How Is the Russo-Ukrainian War Affecting Agriculture in Ukraine?

September 19, 2022
UkraineWorld spoke to Taras Vysotsky, First Deputy Minister of Agrarian Policy and Food of Ukraine.

Key points — in our brief, #UkraineWorldAnalysis:

1. On food losses

  • Currently, we are encountering more than 4 billion USD in direct losses, such as destroyed, burned, and stolen goods; and more than 22 billion USD of lost potential income from undistributed food stocks. 
  • Ukraine is documenting, on behalf of law enforcement agencies, thefts of  foods and goods that people submit and will bring suits against Russia in international proceedings.

2. On the role of grain exports

  • The recovery of grain exports is critical for the budget of Ukraine. The reduction in exports is obviously highly detrimental. From a macrofinancial point of view, exports support foreign currency reserves and the exchange rate of the hryvnia. From a macroeconomic point of view, Ukraine's inability to sell goods means a decline in GDP, wages, and demand among suppliers for fertilizers, seeds, and other agriculture-related products.

3. On the critical role of agricultural exports

  • There is a budgetary impact: if exports are working, then agricultural activities continue, the budget receives income taxes, VAT,  social welfare taxes, military taxes, and rent for shares.

    Before the war, agriculture accounted for 40% of all exports. The stability of agricultural export processes is critical for our economy.

4. On support programs for agricultural production in Ukraine

  • There are several programs to support agricultural production in Ukraine. A small-scale payment program of 3,100 UAH per hectare has been launched for farmers with up to 120 hectares in ownership, as well as assistance for cattle, reaching 5,300 UAH per head for farms with up to 100 head of cattle. In order to get it, farmers need to fill out a form on the web portal of the State Agrarian Register. 
  • A soft loan program has been launched to support medium-sized manufacturers. Farmers can receive up to 90 million UAH loans to support their businesses in all agricultural areas. Interest on loans is covered by the state.
  • There are also grant programs for horticulture and greenhouse farming. It is possible to receive a grant to plant new plots of up to 25 hectares, and for building a greenhouse of up to 2 hectares. Several dozen grants have already been issued.

5. On the structure of the agricultural sector and future trends

  • Since 2010, the Ukrainian agricultural sector has been composed of 10-15% of small producers, 25% large agricultural holdings, and 60% medium agricultural businesses. The share held by large agricultural holdings is decreasing. 
  • The efficiency of medium-sized manufacturers is higher than of large enterprises, with many delegated functions and land owners can be offered better lease terms. 
  • Another trend is an increase in diversification to avoid focus on too few crops. The agricultural sector is dependent on fuel and gas, but some agrobusinesses are moving towards alternative energy sources like methane and biogas.

6. On the recovery plan

Recovery from the war will take some time. It is a matter of resources, materials, and people. The initial stage will require around 500 million USD. 

  • In general, more than 30 billion USD will be needed to restore losses in the agricultural sector. There are several stages in the recovery plan, with the first one covering the first two years after the war ends, and the second covering the next five years.

7. On bilateral trade

  • Ukraine's Ministry of Agrarian Policy and Food and the US Department of Agriculture signed a memorandum on cooperation in the field of agriculture. This is first and foremost a signal to investors. 
  • Secondly, it is an opportunity to integrate American experience and modernize. Thirdly, it is a signal of readiness for bilateral trade.

This material was prepared with financial support from the International Renaissance Foundation.

Taras Vysotsky, First Deputy Minister of Agrarian Policy and Food of Ukraine