#14 Ukraine Agriculture Bulletin, BFC

07/2017

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14 U K R A I N E Agriculture Bulletin Prime Minister announces new program to support farms Government discussing land reform plans EBRD, FINTECC to support Dniprovska Agri Group initiative Canadian markets opening for Ukrainian agriculture

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Contents State Initiatives ........................................................................................................... 2 1) 2) 3) 4)

Prime Minister announces new program to support farms ............................................................ 2 Cost of credit for some farmers further reduced ............................................................................ 2 New organic production law to boost Ukrainian exports ............................................................... 2 Government discussing land reform plans ...................................................................................... 3

Foreign Aid ................................................................................................................. 3 5) 6)

EBRD, FINTECC to support Dniprovska Agri Group initiative .......................................................... 3 Aquaculture safety project to be launched in Ukraine ................................................................... 3

Private Sector.............................................................................................................. 4 7) 8) 9) 10) 11) 12) 13) 14) 15)

Ukrainian agricultural exports to EU increasing .............................................................................. 4 UAE lifts restrictions on Ukrainian poultry imports ........................................................................ 4 Agrarian Fund sees 2.8-fold rise in net profit .................................................................................. 4 Less land being used to grow grain crops........................................................................................ 4 New manual for foreign investors in agriculture ............................................................................ 5 African swine flu recorded in Cherkasy, Poltava ............................................................................. 5 Average prices of agricultural products increasing ......................................................................... 5 Ukraine's first agro food cluster opens in Kharkiv........................................................................... 6 Canadian markets opening for Ukrainian agriculture ..................................................................... 6

Note: The Agriculture Bulletin presents a monthly roundup of headlines and news stories related to Ukraine’s agricultural sector.

This bulletin is prepared by Business & Finance Consulting—a Swiss-based development finance consulting company with a long history of working in Eastern Europe, Central, South and South East Asia and North Africa. Read more »

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BFC Agriculture Bulletin

State Initiatives 1)

Prime Minister announces new program to support farms

July 19th, 2017, http://en.interfax.com.ua/news/economic/437141.html

Prime Minister Volodymyr Groysman announced the possibility of a new targeted program to support Ukrainian farms. If approved, the new program would help the development of farms at the micro-, small- and medium-sized level through increased access to preferential loans.

The Prime Minister also noted that, in 2017, agricultural producers are able to receive partial compensation for the purchase of agricultural machinery in the amount of 20% of its cost if the production localization level for the machinery exceeds 35%. UAH 550 million was allocated for this program in 2017, and the government plans to expand support to UAH 1 billion in 2018.

In January-March 2017, capital investment in agriculture grew by 60% to UAH 10.9 billion, and agricultural product exports rose 31.4% to USD 7.5 billion. Agriculture accounts for 12% of Ukrainian GDP and almost 17% when including agricultural processing; however, there remains an enormous untapped potential for the sector to grow.

2)

Cost of credit for some farmers further reduced

July 14th, 2017, http://ubr.ua/market/agricultural-market/dlja-ukrainskikh-ahrariev-podesheveli-kredity-3848327

The partial interest rate compensation for some small- and medium-sized farmers has been doubled under the state-run program to reduce the cost of credit to farmers. Specifically, borrowers who have a net income of at least UAH 10 million and are engaged in raising and breeding cattle will now receive 100% compensation of the official discount rate of the National Bank of Ukraine (12.5%) to cover the cost of taking credit. All other agricultural areas are still eligible to receive 50% compensation.

The program to reduce credit costs has a budget of UAH 300 million in 2017.

3)

New organic production law to boost Ukrainian exports

July 11th, 2017, https://www.ukrinform.net/rubric-economy/2263703-new-law-on-organic-production-to-boost-ukrainianexports-agrarian-policy-ministry.html

The adoption of a draft law on the basic principles and requirements for the production, handling and labeling of organic production is expected to open new markets for Ukrainian producers. The bill will bring Ukrainian legislation in line with international standards, helping remove obstacles which are currently hindering Ukrainian producers trying to supply organic products to world markets.

The European Union (EU), Asia and the United States are the main markets for Ukrainian organic products. Another promising market for Ukraine is Canada, which, together with the EU, forms about 90% of the world demand for organic production.

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BFC Agriculture Bulletin

4)

Government discussing land reform plans

July 5th, 2017, http://www.kmu.gov.ua/control/en/publish/article?art_id=250115167&cat_id=244314975

The government’s draft plan for land reform is undergoing extensive discussion with the involvement of experts, public organizations and farmer associations. Speaking on the issues during a teleconference, Prime Minister Groysman stated that land reform must protect the interests of Ukrainian citizens while also being an instrument for developing farming.

The Prime Minister put special emphasis on the fact that land reform is included under the Extended Fund Facility agreement between Ukraine and the International Monetary Fund. In addition to meeting the requirements of the agreement, land reform will also strengthen the economy and change the quality of life for many Ukrainians.

Foreign Aid 5)

EBRD, FINTECC to support Dniprovska Agri Group initiative

July 24th, 2017, http://www.ebrd.com/news/2017/ebrd-and-fintecc-support-dniprovska-agri-group.html

The European Bank for Reconstruction and Development (EBRD) is providing a USD 5 million loan to Ukrainian poultry producer Dniprovska Agri Group (DAG) for the construction of a biomass boiler that will improve the company’s operational and environmental performance. The new biomass boiler will use poultry manure from the company’s farms, help optimize its energy-supply mix and reduce its operating costs. The 12-ton-per-hour, steam-based biomass boiler is the best available technical solution, allowing the company to reduce water consumption by 60% and the consumption of natural gas five-fold. Once operational, the boiler will also reduce carbon dioxide emissions by 9,300 tons per year.

The loan will be supported with a USD 850,000 incentive grant provided through the EBRD’s ‘Finance and Technology Transfer Center for Climate Change’ (FINTECC) program, which is designed to transfer technology in the area of climate change mitigation and adaption.

6)

Aquaculture safety project to be launched in Ukraine

July 17th, 2017, http://minagro.gov.ua/uk/node/24271

The Food and Agricultural Organization of the United Nations (FAO) is launching an aquaculture safety project in Ukraine. The project will contribute to the improvement of the legislative system, the development of food chains in the fishing industry and the access of Ukrainian fish producers to international markets. In addition, an awareness raising campaign for fishery laboratories regarding their responsibilities under new rules as well as training sessions for fishery inspectors on import and certification requirements will be conducted.

The FAO project will be in effect until April 2018 and is being implemented in partnership with the Ministry of Agriculture. The project is being funded by the government of Norway.

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BFC Agriculture Bulletin

Private Sector 7)

Ukrainian agricultural exports to EU increasing

August 3rd, 2017, http://www.kmu.gov.ua/control/en/publish/article?art_id=250175546&cat_id=244314975

In January-June 2017, there was a 31.4% (USD 663.4 million) increase in the export of Ukrainian goods to European Union (EU) countries. In total, Ukrainian exports to the EU for the first half of 2017 have amounted to USD 2.77 billion. EU countries now represent the second-largest importer of Ukrainian agricultural products, with a share of 34.9% of total Ukrainian agricultural exports. The overall foreign trade turnover between Ukraine and the EU also grew by 24.1% (USD 739.3 million) and amounted to USD 3.80 billion.

So far in the first half of 2017, agricultural exports have increased to the EU as follows: corn by USD 344.1 million; soybeans by USD 98.1 million; sunflower oil by USD 36.4 million; meat by USD 27.8 million; margarine products by USD 18.7 million; malt extract, flour products and grits by USD 12.2 million dollars; barley by USD 9.1 million; bakery and confectionery products by USD 9.1 million; fruits and nuts by USD 8 million; and honey by USD 6.9 million.

8)

UAE lifts restrictions on Ukrainian poultry imports

August 2nd, 2017, http://112.international/ukraine-top-news/uae-abolishes-ban-on-ukraines-poultry-import-19495.html

The United Arab Emirates (UAE) has lifted temporary restrictions on the import of Ukrainian domestic and wild birds and their byproducts. In particular, this means that the import of Ukrainian poultry meat, eggs and one-day-old birds can be resumed. The restrictions were introduced due to cases of bird flu in Ukraine.

Similar restrictions were lifted in June 2017 by Iraq.

9)

Agrarian Fund sees 2.8-fold rise in net profit

July 31st, 2017, http://en.interfax.com.ua/news/economic/439388.html

The joint-stock company Agrarian Fund saw a 2.8-fold increase in net profit in the first half of 2017, amounting to UAH 70.18 million. Its revenue in the first half of 2017 totaled UAH 1.82 billion, up from UAH 1.31 billion in the first half of 2016. At the same time, gross profit fell 3.7% in January-June 2017 to UAH 224.7 million, and the company’s operating profit rose to UAH 106.1 million, a 2.6-fold rise.

The fund sold 286,300 tons of grain, 122,700 tons of flour and 44,300 tons of processed food in JanuaryJune 2017, including the export of 19,000 tons of grain and 6,900 tons of grain products.

The Agrarian Fund was established in spring 2013 by government decree. Its charter capital is UAH 5 billion.

10) Less land being used to grow grain crops July 23rd, 2017, http://ubr.ua/market/agricultural-market/v-ukraine-stalo-znachitelno

Over the past five years, land on which grains are planted has been reduced by nearly 12%. Although the reduction in the land used for grains this year is insignificant, unfavorable weather conditions are expected to cause a smaller grain harvest than last year, resulting in less grain exports.

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BFC Agriculture Bulletin

According to estimates, the world wheat, corn and barley harvest will be 58 million tons less than last year; however, reserves of the crops are still high at the third largest level since such observations began being made.

11) New manual for foreign investors in agriculture July 21st, 2017, http://ucab.ua/en/pres_sluzhba/novosti/vasil_kisil_i_partneri_spilno_z_ukab_i_minagropolitiki_pidgotuvali_dovidnik_vedenny a_agrobiznesu_v_ukraini_yuridichniy_posibnik_dlya_inozemnikh_investoriv

Vasil Kisil and Partners have joined forces with the Ukrainian Agribusiness Club and the Ministry of Agriculture to prepare the ‘Doing Agribusiness in Ukraine: Legal Guidance for Foreign Investors’ manual.

The manual makes a potential foreign investor aware of the key legal aspects of doing agribusiness in Ukraine and hopes to increase investments in Ukrainian agribusinesses. It contains descriptions of companies operating in the agricultural sector and addresses issues such as taxation, repatriation of profits, rights to land and property, employment relations, protection of intellectual property, dispute resolution and sector-specific regulations.

The share of agribusiness in the foreign investment portfolio of Ukraine has been growing in recent years as investments in agriculture remain stable while other industries have experienced a reduction in foreign investments. Agribusinesses represent 11.6% of Ukraine’s GDP, and Ukraine’s agricultural GDP has been showing an average annual growth of 26% over the last five years. Agricultural exports have also increased, with 2016 seeing USD 15.3 billion in agricultural exports (42% of Ukraine’s total exports).

12) African swine flu recorded in Cherkasy, Poltava July 21st, 2017, http://en.interfax.com.ua/news/economic/437642.html

Ukraine's state service for food safety and consumer protection has received data confirming the outbreak of African swine flu in the Cherkasy and Poltava regions. African swine flu was diagnosed during the examination of biological material on a deceased pig found alongside the Kyiv-Odesa roadside near Zhashkiv (Cherkasy region) and on another deceased pig found in a private household in Chutivka (Poltava region). Measures are being taken to localize the disease and prevent the spread of pathogens.

The African swine flu virus causes a hemorrhagic fever and has a high mortality rate in pigs. There is currently no vaccine against the disease.

13) Average prices of agricultural products increasing July 19th, 2017, http://finchannel.com/world/ukraine/66653-ukraine-average-selling-pri

The average selling prices for agricultural products for the month of June 2017 decreased 0.3% as compared to May 2017. In particular, the average price for plant growing commodities declined 1.7%, while the price for livestock commodities grew 7.1%.

Overall in the first half of 2017, however, the average selling prices for agricultural products have increased 10.2% when compared to the same period in 2016. The average prices for plant growing commodities have grown 7.3%, and the average prices for livestock commodities have grown 26%.

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BFC Agriculture Bulletin

14) Ukraine's first agro food cluster opens in Kharkiv July 13th, 2017, http://en.interfax.com.ua/news/economic/435986.html

Agricultural product manufacturers and processors from the Kharkiv region have united into an agro food cluster in order to bring produce from the region to new markets. Agro Food Cluster Kharkiv will focus primarily on freezing fruits and vegetables, processing meat, eco products and grain exports.

The cluster was created on the initiative of agricultural producers and processors as well as companies of related industries such as logistics, warehousing, sales and legal protection. Agro Food Cluster Kharkiv will help protect local agricultural businesses and add value by transforming raw materials to processed products. The newly created cluster also plans to lobby on behalf of the interests of local producers.

15) Canadian markets opening for Ukrainian agriculture July 10th, 2017, http://ucab.ua/en/pres_sluzhba/novosti/kanadiyski_perspektivi_ukrainskoi_agrarki

The government of Canada has ratified a Free Trade Agreement with Ukraine (CUFTA). Under the agreement, Canada will cancel import duties on most agricultural products but will leave them at a level of 100-200% for meat and dairy products. There will also be quotas for imported poultry meat, dairy products, eggs and sugar from Ukraine. Ukraine, for its part, will cancel import duties Canadian fish and seafood, cereals, confectionery products, chocolate, juice, beer, mineral water and wine. Ukraine has also introduced a 3-7-year transition period for cancelling duties on meat, dairy products, eggs, honey, nuts, flour, sauces and cereals.

Currently, Ukraine imports nearly ten times more goods from Canada than it exports to the North American country. In 2016, Ukraine imported USD 43.3 million in goods from Canada while exporting only USD 4.9 million to Canada. The volume of trade is also low, with the share of agricultural products exported to Canada at 0.03% of total agricultural exports in 2016 and Canada's share of total agricultural imports at 1.1% in 2016.

The signing of CUFTA is expected to facilitate the supply of products and the research of the tastes of local consumers, which, in turn, will improve trade relations with North America in general. The agreement goes into effect August 1, 2017.

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