Format of Investment in Agricultural Land in Ukraine
Investment in agriculture land in Ukraine is conducted under farmland lease agreements. Lease contracts are closed directly with pai-holders for different periods averaging at 10 years and going up to 49 years. Farmland pai lease contracts enable contractors to consolidate large fields of 50-200 hectares located close to each other for the ease of crop rotation planning, cultivation and harvesting.

Ukraine’s agricultural land cannot be purchased, but lease agreements for agricultural land enable as much freedom for performing farming operations as ownership while also providing a primary right of purchase in case of the agricultural land sale moratorium lift and given that pai holders would be willing to sell off their property.

Cost of Investment in Agricultural Land in Ukraine
Cost of investment in Ukraine’s farmlands is the lowest in Europe while it provides the highest return potential given the high soil fertility and unrealized agri-ecological potential of Ukraine’s soils. The cost of investment is composed of the lease rights acquisition cost, annual lease fees and annual cultivation (actual farming operation) costs.

Land lease rights acquisition cost in 2009  has ranged from USD 120 to USD 300 per hectare depending of the region and soil quality. Lease rights are normally acquired through the transfer of corporate rights from the current lease holding company to the new owners. Lease rights can also be transferred through re-registration of land lease agreements.

Annual land lease fees are legally fixed at a minimum 3% of the land plot value level but may vary from region to region. Lease fees in 2009 have ranged from USD 25 to USD 45 per hectare.

Agricultural land lease agreements carry a legal obligation of land cultivation which inevitably requires a lessee to perform actual farming activities. Since agricultural equipment lease is not very common in Ukraine, most farms invest in tractors, tillage equipment, seeding equipment, harvesters, etc. Capital investment into agricultural equipment in Ukraine may vary from USD 350 (locally produced equipment or mixed) to USD 800 (high-end Western equipment) per hectare.

Calculated per annum with fuel, spare parts, seeds, fertilizers, crop protection, labor costs, etc. included, annual cultivation cost from USD 200 per hectare using organic farming methods up to USD 500 per hectare with conventional/chemical farming.
Organic farming, as opposed to intensive conventional farming, provides a better investment opportunity in Ukraine due to high natural fertility level in the soils. In most of the cases, there are no yield losses when growing organically in Ukraine compared to what most of the Western European farms experience during the transition period.

Optimal investment cost in Ukraine’s agricultural land in 2009 is one of the lowest at  USD 600-800 per hectare compared to Americas’ (USA and Argentina) USD 4,000+,  and Western European level of USD 12,000+. At the same time, the current harvest yields in Ukraine suggest that the agro-ecological potential of 6.2 metric tons per hectare  can be easily obtained under proper farm management and with the use of optimal organic technologies. Besides, the land lease price is expected to double in 2010.

Agricultural Land Valuation in Ukraine
Ukraine’s soil quality is subject to bonitet valuation system. Most of Ukraine’s soils boast a bonitet above 40. Chernozem (black soil types) have a bonitet of 70-80 and more. Soil fertility is a complex quality of soils and not limited by bonitet. Land valuation in Ukraine has no standardized system and in most of the cases is based on the yeilds history for particular farms or individual fields.

Agricultural Land Management in Ukraine
Soil quality tests are easy to obtain in Ukraine and cost USD 200-450 per measured field (50-200 hectares). Such tests often include detailed recommendations for further soil treatment making it very easy to draw cultivation and fertilization plans per each individual field.

Farm management, on the other hand, is a more complex issue. Many Ukrainian farms lack new equipment or sufficient knowledge of modern farming technologies and sustainable farming methods.

An optimal size of an individual farm in Ukraine is 5,000 to maximum 10,000 hectares. The farm volume is considered optimal when any commercial crop can be harvested and sold at the minimum export volume of 3,000-5,000 metric tons.

Harvest storage is a critical consideration for operational independence and financial stability of a farm not only in UKraine. A capital investment of USD 120-150 per metric ton of storage should be considered to secure long-term performance of a farm.

How to Invest in Agricultural Land in Ukraine?
Agricultural land investment made easy: InvestUkraine agriculture experts can provide you with further information and details on how to practically realize agriculture land investment opportunities in Ukraine.  Please contact us for more details.

Maharishi Organic Agriculture organic farming projects in Ukraine received a new boost of development in the summer of 2008, when Mr Pinchuk’s ICON Private Equity joined the largest organic food production project in Ukraine, and boasted the nation’s most scalable organic certification for 42,000 hectares out of its 50,000 hectares land in the south of Kherson region and north of Crimea. After less than two years, MOA is being set backwards in decades in terms of agronomic, technological, ecological and economic prospects….

The MOA’s efforts in 2008  included hiring a new team including the leading Ukrainian organic agronomist and a biodynamics expert Gennadiy Tyshchenko, a student of Alex Podolinsky, the world’s leading expert in biodynamics, and formerly, the chief agronomist of the oldest Ukrainian organic farm AgroEcologia in the Poltava region.

One of the largest organically certified farms worldwide, MOA International was committed to growing  quality organic grains, fruits and vegetables through the application and development of modern sustainable technologies such as biodynamic farming, which generally promote the health and natural balance of the soil while creating ecologically safe jobs and producing healthy food for people around the world.

MOA Ukraine project was set to prove its new biological approach of massive land cultivation. However, the unprecedented conversion from organic to conventional farming by Mr Pinchuk’s fund has sent a very dubious message to the consumers in Ukraine and the  international buyers of MOA’s organic produce.

While the European Union states have committed to gradually convert to organic agriculture despite the hardness of conversion periods, Mr Pinchuk’s fund has chosen a path in an irrationally opposite direction.  European experts link such move to the Fund’s incompetence in organic farming. Hired by the Fund, MOA’s COO, Omry Karplus, an Israel national, had no background in organic farming before joining the project. As some agri experts who visited the MOA farm suggested, Mr Karplus seemed to have had no operational farming experience at all but has managed to persuade Fund’s management to turn Maharishi‘s project into an intensively cultivated, conventional farm.

While the cost of conversion from conventional to organic agriculture  in Europe is calculated in thousands of Euro’s per hectare, MOA has boasted until now the  Continent’s largest consolidated 42,000 hectares landbank of organically managed fields certified according to the EU’s Organic Farming, American USDA and Japanese JAS organic standards — Europe’s largest capacity of industrial scale organic crops production.

Organic industry experts estimat that MOA’s potential loss due to the organic-to-conventional conversion may reach from 60 to over 80 million Euros. If not reimbursed to Mr Pinchuk’s fund by the the agrochemical corporations, this loss might become the World’s biggest failure in the entire history of organic agriculture and farming practice, not to mention the negative impact such conversion might have on the overall image of the Fund, regional economy and the ecological balance in the area due to many-multipes higher carbon emission, agrochemical pollution and general evaluation by the market.

While organic agriculture remains one of the most attractive areas to invest internationally, Ukraine is one of the  few locations in the World where scalable organic production is most promising due to the concentration of most  fertile soils, availability to inexpensive labor, existing infrastructure including some of the largest irrigation canals in the World and Ukraine’s immediate access to European and international markets through the Black Sea ports.

Agricultural land investment in Ukraine

Organic agriculture and farming in Ukraine

At a conference on agribusiness one day after the EBRD’s annual meeting, organised together with the Ministry of Agrarian Policy of Ukraine, the two institutions said the current high food prices were a major opportunity for Ukraine, a net grain exporter. Ukraine is one of the few countries in the world that are in a position to significantly increase grain net exports.

Private investment in the Ukraine’s farming demand sound and transparent policy but also appropriate infrastructure and investments in public goods. Infrastructure challenges include physical capacity of railway networks, ports, the road system as well as storage. More investment needed in sustainable agriculture research as well as sustainable technologies training and eduction of farm managers and agronomists.

A shift in policies and increases in private and public investments could help Ukraine to increase its grain production, possibly to as much as 70 million tons (from around 35 million tons in recent years). The increased production of grains would largely translate into increased export potential of Ukraine not of net grain alone but also semi-finished and finished food products of premium quality.

In order for Ukraine to realize its agrarian potential, it should:

* Increase investments in storage, handling, transport and market information infrastructure;
* Establish an institutional framework for tradable land titles and lift the moratorium on land sales;
* Develop a regulatory basis to support financing instruments such as warehouse receipts and hedging instruments such as futures markets;
* Significantly increase public investment in sustainable agricultural research, development and extension, and in the training of agricultural specialists and farm managers;
* Establish a veterinary and food safety control system compliant with EU regulation and invest in the certification infrastructure that would give Ukraine access to the European market.
* Strengthen the market for agricultural inputs (non-GMO seeds, organic fertilizers, efficient equipment and services)

“Ukraine has a huge potential. With the right policies levels of investment in agriculture can be increased and output can be increased significantly as well,” said EBRD Agribusiness Director, Gilles Mettetal. “The EBRD is more than prepared to help support this investment”

“The public and private sectors need to work together to ensure the opportunities Ukraine has in agriculture are fully utilized”, said Paul Bermingham, World Bank Country Director for Belarus, Moldova and Ukraine. “The World Bank is ready to assist the Government in making the transition to a new, market-based policy framework and public investment program.”

The EBRD can help tackle these challenges and unleash the region’s production potential by

* Supporting investments in the agribusiness sector and related infrastructure;
* Assisting in the development of financing instruments such as warehouse receipts;
* Supporting an effective policy dialogue involving the private sector and government officials at different levels.

The World Bank can help in the development of appropriate and consistent policies and the provision of key public goods including by

* Building key rural social infrastructure;
* Addressing market failures through upgrading research and extension services, farmer vocational training and information systems;
* Designing appropriate food safety and certification systems;
* Moving towards an efficient system of state support (de-coupled payments) to agriculture;
* Devising targeted social assistance programs for the rural poor and those affected in particular by rising food prices.

The EBRD is the single largest investor in the agribusiness sector in the region where it operates. Its involvement in the agribusiness sector spans all activities throughout the production chain, from farming, processing and trading to food distribution, packaging and retail. In 2007 the EBRD invested ?520 million in the agribusiness sector and expects to invest roughly the same amount this year.

Most recently the EBRD provided a $20 million loan to Ukraine’s agribusiness group Astarta, to support its drive to put into operation equipment to achieve higher energy efficiency at its sugar production plants as well as in sugar beet farming operations.

The World Bank has invested over US$ 5.5 billion in Ukraine since 1992, with around US$ 677 million of commitments in the agricultural sector. It has also provided extensive analytical and advisory services in the sector to help remove obstacles for increased competitiveness. Against the background of the global food crisis, the World Bank prepared a policy note entitled “Competitive Agriculture or State Control: Ukraine’s response to the global food crisis”, highlighting opportunities for Ukraine to benefit from the current situation on international markets, whilst mitigating the social impact of higher food prices at home.

Based on EBRD press release of May 20, 2009

The fertile black soil, the vast fields of wheat, barley, rye, oats, sunflower, beets and other grain & oil crops  have earned Ukraine the nickname “bread basket of Europe.”

According to the CIA World Factbook, Ukraine produced 25% of all agricultural output in the former Soviet Union. Today, Ukraine exports internationally substantial amounts of grains, rapeseeds, vegetables, sugar, sunflower oil, milk poweder and meat.

Agricultural exports (including non-food exports) go to Russia, 20%; the countries of the European Union, 17%; China, 7%; Turkey, 6%; and the U.S. 4%.

In addition, food processing, especially sugar and oil processing, is an important segment of the Ukraine’s economy. Nearly one out of four workers in Ukraine is employed in agriculture or forestry – quite an impressive figure for a 50-million population of the largest European country.

According to experts, only 45 to 50% of Ukraine’s arable land resources are used today for crops cultivation while the number of cattle and poltry has decreased in the past decade despite the growing demand for food in the World. Many associate this disbalance with the moratorium on the sale of arable lands in Ukraine. Private farming is based soleley on land rental contracts noramally ranging from 5 to 15 years and sometimes goint to 25 or even maximum allowed 49 years rent.

The status of Ukraine as a Bread Basket of Europe will certainly be proofed very soon after the moratorium is terminated. In the meantime, Ukrainian business elite has been concentrating on the more lucrative and faster profiting steel production which has fallen amid the financial crisis by 38% while agricultural output is not likely to be affected due to never dropping demand for food.

Agricultural land investment in Ukraine

Many consumers admit that going back to shopping at food markets gave them a chance not only to save the depreciated hryvnyas but also taste the difference of mass-produced veggies and those grown by babushkas in the villages near big cities.

In fact, about one third of Ukrainians are not urban according official statistics. This makes a very big difference especially now when food crisis is discussed in the Western mass media. Ukraine is not likely to face any food crisis given the intensity of private farming for family+ needs which can help sustaining the Ukrainian urban population despite the financial crisis trimming the sowing areas around Europe.

The reverse side of the Ukrainian financial crisis is a higher level of self-sustainability (growing some basic veggies in the small land plots of dacha‘s) and limiting of the dependency on traditional supply chains such as supermarkets which tend, in their turn, to buy from large scale agricultural producers utilizing conventional [chemical] means of crops cultivation.

As a result, Ukrainian are becoming more considerate of the actual difference in the taste and quality of natural organic foods against the conventional mass-produced and, in fact, more expensive vegetables and fruits.

The international experience prooves that sustainable organic agriculture is 25-35% more efficient than conventional chemical farming methods while long-term effect of the organic technologies result in preserving and improving the natural qualities of soil.

For Ukraine, boasting over 30% of most fertile black soils, sustainable organic agriculture is a real opportunity to gain and retain the European leadership in organic foods production.

The Federation of Organic Agriculture of Ukraine is the NGO which has been the ultimate source of lobbying during the past 10 years for the Organic Production Law which will set clear rules and provide additional incentives to Ukrainian agricultural producers.

With over 300,000 hectares of Ukrainian fields organically certified in 2008, the agricultural sector of Ukraine is in a great comepetative advantage position. At the same time, the pressure, due to the increased prices of the imported agrichemicals, will make many farmers reconsider the technologies and choose for the organics.

The natural evolution of the Ukrainian market towards sustainable technolgies in agriculture will enable the growing number of organic farms gain loyal customer base and thus financial stability which will let them expand the operations in the coming years much faster compared to the farms practicing conventional methods and thus dependant on the imported ingridients.

The proceeds of the credit to Desnagrain, a wholly owned subsidiary of French agricultural cooperative Champagne C?r?ales, will be used to finance its provision to farms of essential farming inputs such as seeds and fertilizers and to buy malting barley, other grains and oilseeds from the same farmers at harvest. The project will help to continue the development and introduction of new farming technologies. Agriculture is a key strategic sector for the country and the project will contribute to realise the potential that Ukraine can build upon.

This credit is provided in conjunction with a loan of the same amount granted by Calyon, a subsidiary of the Cr?dit Agricole Group, guaranteed by Cr?dit Agricole Nord-Est, a long-standing partner of the Champagne C?r?ales Group.

The credit may be disbursed either in dollars or in hryvnias, providing an opportunity of taking up finance in the local currency and avoiding currency risks.  In addition to linking substantial cash resources generated from the brewing sector with the Ukrainian farming industry, this project will also support the use of the warehouse-receipt system (WHR) as collateral for the debt. Warehouse receipts provide farmers and traders with access to finance, providing a reliable means of producing, storing and exporting grain at competitive prices. The Bank has been actively supporting WHR as a means of finance across its countries of operations.

According to the CFO of Champagne C?r?ales, Paul Roux: “Desnagrain works closely with farmers, currently around four hundred, to improve the quality and yield of their crops through technical and financial assistance and training”. “This will provide increased cash flows to continue the much needed restructuring of the Ukrainian primary agricultural sector and contribute to the much needed development of food production across the region”, he added.

Gilles Mettetal, Director Agribusiness at the EBRD says: “This transaction conforms with the Bank’s strategy for Ukraine and to its Agribusiness strategy, which is aimed at the modernisation of the Ukrainian agricultural sector.” “The proposed financing structure allows the Bank to provide primary agriculture financing while building on good cooperation and a risk share arrangement with Champagne C?r?ales’ house banks Credit-Agricole Nord-Est and Calyon. The project shows the Bank’s ongoing commitment with projects in Ukraine despite the difficult current financial environment”.

The European Bank for Reconstruction and Development is the biggest financial investor in Ukraine. As of September 2008, it had committed over ?3.74 billion through 172 projects. In the agribusiness sector, the EBRD has directly committed more than ?4.6 billion in over 320 projects across Central and Eastern Europe and the Commonwealth of Independent States.

Based on EBRD press release 13 November 2008