Agricultural land investment in Ukraine

agricultural_fields_ukraineAgricultural land in Ukraine is one of the best mid and long-term investment opportunities in the world. Ukraine’s diverse farming climatic zones provide an exceptional opportunity for fully-diversified, complete-cycle farming ventures with livestock, seed production, premium field crops and row crops production of export-scale agri commodities volumes, feed harvests, and farm-to-fork foods. No1 in sunflower oil and one of the global leaders in corn, soya, wheat, barley, sugar, honey, chicken meat and eggs, Ukraine has a huge potential to lead in beef, lamb and pork, dairy products and superfoods.

Format of Investment in Agricultural Land in Ukraine
Investment in agriculture land in Ukraine is mostly conducted under farmland lease agreements. Lease contracts with private pai-holders, local communes or state land authorities are closed for periods rangin from minimum 7 to the maximum of 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 has now open the agricultural land market for direct purchasing or mortgage. As of July 1st, 2021, Ukrainian citizens and companies registered by Ukrainians will be allowed to buy agricultural land with own capital or bank credits. Foreign companies or individuals will continue to farm under lease contracts without any restrictions.

Cost of Investment in Agricultural Land in Ukraine
The cost of investment in Ukraine’s farmland is the lowest in Europe while it provides a high 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 or direct production costs.

Land lease rights acquisition cost between 2009 and 2020 has ranged from USD 300 to USD 900 per hectare depending of the region and soil quality. Lease rights are normally acquired through the transfer of private equity of the established agri company to the new owners, individual or an SPV. Lease rights can also be transferred through re-registration of land lease agreements on the name of a new SPV, sub-lease contracts or pai swap 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 2009-2020 have ranged from USD 30 to USD 150 per hectare reaching in peak years 300 or higher. Pastures are normally valued at 1/3 of the arable lands in the same area.

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 have to invest in tractors, tillage equipment, seeding equipment, harvesters, etc. Capital investments into agricultural equipment  per hectare thus may vary between USD 400 with locally produced equipment or mixed and USD 900 with high-end Western equipment depending on the technologies and range of crops.

Seasonal production costs include fuel, spares, seeds, fertilizers, crop protection, labor costs, etc and may range from USD 350 per hectare in organic farming to USD 500 or more in conventional farming.
Organic farming in particular provides a great investment opportunity in Ukraine due to the high natural fertility of the soils and fast-growing global demand for organic foods.

Optimized investment costs in Ukraine’s agricultural production including land titles and CAPEX between 2009 and 2020 has ranged from USD 700 to USD 1,800 per hectare compared to Americas’ (North and South) USD 4,000 plus,  and Western European levels of USD 12,000 plus. At the same time, the current harvest yields in Ukraine suggest that a higher agro-ecological potential per hectare can be obtained under proper farm management and with the use of optimal technologies.

Agricultural Land Valuation in Ukraine
Ukraine’s soil quality is estimated under bonitet rating system. Most of Ukraine’s farmlands boast bonitet of above 40 (out of 100). Chernozem (black soil types) have bonitet of 60-80. Soil fertility is an element of the complex agricultural lands valuation and bonitet rating has provided a standardized general parameter for agricultural lands in Ukraine.

Before the land market opens in Ukraine in July 2021, economic valuation of agricultural lands in Ukraine, known as normative monetary valuation, is done by licensed real estate rating experts. They provide official valuation figures used for land lease and land tax rates. Normative monetary valuation for similar land plots on the same field can often be very different. A legal advice in such cases is highly effective to optimize any long term costs.

Agricultural Land Management in Ukraine
Soil quality tests are easy to obtain in Ukraine and cost USD 300-500 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. Optimal size of an individual farm or a farming unit in Ukraine is between 5,000 and 10,000 hectares. Farm size optimization is also subject to logistics to and capacities of the main or interim grain storage facilities. Harvest storage is a critical consideration for operational efficiency and financial risks. Capital investment of USD 100-150 per metric ton of storage should be considered to secure long-term successful performance of a farming unit.

How to Invest in Agricultural Land in Ukraine?
Agricultural land investment with confidence — InvestUkraine agri experts can provide further information and details on how to practically realize agricultural land and production investment in Ukraine. Contact us for more details.