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Uncertain future remains for Ukrainian farmers
The war in Ukraine has been raging for more than 200 days. In six days, we will mark the seventh month of its start, but the situation is still far from certain, despite the successful counterattacks of the Ukrainian army in recent weeks.
Nearly two months has passed since the start of the so-called ‘grain agreement’ between Ukraine, Turkey, and the United Nations, on the one hand, and Russia, Turkey, and the United Nations, on the other. During this time, 3.1 million tons of agricultural products, primarily grain, were exported through the three unblocked ports of greater Odessa. In total, 5.8 million tons of ag products were exported from Ukraine in the last month and a half, which is two times less than in the same period last year.
In August, 48.7% of exports were carried by sea, 36.6% by rail, and 14.7% by road. Now, the possibility of building a pipeline for transporting vegetable oil to Poland is being considered.
At the same time, Russia's actions are completely unpredictable, which does not allow planning even in the medium term. Putin threatens to terminate the ‘grain agreement.’ Even if this does not happen, it is not clear whether the agreement will continue after it ends on November 30.
Therefore, many producers continue to look for a solution to continue to export by road and rail. However, this also comes with huge losses. The queues at the road border crossings exceed 20 km, and at the border crossing at Jagodzin in southwestern Poland, they exceed 60 km.
Plans to build up railway rolling stock in countries neighboring Ukraine are also viewed with caution by investors due to the uncertainty over the continuation of the ‘grain agreement’ or the imminent end of the war. If Ukrainian seaports continue to operate, investments in the development of rail transport will not pay off.
Since the beginning of the war, the cost of logistics has increased several times from $25 per ton of grain, which also reduces the profitability of ag production. For example, the cost of delivery to Western Europe was about $4,500 to $5,000 per truck (cargo 22 tons), or about $204 to $227 per ton.
The grain harvest in Ukraine this year is expected to be 52 million tons, which is two times less than last year. Next year's grain harvest may be further reduced to 45 million tons, according to some estimates. This also does not add to the desire to invest in the construction of new facilities for the storage and processing of ag products.
As a result, the financial reserves accumulated by Ukrainian producers in 2021 are gradually drying up. It is predicted the sown area under winter crops this year will be one third less than last year.
At the same time, about 5 million hectares (about 1.2 million acres) are littered with mines, shells, aerial bombs that did not explode. To this day, discussions continue as to who should deal with clearing the mines (e.g., the Ministry of Defense, the State Emergency Service, etc.
The situation is exacerbated by the high price of natural gas needed to dry corn and sunflowers. The price of natural gas is currently $1,000 per 1,000 m³. About a third of producers are considering the option of not harvesting corn this year.
Another problem leading to a decrease in the purchase price of ag products and a deterioration in the financial situation of agricultural enterprises is the lack of a refund of the VAT (value added tax) for exporters.
Livestock industry also suffering
The situation in animal husbandry in Ukraine remains dire.
Russia has begun destroying critical infrastructure such as thermal and electrical power plants in cities that provide electricity and heat to the civilians during the cold season. A similar situation exists with the production of electricity at nuclear power plants, especially at the Zaporizhzhia location, which is the biggest nuclear power plant in Europe. It is currently under the control of Russian forces, who have shut it down.
On September 11, Russia fired at the Zmiivska thermal power plant and 40 transformer substations. As a result, the Donetsk, Sumy, Dnepropetrovsk, Poltava, and Kharkiv regions were de-energized. There was also a fire at the Kharkiv CHPP-5 (combined heat and power plant) due to the shelling in the city of Kharkiv with rockets.
The outdated and unreliable infrastructure for the transmission and use of electricity in rural areas threatens to cause serious problems in livestock production especially in winter.
During the hostilities, livestock losses, according to the Kyiv Institute of Economics, amounted to $136 million. In addition, the Ministry of Agrarian Industry estimates that 40,000 sheep, 92,000 cattle, 258,000 pigs, and 5.7 million poultry have been killed during the war.
Finally, a huge problem for Ukraine in the future is the return of the able-bodied population and young people after the end of the war, who left the country in search of safety. Between 30% and 40% of those who went abroad do not plan to return once the war ends, according to some estimates.
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