, farmers faced more challenges these year. Due to the coronavirus pandemic and the global food panic, cereal prices have skyrocketed. In particular, corn has risen two- to threefold, so farmers, who had previously entered into forward contracts at a lower price, refused to sell grain at a loss.
Also, many farmers could not meet their supply obligations due to their crops being spoiled or lost amid a drought.
The Ukrainian grain market faced a crisis, which could lead to the country losing its credibility as a reliable food supplier and billions-worth earnings in foreign currency.
Despite this, in 2020 Ukraine retained the title of the world's second-largest corn exporter and will undoubtedly try to reaffirm its reputation by exporting this year the lion's share of the harvested grain.
At the same time, due to the worse harvest, fewer grain for domestic consumption will inevitably lead to a rise in prices for a number of products.
Soaring food prices
The grain deficit has already warmed up prices for compound feed, which make up a significant part of the cost of livestock products – eggs, milk, and meat.
The Association of Livestock Breeders of Ukraine predicts that high prices for chicken eggs – from UAH 30 per ten, observed in December, will remain at this level or even further rise in early 2021 due to a gradual reduction in poultry numbers and continued growth in prices on the raw material market.
Milk prices are also expected to rise by about 5%, while pork and beef will become more expensive as well. Meanwhile, the latest outbreak of bird flu, recorded in two Ukrainian regions in December, could lead to an increase in prices for chicken and put into question the country's poultry exports.
According to the calculations by the Ukrainian Club of Agrarian Business, in the coming months, a gradual rise is expected in prices for cereals and flour - approximately by 10%. Also, experts admit the rise in prices for domestic beer, horilka [vodka], and other strong liquor.
Besides, due to the drought, Ukraine saw a rather meager harvest of sugar beets, and therefore, will curb sugar production by 20%, which will certainly lead to its higher price.
However, the price rise will hardly become too noticeable for Ukrainian consumers.
Hopes for the best
Nevertheless, the year 2021 promises to be much better than the previous one.
Ukraine, like the rest of the world, is gradually getting used to a new way life amid the pandemic. Businesses, including agrarian ones, have adapted to new sanitary standards and emergency operating modes. Citizens have learned to live amid lockdown, being unlikely to allow a repeat of the food panic, as in March 2020, when buckwheat, sugar, as well as toilet paper were being massively bought up, which created artificial shortage.
If the government fulfills its promises, in the new year Ukraine will launch a large-scale program for the construction of irrigation systems, and drought will no longer be a sad verdict for farmers.
Also, in 2021, the government expanded support for new areas – horticulture, hop growing, viticulture, and organic production, so this year may mark a new start for these industries.
"Last year was atypical for Ukraine in terms of the economic situation and COVID-19 restrictions, as well as force majeure weather conditions. Despite everything that happened in 2020, agricultural production in Ukraine will remain in surplus," said Deputy Minister Vysotsky.
Ukrainian agrarians entered 2021 with new hopes and lessons learned from the past. Warm winter and well-timed sowing campaign create conditions for a new record harvest. Also, the upcoming opening of the land market will be a new interesting experience for Ukrainian landowners. Let's see what happens.