Ukraine: turn­ing an eco­nomic bas­ket case into bread­bas­ket

The China Post - - FEATURE - BY OLEK­SANDR SAVOCHENKO

Olek­sandr Verzhykhovskiy slips a crisp stalk of wheat through his fin­gers and sur­veys the sun- drenched fields that once made war-torn Ukraine the “bread­bas­ket of Europe” — and now em­body its eco­nomic hopes.

“This is a trea­sure — if you know how to treat it right,” the 29- year- old chief ex­ec­u­tive of the AgroKIM agri­cul­ture com­pany said with a list­ful air.

But the three brand new com­bines work­ing these fields about 100 kilo­me­ters ( 60 miles) north of Kiev are in­te­gral el­e­ments in the mad­den­ing state of af­fairs the cri­sis- wracked ex- Soviet state faces.

Verzhykhovskiy’s boom­ing crop holds the prom­ise of Ukraine re­gain­ing its ti­tle as one of the world’s main sup­pli­ers of var­i­ous grains.

But the nearby ham­let of Mala Divytsa re­flects the far more de­press­ing re­al­ity of di­lap­i­dated houses and pot­holed roads that seem to have last been patched up in long- gone com­mu­nist times.

The 16- month- long sep­a­ratist in­sur­gency has shut­tered much of east Ukraine’s heavy in­dus­try and claimed more than 6,800 lives. It has also sent eco­nomic shock waves through­out the coun­try of more than 40 mil­lion.

The econ­omy con­tracted by nearly seven per­cent last year and is pro­jected to do even worse in 2015. Ukraine de­pends on Western fi­nan­cial as­sis­tance — funds that pri­mar­ily go to pay off old debts.

Fac­tory out­put is down by nearly a fifth from last sum­mer and con­sumers are buy­ing 25 per­cent less than they did a year ago.

But Verzhykhovskiy looks his sway­ing stalks and smiles.

Ukraine’s to­tal crop pro­duc­tion reached a post- Soviet record of 63 mil­lion tonnes in 2014 and is on course to nearly

at match that mark this year.

The bat­tled- scarred na­tion — so ea­ger to wres­tle it­self away from Moscow and fully em­brace the West — man­aged to ex­port an im­pres­sive 34.5 mil­lion tonnes of grain in 2014.

The Fi­nan­cial Times wrote last month that Ukraine was set to be­come China’s top sup­plier of corn in the first half of this year.

The Lon­don busi­ness daily re­ported that close to an eye- pop­ping 90 per­cent of China’s maize im­ports came from Ukraine — and not its di­rect neigh­bor and fel­low agri­cul­tural power Rus­sia.

Moscow’s ex­ports have been par­tic­u­larly hard- hit by a trade war with the West that was sparked by the Krem­lin’s March 2014 seizure of Ukraine’s Crimea penin­sula.

‘ Prices are not good’

It has helped that the fight­ing has left most cul­ti­vated fields un­touched. A cen­turies- old farm­ing tra­di­tion also inspires many Ukraini­ans to feel spe­cial pride in their land.

But some fac­tors are well out­side Verzhykhovskiy’s con­trol. A strong dol­lar has seen com­modi­ties lose value and the price of corn drop by about 15 per­cent since the start of the year.

“Prices are not good,” the young farm boss con­ceded. “We op­er­ate with­out a profit on most of our ce­re­als.”

This has cut off for­eign in­vest­ments and left Ukrainian farm­ers re­liant on lo­cal banks for loans loaded with ex­or­bi­tant in­ter­est rates few can af­ford.

“Last year was tough on in­vest­ment,” Deputy Agri­cul­ture Min­is­ter Olek­siy Pavlenko told AFP

But the min­is­ter is plac­ing hope on US$1 bil­lion in new farm­ing equip­ment that has been promised by the United States. Bei­jing and Kiev signed a US$ 3 bil­lion loan- for- corn deal in 2012 which Ukraine also hopes to ex­tend.

All of that ma­chin­ery would find plenty of fer­tile land to plough.

The World Bank es­ti­mates that more than 70 per­cent of Ukraine’s ter­ri­tory is arable for farm­ing. The rate is Europe’s sec­ond high­est and bested only by small and im­pov­er­ished Moldova.

High Risk, Low Yield

But econ­o­mists and the agri­cul­ture min­istry ad­mit that the sec­tor now needs a push that can only come from pri­vate in­vest­ment.

World Bank data also shows all Ukraine’s cul­ti­vated land yield­ing about 4,000 kilo­grams of ce­real per hectare — about half the rate of Ger­many and sim­i­lar to that of Canada.

Yet for­eign­ers re­main wary about plow­ing money into even the peace­ful parts of the un­set­tled east Euro­pean coun­try.

Trans­parency In­ter­na­tional ranks Ukraine 142nd out of 175 na­tions on its cor­rup­tion in­dex. The court sys­tem’s in­de­pen­dence has been sus­pect for decades and in­vestor rights are of­ten ig­nored.

“The ju­di­cial sys­tem has to func­tion be­fore we see any for­eign­ers come run­ning,” said ProA­gro con­sul­tancy an­a­lyst Mykola Vernyt­sky.

Kiev plans to put up 254 state- held farms and agri­cul­tural busi­nesses for sale this year.

Pavlenko says f or­eign­ers al­ready have the right to sign seven- year land leases. He also en­cour­ages buy­ers to snap up prop­er­ties be­fore de­mand and land prices go up.

But an­a­lyst Vernyt­sky ques­tions whether the pri­va­ti­za­tion pro­gram will make the im­pact Kiev’s pro- Western gov­ern­ment an­tic­i­pates.

“If we open up the agri­cul­tural prop­erty mar­ket but do noth­ing about the cor­rup­tion ... no one will want that land,” he said.

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