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Agriculture


In the 2009/10 season, weather conditions were challenging and the


problems of lending were significant. In 2009, Ukrainian banks issued some UAH 12 bn of loans to farmers, compared to UAH 9.7 bn in 2008. However these negative factors have not significantly affected the results in 2009/10.


The current season has been a survival test for the agricultural sector


in many countries – from droughts to floods. However, the forecast for Ukraine’s grain harvest is 40 m tones which will need to be achieved in the most difficult weather and financial conditions (growth in lending in 2010 was just 10% up on 2009).


The State Statistics Committee of Ukraine reports that the main


agricultural companies in 2009 produced 35.8 m tonnes of grain (78% of the total gross yield), while smaller operations accounted for 10.2 m tonnes (22%). The process of mergers and the establishment of grain cereal holdings has accelerated since 2008, modifying the structure of production.


This growth in the number of holdings is due to increased foreign


investment in the wake of rising world grain prices. The moratorium on the sale of land, frozen land privatisation and the almost total lack of financial aid from the state has led to strong, professional and financially stable agro- holdings in the country. Ukraine’s agribusiness environment initially filtered out the more speculative-minded investors, and so the financial crisis that began in 2008 has not led to a deluge of bankruptcies and scandals.


Number of holdings Holding’s land bank (Mha)


2007 18 2


2008 33 4


2009 40 6


Agricultural holdings are companies that have more than 50 thousand hectares of land


Source: Association of Ukrainian Agribusiness Clubs Agricultural companies reaching larger scales need to seriously


consider increasing the efficiency of their land use. The need for large investments in land (up to US $500 per hectare) encouraged them to look for long-term investment money. For several years these searches were unsuccessful, but since 2007 the global growth in food prices has attracted investors’ attention to this sector. As a result, pent-up demand for cheap money from Ukrainian farmers is now being met by European investment funds and 2007-2008 saw explosive growth in the number of holdings. It is partly this investment in land which has led to growth in the volume of grain produced. Investment of fixed capital in the agricultural sector in 2008 increased by 56% in comparison with 2007 (Hvr 7.4 bn according to the State Statistics Committee of Ukraine). These amounts do not include investments made by private placement on European stock exchanges. From the end of 2006 to the present the agribusiness sector has had four IPOs, two SPOs and six private placements, during which time investments of US $1.18 bn have been made.


A mixture of Ukrainian bureaucracy, flaws in Ukrainian legislation,


and investor focus on the agro sector has often seen agrocompany owners’ overwhelming desire to create stable companies pursued without regard to the natural, political and economic problems in the country.


While many Ukrainian companies were previously only thinking of


survival, their EBITDA margin over the last couple of years has exceeded 20%. Introduction of modern scientific and technical methods to increase yields, multiplied by rising world grain prices, promises to increase Ukrainian agribusiness profits still further.


Company


Market


placement symbol


Kernel Holding Mriya Agro


Ticker


Focus


Myronivsky Hliboproduct (MHP) London MHPC LI Poultry/grain


Warsaw KER PW Sunflower oil/grain Frankfurt MAYA GR Sugar/grain


Astarta Holding Warsaw AST PW Sugar/grain Ahroton Sintal


Frankfurt Creative Group


Lendkom Land West Ukrros


Frankfurt SNPS GR Grain Frankfurt 4C8A GR Sunflower oil/grain


MCB Agricole (Ukrzernoprom) Frankfurt 4GW1 GR Grain


London LKI LN Frankfurt 4K1A Frankfurt 36U1 GR


Grain Grain


Sugar/grain France’s Crédit Agricole representative in Ukraine, Jean-Jacques


Hervé, a former adviser to the Ukrainian ministry of agriculture, believes that over the next 10 to 15 years Ukraine could triple its export capacity, to become possibly even the top supplier for the main importing countries around the Mediterranean. Ukraine is reported to have the potential to produce 100m tonnes of grain per year.


However, there are obstacles facing the development of Ukraine’s


agricultural sector, including the fact that current quality levels are not only far below EU levels, but also behind those in the Soviet period:


- a third of its 43m hectares of agricultural land lies fallow and another third is badly exploited (53% to 56% of land owners are pensioners);


- Agricultural crop yields are significantly lower than in Europe - Fertiliser usage per hectare is significantly lower than in other countries


- The majority of local agricultural companies are still poorly equipped


- Infrastructure: Well-developed port, but shortage of storage facilities and railcars. Railway infrastructure is less developed than maritime infrastructure


Many of these challenges require renewed official leadership but


some critics suggest that the Mykola Azarov government’s actions demonstrate that its understanding and support is restricted to heavy industry - metallurgists, miners, oil and gas. When compared to EU support for its agricultural sector, Ukrainian farmers are likely to struggle with the consequences of Ukraine’s 15% drop in GDP in 2009. Formation of large Ukrainian agro-holdings in the past was a reaction to the funding problems of agriculture. In the near future, alternatives to these holdings and their number will increase, and are likely to attract foreign investors through IPOs, GDR and other financial instruments.


Western analysts suggest that 80% of the country’s agribusiness and


food industry will come from 10 to 20 Ukrainian companies. At the end of April 2010 Avangard Holding received US $187.5 m on the London Stock Exchange, and Kernel Group in Warsaw has invested another US $80 m.


Contributed by Sergey Bovtenko October/November 2010 UkraineBusiness insight 15 A2TA GR Sunflower/poultry/grain


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