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European country with the best farmland at the lowest price
Ukraine – future agricultural superpower?
Anybody who’s done some travelling through rural Ukraine
will be struck by the vastness of fertile land available. Thick black soils and
usually adequate rainfall made the country the breadbasket of the former Soviet
Union.
However, inefficient collective farming, then the collapse
of the USSR led to a steep decline in productivity. Only in recent years has
investment in new machinery and the arrival of foreign investment started to
realise the agricultural potential of a country about twice the size of France.
Grain harvest in 2007-08 was 53 million tons, of which
nearly 14 million tons were exported. This was an increase on the 9.6 million
tons exported in 2006-07
Production in 2009 is down, mainly due to restricted
availability of Bank credit. Yet, despite this, exports will actually rise for
this year.
UkrAgroConsult agriculture consultancy on Tuesday 27th
October raised its 2009 grain crop forecast for Ukraine to 42.7 million tonnes
from a previous estimate of 41.7 million due to a higher maize harvest. It said
the increase will allow Ukraine to export 19.0 million tonnes of grain,
including 8.35 million of wheat, in the 2009/10 season against a previous
export forecast of 17.7 million, including 7.75 million of wheat.
According to the press service of Ukrainian Agrarian
Confederation, during the past 4 months
to November 1st of the current marketing year 2009, Ukraine
exported 10.6 million tonnes of grain
cargoes, including 9 million tonnes of grains, 1.1 million tonnes of oilseeds,
and over 500 thousand tonnes of grain by-products.
The recession has only masked the ongoing development of
Ukrainian agriculture . The emergence of a new class of efficient farms can
most clearly be seen in the poultry sector, which is forecast to grow 2009-2013
by 47.1%.
Analysts expect grain production to retake lost ground over the medium term
and, by the end of 2013, it is expected Ukraine to be firmly established among
the world's top wheat exporters. With yields far below the potential of
Ukraine's fertile soil and much arable land lying fallow, there is plenty of
room for production growth. Some agricultural companies, seeing this potential,
are capitalising on the opportunity. MHP in an interview published on its website
said it plans to expand its land through lease arrangements, from the current
180,000 hectares (ha) to possibly 250,000ha in the next two years. The land is
cultivated to produce poultry feed grain and sunflowers.
FPS Comment
What nature gives in abundance, politicians can usually be
guaranteed to ruin. Such as Argentina’s massive soya growing potential being
hamstrung in 2007 by the bright idea ot raise export taxes to a ludicrous 44%! Crops
rotted, investment crashed and agricultural incomes dropped, almost certainly
costing a greater loss of income tax revenue that gained from the export tax
hike!
Ukraine has skirted with such economic illiteracy in the
past, but thankfully pulled back, realising no doubt that the country needs the
hard cash such exports bring.
The main impediment to really rapid progress in farm
development is the prohibition on owning farmland. Instead, land is controlled
through long leases (up to 49 years), which although acceptable to many agri
businesses, is a situation out of step with most advanced countries. However,
this hurdle won’t stop foreign investment, just slow it.
Particularly as tax treatment of farming is very favourable
in Ukraine, such as the right of producers to retain the 20% VAT, to be spent
on company operations.
With a declining population itself and large areas of fallow
yet fertile land, Ukraine is ideally placed to supply the world’s burgeoning
population and profit accordingly. Demand for food is increasing year on year
and there are few places on the planet so well favoured as Ukraine to meet the
demand. It might be considered as having oil, except the wells will never run
dry!
Price of quality farmland in Ukraine is still very low by
international standards. As low as $1000 a hectare. Increasing number of investors are realising
there are likely to be good profits in backing this unique match of low cost
with high demand and investing in Ukrainian land. However, owning directly is
fraught with a level of risk, as Ukraine isn’t the easiest of jurisdictions.
We think Ukrainian agriculture is ideally placed for strong
growth and this tail end of the recession is an ideal and probably last
opportunity to buy in cheaply. World Bank tips Ukraine for stronger growth than
other East European countries next year, at 2.5%, increasing thereafter. Our
advice would be to invest through a large fund, so diluting risk. Information
on one such fund can be had by emailing info@uaproperty.com
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