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Ukraine: The world’s next breadbasket

Who will be the big winners when the struggling country gets its agricultural act together?

The world has its eyes on the Ukraine. What it is seeing there is nothing less than a new El Dorado in agriculture, based on some the world’s most fertile and most underutilized soils. For centuries, Ukraine was Asia’s breadbasket, but since the collapse of the Soviet Union, much of its potential has essentially lain fallow. But even at that, Ukraine is the world’s third leading exporter of wheat and corn.

The question used to be, will the country ever get its agricultural act together?

Now, the “if” questions are gone. Instead, they’ve been replaced by two others. Who will reap the profits from an efficient, productive new Ukraine? And what will that new grain juggernaut do to global grain markets?

Now, Ottawa is investing $13 million to develop grain co-operatives like the pools that used to dominate Western Canada. The objective is to equip Ukrainian farmers with a more effective, more efficient marketing system that moves more grain and puts more value back into the farmers’ hands. Ottawa is also betting that the co-op business model will create hundred of jobs in rural areas of the second-largest European country — a country that is in deep economic crisis.

Ag journalist Nicolas Mesly has travelled with the Canadian team in charge of this project. He has also met with international investors, who discuss the challenges and opportunities of conducting business in Ukraine. Mesly also met farmers, like Ludmila Nikiforienko, right, and he learned why another Ukrainian farmer is a national hero in his country.

What is chernozem?

Chernozem is the rich black soil that makes Ukraine one of the most fertile places on Earth. It’s a soil that was formed from very fine mineral particles that prehistoric winds carried away from ancient glacial beds. “The wind acted as a huge filter,” says Dr. Léon Hardy, a Canadian geomorphologist in Ukraine. “There are no rocks in this soil.”

Grasses and broad-leaf plants thrived in these gigantic mineral deposits, and when they died, their decomposition turned into the organic matter that makes chernozem so black today.

Nor does the beauty of chernozem stop there. The soil is porous too, and the fields are naturally undulating, so they don’t need expensive drainage. Plus, chernozem contains limestone, so there is no need to add lime, and it is ideal for no till.

Ukraine isn’t the only place in the world with chernozem. Some can even be found along the U.S. border in Western Canada, but chernozem accounts for 60 per cent of the arable land in Ukraine, and it seems to go on forever, commonly from one to as much as six metres deep.

A French connection

Man holding soil in his hand.
Attracted by the rich chernozem, the French grain grower Jean-Paul Khim and four other shareholders have been farming in Ukraine since 2006. Their wheat yields in Ukraine are around 4.5 tonnes/ha whereas they can go up to more than seven tonnes/ha on their farms in France. The extensive production system found in Ukraine is similar to the Canadian Prairies, says the producer. photo: Nicolas Mesly

“It is the incredible potential of chernozem that brought us to Ukraine,” says Jean-Paul Khim, a French grain farmer and one of the five shareholders in KMR, a corporation they set up in order to get their slice of Ukraine’s farm outlook.

KMR bought its first Ukrainian farm in 2006, followed by a second two years ago near Dnipropetrvosk, an industrial city and former Russian missile construction centre.

Today KMR farms 20,000 acres, having invested $6.5 million since its arrival in the former Soviet breadbasket.

“The very low price of the land has allowed us to invest in machinery and technology, and to construct buildings and silos,” says Michel Jean-Loup, another shareholder met at one of the KMR farms.

The company employs 32 people, including one full-time person to manage rental contracts with 1,300 landowners. KMR produces annually between 24,000 and 30,000 tonnes of wheat, colza, sunflower and spring barley. All the crops are no tilled to minimize wind erosion and retain moisture.

A big consideration for the French is that they finance their operations through French banks, using their French farms for collateral. If they had to finance through Ukrainian banks, the group would face prohibitive interest rates of 25 per cent and more — the same rates that Ukraine’s farmers must pay.

Farming in Ukraine isn’t always easy, say KMR’s partners. For example, repair parts for the combines or the tractors can take months to obtain, and they can’t get the seeds that they would like because of heavy restrictions inherited from the former communist system.

Another problem is the extreme Ukrainian weather. “In France, we cry when we lose 20 per cent of our yield; here it is sometimes 50 per cent,”  says Michel Jean-Loup.

The other climate they have to deal with is the business environment. All the wheat production is sold internally, the sunflower goes to a local processor and the colza is exported. But the signed contracts on volumes and prices are not always respected, warns Jean-Loup. “You need to know how it works in order to not lose your shirt.”

More from the Country Guide website: Ottawa’s gamble

“To sell co-ops, you need strong leaders”

Man and woman standing in front of tractor.
Ludmila Nikiforienko with her husband, Vladimir. photo: Nicolas Mesly

Ludmila Nikiforienko, 63, has bought the former collective farm located near the village of  Andriivka where she was milking cows with her husband, Vladimir, 72. The couple started their grain farm in 1991 with 125 acres but today they rent 10 times more land. Nikiforienko says that a co-op elevator would help sell her wheat and sunflower crops. “We tried to form co-ops in the past but it did not work because there were too many different interests,” she cautions. “Big producers already own some storage facilities and the little ones don’t.” Nikiforienko also says that, in order to get off the ground, a co-op will need visionary leaders. “I am too old for the task,” she says, laughing. The biggest barrier to the rise of co-ops is psychological, she believes. Ukrainian producers fear the co-ops will be too much like their old collective farms, Nikiforienko explains. “For many of them, it is going back to the past.”

Oleksly Vadaturskyy, farmer and Ukrainian hero

Mature man.
Oleksly Vandatursky photo: Supplied

Met on his home turf in the port city of Mykolayiv, Oleksly Vadaturskyy is a hero in his country. Following the dismantling of the former USSR in 1991, the 66-year-old farmer founded Nibulon, a vertically integrated enterprise which has become Ukraine’s largest grain exporter.

Nibulon rents 200,000 acres, owns its own truck fleet, and sells 3.2 million tonnes a year of corn, wheat, soy, sorghum, and sunflower.

Cherished by the international bankers, Nibulon has developed a network of 22 ultramodern grain elevators along two of the country most important rivers, one of which is the Dnipro, considered the Ukrainian Mississippi. Cost of this investment to date is some $470 million.

In November 2007, then president Viktor Yuschenko gave Oleksly Vadaturskyy the title of Ukaine Hero for the social and economic contribution of his company to the country.

Now, Vadaturskyy has been nominated for the World Food Prize.

Land ownership, Ukraine’s time bomb

From one extreme, Ukraine has gone to the other. Under the Soviet Union, the country’s farms were centralized into a system of huge state farms. But following independence in 1991, those state farms have have been privatized, with the result that more than seven million Ukrainians own farmland today, averaging eight to 10 acres apiece.

On top of this, Ukraine also has another 43,000 farms of 2,000 acres each.

As well, individual agribusiness companies rent from a low of 10,000 to as much as 1.2 million acres of land. Rents vary from $35 to $50 per acre, serving as an “invisible pension plan” for millions of Ukrainians.

Land ownership is also a very sensitive issue in Ukraine since it is directly related to food security in a country that has known terrible famines in its recent history.

Change is coming, however. But the change may be slow, and it may be hard to interpret.

Months after rumours started swirling about China acquiring rights to lease up to 7.5 million acres in a 50-year deal to feed grains and pork, it is still unclear exactly how much land is covered by the deal.

Also unclear is whether Ukraine’s recent rejection of EU demands will mean Russian corporations will have the inside track on new land acquisitions.

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