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30 Sep 2022

LFM 2022. The agricultural sector after the war: how to return to pre-war levels and move on

On 9 September 2022, Ukrainian Agribusiness Club Association and UCABevent agency held the conference “Large Farm Management” (LFM), which took place at the premises of Continental Farmers Group (Chukva village, Sambir district, Lviv region). The conference brought together agricultural producers, representatives of resource and service companies, innovative start-ups and leading investors to share experiences, discuss recovery plans and other important aspects of doing agricultural business in wartime.
The conference was opened by Petro Melnyk, President of UCAB, and Georg von Nolken, CEO of Continental Farmers Group. Both thanked the gathered agrarians for their unity and mutual support in difficult times for Ukraine and expressed hope that such community cohesion would help end the war and defeat the invader as soon as possible.
Dmytro Livch, Head of Analytical Department at the Centre for Economic Recovery, focused on the analysis of the state of the agricultural business during the war with Russia. He tried to predict how the agricultural reconstruction will go and whether the agricultural sector will return to its pre-war level.
According to him, the war has had a different impact on the regions of Ukraine, and it is important to understand this in terms of the risks of doing agribusiness in a particular region. For example, the activities of agricultural companies in the occupied and partially occupied regions of the country are currently extremely problematic. Therefore, Livch believes that government support for the agricultural sector in this case should be as stimulating as possible.
As for the losses of agribusiness in general, the analyst says that its margin has decreased from 30% in 2021 to -30% in 2022. At the same time, the cost component of farmers' expenses continues to increase: prices for energy, fertilisers and logistics are rising. The blocking of ports alone has led to an increase in logistics costs by $170-180 per tonne of product.
Mr. Lyvch sees two ways out of the current situation: increasing revenues and reducing costs for agricultural companies. The former can be achieved through preferential purchases of agricultural products, VAT refunds and additional insurance guarantees for the agricultural sector. As for the latter, it is important to reduce Ukrzaliznytsia's tariffs.
Looking at the post-war plans for the development of the agricultural sector, the analyst believes that we can follow the path of synergy, as in Europe. In addition, Ukraine needs to pursue a highly effective export policy and diversify its agricultural markets.
Taras Vysotsky, First Deputy Minister of Agrarian Policy and Food of Ukraine, shared with the audience his plans for reforming agricultural policy in the context of European integration processes. According to him, after Ukraine was granted EU candidate status in June, the European integration bloc is a priority in the state policy.
He reminded that due to the new status of Ukraine, all duties, taxes, quotas and restrictions on the export of domestic agricultural products to the EU countries were cancelled. However, he said that in order for the free trade area with the EU to be a long-term one, the country needs to fulfil certain requirements. Officials and MPs are currently working on the relevant laws and regulations.  
Among the key ones:● The Law on the Protection of Rights to Plant Varieties and Seeds, which is due to be adopted in autumn;● On Materials and Objects in Contact with Food;● On Geographical Indications of Alcoholic Beverages, which is due to be adopted by the end of the year;● On the Management of Pesticides and Agrochemicals;● “On Plant Protection”, which will be finalised in 2023;● “On the peculiarities of legal protection of geographical indications for agricultural products and foodstuffs, protection of rights and application of quality schemes, including traditional guaranteed characteristics for agricultural products and foodstuffs”.
In addition, the Ministry is preparing a number of regulations. One of these, for example, is a regulatory act that will allow the production of biomethane. According to the First Deputy Minister, the EU is now ready to pay extra if biomethane is produced in Ukraine in accordance with European environmental standards.Valeriy Yakovenko, co-founder and managing partner of DroneUA, traditionally tried to look into the near future. In his case study, he spoke about the possibilities of a complete transformation of agribusiness in the new environment. Mr Yakovenko noted that today farmers do not want to use expensive agricultural technologies. They are looking for a change in the agribusiness model. Against this backdrop, he said, the service model of doing business is flourishing. As an example, he cited the model of applying plant protection products by agrodrones, which involves more than 100 companies.
The businessman also said that amid the war in Ukraine, he managed to create the world's first start-up to support and optimise the market for drone spraying services. This is especially important as the demand for agro-drones is constantly growing. In particular, in 2022, 2 million hectares of land in Ukraine will be cultivated with them.
Participants of the panel discussion also discussed the new reality of agribusiness during and after the war. The panel was moderated by Alex Lissitsa, CEO of IMK, and Inna Meteleva, Head of the Agrarian Council's Agricultural Policy Dialogue project office. The panellists did not hold back their emotions, sharing their stories of business survival under martial law and expressing their vision of the possible development of the agricultural sector in the near future.
Taras Vysotsky was also asked questions. In particular, the issue of queues at the checkpoints on the Polish border through which Ukrainian agricultural products are exported was a painful one for the conference participants. The queues there are currently 50-60 km long. The First Deputy Minister replied that the only solution to this problem would be to reduce the number of cargo inspections. “In recent months, the volume of exports by road has been growing steadily, from 100,000 tonnes in April to 130,000 tonnes in August. However, further growth was affected by the strike of Polish carriers, which effectively closed the Dorohusk border crossing,” said Mr. Vysotsky.
According to him, solutions have already been worked out to resolve the situation with queues of trucks at checkpoints. It is planned to do so in the near future:● open additional checkpoints exclusively for empty trucks. On 9 September, the Ustylug-Zosin checkpoint was opened. Two more checkpoints are planned to be opened, which will reduce congestion by 20-30%;● to remove veterinary and sanitary control from all grain in transit and destined directly to the EU for consumption;● to remove mandatory veterinary and sanitary control for all types of cargo, including animal feed, meals, oils, berries and vegetables;● to remove veterinary control over livestock products.
The First Deputy Minister's answer to the question about the cross-border pipeline that will transport Ukrainian vegetable oil to the port of Gdansk was also informative. According to him, the next step after the signing of the Memorandum on its construction will be the development of technical and economic documentation. “The next phase of work will be to write a feasibility study with all the details and calculations. As part of the developed project, we will communicate with the business at every stage, as this is a new thing,” commented Mr. Vysotskyi.
He also stressed that the issue of land will be extremely important in this case. Indeed, as practice shows, this is the most critical issue, as both in Ukraine and Poland many lands are in communal or private ownership, which complicates the process. Taras Vysotskyi also added that the Government now understands that it needs to develop alternative ways to export agricultural products in the long term. “Given the current operation of ports, it is more profitable to transport agricultural products through the western borders,” he said.
Other panellists agreed with these words. For example, Yuriy Melnyk, First Deputy Chairman of the Board of MHP, said that his company exports its products by all means of transport. And they manage to meet all their export needs despite the additional logistics costs. The only thing they ask from MHP is clear terms for the grain deal and a solution to the issue of border crossing speed.
Mr. Vysotsky said that the Government hopes that the grain corridor agreement will be extended. “In our opinion, there is still a 99% chance that the agreement will be automatically extended for another 120 days. Of course, the aggressor country will try to undermine the agreement as much as possible, but there are certain obligations that are important to them,” said Taras Vysotsky. Also, he added that after 8 months (240 days) of the agreement on the export of Ukrainian grain, there may be a renegotiation.
The participants were also interested to hear Mr. Vysotsky's forecasts on possible changes in the structure of sown areas in Ukraine. According to him, next year we will see a 15-25% decrease in winter wheat and barley acreage, while sunflower acreage may increase by 5-10% and soybean acreage by 5%. On the contrary, the area under corn will decrease by 10%. “Of course, these things will change. However, it is technologically unrealistic to change crop rotation by 40-50%,” said Mr Vysotsky.
As for the livestock sector, he said, the situation with its development in the country is not as pessimistic as it could be. Currently, we have a 20% reduction in beef, 15% in pork, and 5% in poultry. Milk production in Ukraine has also decreased by 15%. However, while domestic consumption has fallen, exports have increased. In particular, 70 thousand tonnes of milk.
Alex Lissitsa believes that, in the long run, small family farms with no more than 100-150 heads of livestock will survive in Ukraine, because they have a very simple management system.
Finally, the panelists discussed the situation with investments in the agricultural business. In particular, Petr Krogman, Chairman of the Board of Directors of Agromino, said that today farmers have to rely on their own cash resources, while the government should help farms in the East.
“If banks offer worse lending terms to these companies, it will be discrimination against them, and Ukraine will “lose” these territories, they will become vulnerable and people will leave them,” the businessman believes.
As always, professionals, specialists and like-minded people who gathered at the same venue after an extremely long and forced break were able to communicate in an informal setting and exchange views.For thirteen years in a row, the conference “Large Farm Management” has been a platform that brings together top agricultural producers, representatives of resource companies and innovative startups to share experiences, present advanced developments and network among professionals. The team of the Ukrainian Agribusiness Club and UCABevent agency would like to thank all the participants and partners of the event, including Continental Farmers Group, New Holland Agriculture, Credit Agricole Bank, Syngenta, BASF, DroneUA, for sharing this day with them.

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