A war with Russia has already killed 6,000 and displaced one million from their homes. Now economic instability threatens to derail the growth of one of the world's great grain producers, speakers and attendees at a Ukrainian-American Agrarian Congress said this week in Washington, D.C.
Since the fall of the Berlin Wall, Ukraine has rebounded as a world class wheat, soybean and corn producer. It harvested 60 mmt of grain last year with an easy potential to boost that to 80 mmt with better inputs and technology, US AID estimates. Forecasters expected it to soon displace Argentina as the world's top corn exporter, next to the United States. But agribusinesses now face interest rates and inflation above 30% annually and a local currency that has lost has lost half its value against the dollar in the last year. At least 50 commercial banks are at risk of failure in the near future. All that's on top of low commodity prices that leave scant profit margins at the farm gate.
"The next two years will be the most challenging Ukraine has ever faced, even before the revolution," said David Sweere, a Fargo, N.D., investor who built a soy processing plant in Ukraine in 1994 and runs a 25,000 acre farm there. "It may not survive with these challenges. Think of the consequences if there is no Ukraine in the world's food supply."
Sweere's corn yields average 8-1/2 - 9 mt/hectare, below the 11 mt/hectare U.S. average. But that's about twice the Ukrainian national average of 5.5 mt. "People with average yields can't afford this kind of inflation," Sweere said. "It's been August since we could convert local currency to dollars. And the Central Bank can't help us since it has no money either."
Mykola Kovalski, director of business development for Astarta-Kyiv, a vertically integrated 600,000-acre Ukrainian wheat, corn, sugar beet and soybean farm and processor, was more hopeful. Between 2010 and 2012, crop production was very profitable, leading to a surge of investments in technology and equipment.
"Only a handful of agribusinesses that over-stretched or paid for credit in foreign currency have failed so far. There are plenty of good companies left in Ukraine," he said.
However, about two thirds of Ukrainian production costs are linked to the U.S. dollar. Now the key problem is low prices for key crops and high prices for imported inputs like fuel, fertilizer, seed and crop protection products. "The margin is slim, if there's any," Kovalski said. While the Ukrainian hryvnia's steep fall acts as a bonus for grain exports, it's not enough to compensate for losses at the farm gate.
"Given the current situation, growers will reduce application of fertilizer and crop protection products, so they will reduce their total harvest this year," he said.
Agribusinesses are scrambling to help overcome the credit crisis. DuPont Pioneer, a major supplier of corn, sunflowers and oilseed rape markets in Ukraine, will be offering a barter program with customers this year. Six to eight months after planting, they can pay in cash or in commodities, much like the standard financing arrangements vendors must offer in Argentina and Brazil.
"The biggest challenge for Ukrainian agriculture now is credit. It's hard to come by. Liquidity for working capital is simply not there," Paul Schickler, president of DuPont Pioneer, told DTN.
Still, Schickler counts the Black Sea region as one of the world's four premier grain producers, but with much untapped capacity. The country shares many attributes with the U.S., including superior soils, a similar latitude and a moderate climate. Plus it has access to the Black Sea, like the U.S. accesses the Gulf of Mexico, he said.
With yields currently half the U.S. level, "there's a tremendous opportunity to lift production long-term," Schickler said. "Be patient. . . Thirty years ago Brazil was not anywhere near where they are today, but in the last 20 years they've been transformed into a leading ag producer. In the next five to 10 years, Ukraine could do the same for corn."
Follow me on Twitter@MarciaZTaylor
© Copyright 2015 DTN/The Progressive Farmer. All rights reserved.