Ukraine agriculture has been evolving since it achieved independence in 1991, following the breakup of the Soviet Union. State and collective farms were officially dismantled in 2000. Farm property was divided among the farm workers in the form of land shares and most new shareholders leased their land back to newly-formed private agricultural associations. The sudden loss of State agricultural subsidies had an enormous effect on every aspect of Ukrainian agriculture. The contraction in livestock inventories that had begun in the late 1980's continued and intensified. Fertilizer use fell by 85 percent over a ten-year period, and grain production by 50 percent. Farms were forced to cope with fleets of aging, inefficient machinery because no funds were available for capital investment. At the same time, however, the emergence from the Soviet-style command economy enabled farmers to make increasingly market-based decisions regarding crop selection and management, which contributed to increased efficiency in both the livestock and crop-production sectors. Difficulty in obtaining credit, especially large, long-term loans, remains a significant problem for many farms.
Agricultural Land Area and Major Crops
The climate of Ukraine is roughly similar to that of Kansas: slightly drier and cooler during the summer and colder and wetter during the winter, but close enough for comparison. The weather is suitable for both winter and spring crops. Average annual precipitation in Ukraine is approximately 600 millimeters (24 inches), including roughly 350 millimeters during the growing season (April through October). Amounts are typically higher in western and central Ukraine and lower in the south and east.
Of Ukraine's total land area of 60 million hectares, roughly 42 million is classified as agricultural land, which includes cultivated land (grains, technical crops, forages, potatoes and vegetables, and fallow), gardens, orchards, vineyards, and permanent meadows and pastures. Winter wheat, spring barley, and corn are the country's main grain crops. Sunflowers and sugar beets the main technical, or industrial, crops. Agricultural land use has shifted significantly since Ukraine declared independence from the Soviet Union in 1991. Between 1991 and 2000, sown area dropped by about 5 percent, from 32.0 million hectares to 30.4 million, and area decreased for almost every category of crop except for technical crops (specifically sunflowers). Forage-crop area plunged by nearly 40 percent, concurrent with a steep slide in livestock inventories and feed demand.
Wheat is grown throughout the country, but central and south-central Ukraine are the key production zones. About 95 percent of Ukraine wheat is winter wheat, planted in the fall and harvested during July and August of the following year. On the average, approximately 15 percent of fall-planted crops fail to survive the winter. The amount of winterkill varies widely from year to year, from 2 percent in 1990 to a staggering 65 percent in 2003, when a persistent ice crust smothered the crop. Wheat yield declined during the 1990's following the breakup of the Soviet Union and the loss of heavy State subsidies for agriculture. Farms struggled with cash shortages, and the use of fertilizer and plant-protection chemicals plummeted. Due to a combination of favorable weather and a modest but steady improvement in the financial condition of many farms, wheat production has rebounded in recent years (except for the disastrous 2003/04 crop which fell victim to unusually severe winter weather). Ukraine produces chiefly hard red winter wheat (bread wheat), and in a typical year roughly 80 percent of domestic wheat output is considered milling quality, by Ukrainian standards. Feed consumption of wheat dropped sharply during the 1990's, from over 12 million tons to less than 5 million. Meanwhile, food consumption has remained steady at around 10 million tons.
Barley has been the top feed grain in Ukraine for most of the past ten years in terms of consumption, surpassing wheat in the early 1990's. Spring barley accounts for over 90 percent of barley area, and the main production region is eastern Ukraine. Spring barley is typically planted in April and harvested in August, and is the crop most frequently used for spring reseeding of damaged or destroyed winter-grain fields. Area is inversely related, to some degree, to winter wheat area. Winter barley is the least cold-tolerant of the winter grains, and production is limited to the extreme south. The increasing demand for malt from the brewing industry has led to a jump in malting barley production and the import of high-quality planting seed from the Czech Republic, Slovakia, Germany, and France. Consumption of barley for malting purposes has surpassed 300,000 tons, but still accounts for only 5 percent of total barley consumption.
Increased production -- specifically, three bumper harvests since 2001 -- and diminishing domestic demand for feed grains have contributed to a jump in Ukrainian wheat and barley exports. The boom in exports was fueled also by relatively low production costs and the reduction or elimination of price controls and export restrictions in 1994. Most exports go to the Middle East, North Africa, and Europe. (See attaché reports: Grain and Feed Annual, April 2004, and How is Ukrainian Grain Competitive?, August 2002.)
Corn is the third important feed grain in Ukraine. Planted area has increased despite several impediments: obsolete and inadequate harvesting equipment, high cost of production (specifically post-harvest drying expenses), and pilferage. The main production region is eastern and southern Ukraine, although precipitation amounts in some oblasts in the extreme south are too low to support corn production. Corn is typically planted in late April or early May. Harvest begins in late September and is usually nearing completion by early November. Only 25 to 50 percent of total corn area is harvested for grain; the rest is cut for silage, usually in August. (The USDA corn estimates refer to corn for grain only.) Corn is used chiefly for poultry and swine feed, and production and consumption have risen since 2000 concurrent with a rebound in poultry inventories. Russia and Belarus are the chief destinations for Ukrainian corn exports.
Sunflowerseed is Ukraine's chief oilseed crop. Production is concentrated in the southern and eastern oblasts. Sunflowers are typically planted in April and harvested from mid-September to mid-October. Because of a combination of high price, relatively low cost of production, and traditionally high demand, sunflowerseed has become one of the most consistently profitable crops. (See Sunflowerseed Production in Russia and Ukraine, June 2004.) Its high profitability fueled a significant expansion in planted area beginning in the late 1990's. Many farmers in Ukraine abandoned the traditional crop-rotation practices recommended by agricultural officials which called for planting sunflowers no more than once every seven years in the same field. The aim of the 1-in-7 rotation is to prevent soil-borne fungal diseases and reduce the depletion of soil moisture and fertility. (Because of their deep rooting system, sunflowers reportedly extract higher amounts of water and nutrients from the soil than do other crops in the rotation.)
Sugar beets are grown primarily in central and western Ukraine. Beets are planted in late April and early May and harvested from mid-September through the end of October. Production has been on the decline since the early 1990's due chiefly to low profitability compared to grains and sunflowerseed. Between 1994 and 2003, planted area declined by 50 percent to less than 0.8 million hectares, and production from 28.1 to 13.4 million tons. Large farms are sometimes encouraged by the local administrators to plant sugar beets not so much to make money but rather to provide a social safety net or to supplement to pensioners or farm workers. A family may be responsible for weeding a specific section of a field and the workers in turn receive 20 percent of the sugar processed from the beets harvested from its section. Sugar also frequently serves as part of farm workers’ salaries.
On private household plots, meanwhile, sugar beet area has increased. Sugar beet production requires a significant amount of hand labor and remains a viable option for small household farms with limited access to agricultural machinery. Household plots now account for approximately 25 percent of Ukrainian sugar beet output compared to only 3 percent in 1995. (See attache report: Sugar Annual, April 2004.)
Farms in Ukraine employ a variety of crop-rotation schemes, some including four or more crops, some only two. A six-year crop rotation in the winter grain region will often include two consecutive years of wheat and one season of "clean fallow," during which no crop is sown. The chief reason for including fallow in the rotation is to replenish soil-moisture reserves, and it is more widely used in southern eastern Ukraine where drought is not uncommon. A typical crop sequence might be: fallow, winter wheat, winter wheat, sunflowers, spring barley, and corn. Wheat almost always follows fallow. According to farm directors, this enables the wheat -- which is typically the priority crop -- to benefit from the reduced weed infestation. (Fields are cultivated several times during the fallow season.). Some crop rotations include several consecutive years of a forage crop. An example of such a rotation would be: fallow, two years of winter wheat, and four years of perennial forage. The perennial forage is usually alfalfa; farmers will get three to four cuttings per year, five if the crop is irrigated. In southern Ukraine, clean fallow is frequently omitted and a crop rotation will likely include sugar beets and/or sunflower, the region's chief industrial crops. A typical seven-year rotation might be: winter wheat, winter barley, sugar beets, winter wheat, winter barley, sunflowers, and corn. The vast majority of field crops, including grains, sunflowers, and sugar beets, are not irrigated. Traditionally, irrigation is used only on forage crops and vegetables. Roughly 5 percent of grains and 10 percent of potatoes, vegetables, and forage crops are irrigated.
During the final years of the Soviet era, winter wheat was the focus of the so-called intensive technology movement, which was marked by the use of improved varieties and the increased application of fertilizer and plant-protection chemicals. Yields climbed in response to the enhanced management practices. The intensive technology program fizzled during the early 1990's, however, when the collapse of the Soviet Union marked an end to heavy State subsidies for agriculture and farms were forced to struggle with crippling cash shortages, a crumbling agricultural infrastructure, and skyrocketing fertilizer prices.
According to official statistics, the fertilizer application rate for wheat plunged from 149 kilograms per hectare in 1990 (when fertilizer was excessively and wastefully applied) to 24 kilograms in 2000. The application rate for corn dropped even more sharply. Fertilizer use has increased modestly since 2000. Rates are still significantly below recommended amounts, but wheat yields have rebounded since 2000 (except for the weather-related crop disaster of 2003) due to a combination of favorable weather and improved crop-management practices on the large agricultural enterprises.
There is no shortage of mineral fertilizers or plant-protection chemicals in Ukraine. Any inputs that a farmer needs can be obtained if the farm has money or can get credit. The high price of imported herbicides and fungicides has caused some farmers to cut back on their use, or to use less expensive and less effective domestic products. Farmers still rely to a large degree on mechanical weed control.
Obsolete Machinery and Inadequate On-Farm Storage
A chronic lack of modern harvesting equipment remains one of Ukraine’s main obstacles to increasing grain output and quality. In the late 1980's, the Ukrainian winter wheat harvest could be finished in roughly three weeks. Harvest now takes twice as long to complete, and both yield and grain quality suffer as a result of the delays. Farm managers estimate that 10 to 20 percent of the standing crop is typically lost due to outdated, inefficient machinery. Custom combining is available, but operators charge 20 to 25 percent of the crop in exchange for their services. Farmers must weigh custom-combining charges against potential harvest losses, and most choose to harvest their own grain. Another consideration for the farm director, in addition to cost, is that the harvest campaign provides work for the farm employees.
Many farmers are compelled to sell grain shortly after harvest when prices typically are lowest. One of the main reasons is a shortage of on-farm storage capacity, especially following a good harvest. This is a relic of the Soviet system, which was designed for immediate post-harvest shipment of grain to regional elevators. The need to repay short-term debts or to satisfy "payment-in-kind" arrangements is the second chief factor contributing to the untimely sale of grain (i.e., untimely from the farmer’s perspective). At harvest time many traders are offering cash for grain. Banks do not accept grain as payment, and for a farm director struggling with a heavy debt burden the lure of immediate cash is difficult to resist. The greatest obstacle to increasing on-farm grain storage and modernizing the fleet of agricultural machinery is the difficulty for many farms to obtain large, long-term loans for capital investments. (See "Credit Problems" below.)
The production of grain and oilseed crops is dominated by large agricultural enterprises that were established when Ukraine’s agricultural sector was restructured in April, 2000. (In contrast, nearly 90 percent of the country's vegetables and virtually all of the potatoes are grown on private household plots.) State and collective farms were dismantled and farm property was divided among the farm workers in the form of land shares. Most new shareholders leased their land back to newly-formed private agricultural associations, under the leadership of a director who was frequently, but not always, the manager of the former State farm. Consolidation of small farms into larger and more viable enterprises has been the prevailing trend, similar to what took place in Russia several years earlier. (For a brief discussion of Ukraine’s agricultural restructuring, see June 2001 report.) The conversion to a more market-oriented environment has progressed relatively well according to most observers. Many farms are succeeding, under shrewd leadership, in spite of fluctuating grain prices and constraints on the availability of credit. The transition of Ukraine's agricultural sector from a command economy to a more market-oriented system has introduced the element of fiscal responsibility, and farm managers are striving to make their enterprises as efficient as possible. Decisions on crop selection, fertilizer application, harvest method, grain storage, and all other aspects of farm management are made with an eye toward boosting farm profit. Ukraine agriculture is going through a winnowing process whereby unprofitable, usually smaller farms will either collapse or join more successful farms.
Most farms are able to receive credit, but interest rates and collateral demands are high. Since many farms are already heavily in debt to banks or suppliers of fertilizer and plant-protection chemicals, and since agricultural loans are not guaranteed by the government, banks are largely unwilling to make long-term loans. Most credit is extended in the form of seasonal loans (six to ten months) used almost exclusively for the purchase of fertilizer and plant protection chemicals. Commercial interest rates typically range from 25 to 30 percent. The State provides assistance to farms by paying 50 percent of the interest on agricultural loans. Banks typically require 200 to 300 percent collateral, depending on the farm’s credit history and the risk level. Future crop usually serves as collateral, but collateral can also be offered in the form of livestock, farm machinery, or the personal property of the farm director. Under current legislation, land cannot be used as collateral. Farms' difficulty in obtaining anything other than short-term, high-interest loans places severe constraints on their ability to invest in long-term capital improvements, such as agricultural machinery or storage facilities. Using land as collateral would enable farms to receive longer-term loans, but many farm directors remain leery of the Ukrainian banking system – which is not yet as stable as in Russia – and are reluctant to risk losing their land in default. Furthermore, many agricultural enterprises are comprised of hundreds of shareholders, whose permission would need to be obtained before the farm director could use the land as collateral.
In many cases, the best option is for a farm to attract an investor who can provide market expertise, operating capital, and collateral to enable the farm to secure loans. The potential “down side” of investor arrangements, from the farmer's perspective, is that farm directors to some extent lose control of farm operations. Often the investment company, or “holding company,” insists on maintaining control over every aspect of production and essentially takes over the farm, equipment, and land. Farms are forced to enter into extended leases of five to ten years, sometimes longer, because they depend heavily on cash from the holding company.
The consensus of most observers is that already-successful farms will continue to expand as shareholders pull out of failing farms and lease their plots to stronger ones. Clearly, many farms will not survive the transition to a market economy, and high-risk farms with few liquid assets, heavy debt, bad credit history, and poor management will collapse. (See 2004, 2003, and 2002 trip reports for additional comments on the financial difficulties of Ukrainian farmers.)
Shrinking Livestock Inventories
The loss of State subsidies following the collapse of the Soviet Union in 1991 increased feed and production costs and reduced profitability for livestock enterprises. As prices for meat products increased, consumer demand declined, thus establishing a downward spiral that continued throughout the decade. Livestock inventories, and demand for forage, continued to shrink. The increasing inability of large agricultural enterprises (i.e., former State and collective farms) to maintain livestock operations, due largely to inefficient management and farms' inability to ensure sufficient feed supplied, resulted in increased dependence on private producers and household farms to satisfy demand for beef and pork. Furthermore, the involvement of investor groups (holding companies) in agricultural production has had an impact on livestock numbers. Many farms who entered agreements with investment firms killed off their herds because livestock is not quickly profitable and not as attractive to investors. Although the freefall in livestock inventories has slowed since 2000, a rapid recovery in beef production is unlikely. Cattle inventories are increasing on private household farms, which typically have two to three head of cattle per farm, but large industrial farms are shifting away from cattle and toward crop production and total cattle inventories continue to decrease. (See attaché report: Livestock Annual, August 2004.)