As the Soviet Union crumbled in the early 1990s, a new fear gnawed at grain growers around the world. For years they’d listened to tales of Ukraine, one of the planet’s great breadbaskets with its fertile steppes and enormous grain-growing potential.
Would the free farmers of Ukraine rev up such a huge grain machine that global markets would be swamped for decades?
The answer is no, and as Shawn Halter tells us in between his trips to the region, the reasons are both tragic and seemingly insurmountable.
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Everyone recognized the world-class farming region had been choked for decades by the horrible inefficiency of the Soviet collective farm system. No one knew that better than the farmers themselves.
But a funny thing happened as the former communist bloc countries began their slow, often painful conversion. Agriculture productivity actually began to fall.
A graph of yields for the major grains looks like a hockey stick laid on the ice. Productivity fell sharply in the mid-1990s and it has been flat-lining ever since, with the only blips coming when ideal weather conditions give crops a little push.
Yields just never took the dramatic jump that everyone was expecting.
A big part of the problem was a botched privatization which saw the Soviet-era collective farms broken up into small plots that averaged between two and 10 hectares (roughly five to 25 acres), which any Canadian farmer will tell you is much too small to farm efficiently.
Add to that a long list of other self-inflicted woes, such as a federal government that’s recently been imposing politically motivated export bans. Then there’s the increase in the Ukrainian central bank’s prime lending rate to 22 per cent in 2008 to prop up the country’s currency, and a recent decree that allows private banks to freeze bank accounts to “prevent bank runs.”
It’s no wonder the country is now stuck with a dysfunctional agriculture sector that is suffering through a long and painful decline, cut off from the capital it needs to modernize or even hold its own.
“In the country, people recognize that it’s a desperate situation,” says Halter, a Calgary-based consulting agrologist who has worked on a pair of projects in Ukraine since 2005. “They can’t get access to money, and they’re very emotional about it.”
In his recent trips, Halter has been shocked to witness the state of the country’s agriculture industry, kept hidden behind the glitter of Kiev, the capital city. The problem, he says, is profoundly a political one.
“We always talk about the rural-urban divide here — well Kiev, the capital city, is completely insular,” Halter explains. But in Kiev, people made money in the grand Ponzi scheme of real estate development or finance, and until recently they thought things were fine.
That’s given the country’s political class the luxury of cementing their power base by cynically exploiting the population’s fears and patriotism. In this case, their slogan is “Ukrainian land for Ukrainians.”
“There seems to be this fear that companies are going to come in and buy up all the land and make everyone into serfs,” Halter says.
As a result, there’s a ban on the sale of agricultural land, which also means land can’t be used as collateral to secure bank financing.
The first thing you notice, Halter says, is the shocking state of the equipment. His first contract in the country was for a businessman who was returning to his local village after making his fortune in the Moscow real-estate market. He wanted to introduce the zero-till system to the region and hired Halter to consult on the project. It was upon venturing out to other operations in the region that Halter discovered just how atypical the operation was for the area.
“It was definitely the exception, not the rule,” Halter says. “The rule was bad Soviet-era equipment that was junk the second it rolled off the line. And it’s just been getting worse. There were tractors where they should have been putting the engines in with wing-nuts, because they were pulling them so often, and the transmissions would just absolutely detonate on them every so often.”
The fact that this equipment has been operable for as long as it has is a testament to the hard work and skill of the average Ukrainian farmer, Halter says. They’ve been dutifully patching up this rolling junk year after year, hoping to get just one more crop into the ground.
“You’ll never find a better welder than in Ukraine,” Halter says. “They can weld anything, but of course the one thing they can’t do is weld to another weld — and that’s the situation they’re in right now.”
There’s little doubt much of this equipment is on its last crop. What’s less certain is what will replace it. The farmers who do buy machinery do so by saving and paying cash. That means that a $400,000 combine in the field was almost certainly a cash deal.
Given the lack of clear title to land, there’s some trend in Ukraine toward farms like we’re seeing in some areas of Western Europe. These are corporate farms that don’t own land but do have equipment and storage.
If this trend has a major impact on Ukraine’s ag output, then it might become a world player in agriculture, just perhaps not in the commodities that are subject to periodic export bans.
Halter’s most recent trip to Ukraine this past winter was to assess the investment potential of the country for a Western company that was interested in investing in the country’s agricultural industry. His assessment is blunt and slightly profane.
“They’d need balls of steel.”
The solution must involve profound political reform, something that’s never easy. But the situation basically boils down to a lack of the basic Jeffersonian rights of life, liberty and security of property, Halter says. Until those issues are somehow resolved politically, a road forward is difficult to see.
What’s less difficult to see is that another ultimately harmful detour might be the result, as the country’s former masters in Moscow eye Ukraine covetously — aided in no small part by the nostalgia of a certain subset of Ukrainians.
Some are old enough to remember the apex of the Soviet Union in the 1960s and 70s, a period when the country had its highest-ever standard of living. They’re also too young to remember the repression and purges of Stalin that occurred up into the 1950s.
“Some of them,” Halter says, “pine to restore the Soviet-style system, or the quasi-Soviet system of Vladmir Putin, which is really the worst of of both worlds.” CG
