March 5 2014, 13:04 Source: APK-Inform Views: 4857

Ukrainian Agribusiness: only for bold ones - Svitlana Synkovska*

If you're fed up with boring, predictable life, if you are tired of that Groundhog-Day-movie effect - it’s time for you to invest in Ukrainian agribusiness. It will change your life - you will stay focused and exited as never before, you'll wake up every morning with bright feeling of unknown surprises ahead.

With increasing volumes of grain and oilseeds production, Ukraine is one of the fastest growing suppliers on the global market. Cumulatively for last 2 seasons Russia and Ukraine = 15% of the global wheat exports, 16% of global maize exports and 25% of the global barley exports.





-          #8 in the global list of key agriproducing countries by size of arable land (28 mln ha are cultivated) or 54% of the country total area.

-          1st place – the global exports of sunflower oil, the 4th place - maize exports, the 8th place – wheat exports, the 3rd place - rapeseed exports.

-          For last 13 years the domestic production of grains increased by 50%, but the exports increased in 3 times!

-          Good logistics currently is 35 large grain terminals in 15 ports. Also, the country has one of the highest railroad density in the world.

-          The Moratorium on sale of agricultural land acts until 2016. Land-lease costs relatively low – it’s 1.5-2 times lower than in South America but higher than in Russia.

-          Pay-off period of investments in farming is about 3-5 years, meat - 5-7 years, milling business – 7 years.

-          Low government support of the industry. But simple tax system for agribusiness (one fixed tax).


The statistics gives average data, but the industry has powerful drivers – big local players – atlases who are shrugging. Same trend we have in Russia. And the presence of huge game-makers, who catalyze the whole industry, is the main feature of the current Black sea agriculture. Who are they in Ukraine? Some strange for spelling but already enough famous names like MHP, UkrLandFarming, Mriya, Ukrainian Agrarian Investments, and so-global sounding Kernel and Creative.

What they did for last 10 years?

-          Consolidation of farming - now top-20 players control 13% of farmlands of the country (more than 4mln ha).

-          Increasing effectiveness of farming: better technology, upgrade of machinery fleet, resulted in increasing crop yields and quality improvement.

-          They are also the big investors. They invest not only in machinery and seeds, but also mostly in building-up integrated companies with whole value-chain, in order to minimize possible risks.

Their main features

-          They have scale-economy and margin-driver strategies.

-          Vertically integrated with impact on storage and logistics.

-          They attract investments (average for 3 years 800 mln USD).

-          Diversified structure with strong assets control across all supply chain.

-          Big players – big games. For last 3 years on Ukrainian agribusiness there was about 15 big M&A deals for total sum up to 1 bln USD.

IPO? Yes, for sure

Ukrainian agribusiness started going public in 2005. For last 8 years 18 agrarian holdings made decision to place their shares on foreign stock exchanges, attracting foreign capital. As of today, there are 15 companies that are still being traded on foreign stock exchanges. Becoming public was much more challenging for Ukrainian companies that they could imagine because of transparency.

Huge but vulnerable

In spite of rapid development and huge assets, those big local agriholdings are quite vulnerable due to:

-fluctuation of profitability as developing markets are not stable

- soils quality is decreasing, and many of agroholdings are having big share of non-used lands

- land bank size: advantage or trouble? There are many opinions that those companies too big to be manageable. Experts suppose that the ideal size of land bank is 20 000-50 000 ha (depending upon region and business structure).

Profitability of Ukrainian agribusiness by industries

  • Grain exports

Before crop-2013 the situation was more optimistic but the current season decreased profitability of the exports, but we still have records due to good demand on the global market. If we talk about investments, currently developing of the infrastructure may be quite attractive for investors (port facilities, storage facilities and development of river transportation of grains).

  • Crushing and vegoils trade

In spite of the fact that for last 3 years the profitability of oilseeds crushing in Ukraine decreased by 7%, it is still the growing segment. The main reason of this decrease is uncontrolled expansion of crushing capacities and deficit of sunflower seeds. So, building of multi-raw plants will be interesting for the investment (crushing of different kind of oilseeds).

  • Poultry

This thriving market in monopolized by huge and extremely successful both domestic and global market player. But for 5 years the profitability of the company decreased from 45% to 35%.

  • Sugar

Risky and unpredictable market, depending directly upon sugar beet crop and global market trends, but also upon gas prices. Several big players already left the market including Kernel, but Astarta is going to benefit the process and exceed its part of the market higher from current 20%.

  • Egg – the highest profitability

Market profitability is the most stable and keeps at the level of 40-50% depending upon company. The domestic market has no potential to grow (average annual consumption in Ukraine is high – 305 eggs per capita) – so the export trading is the main driver of the industry.

2013 results: Main events for agribusiness:

-          Record crop and exports, drop of domestic and global prices. The record crop decreased farming profitability in more than 2 times! Local public companies were trying to decrease the impact of low prices by new M&As, entering the Russian market, crushers were investing in multi-raw plants, etc.

-          Political issues: the EU agreement was not signed, but cooperation with China in agriculture tightened (Ukrainian agriculture exports to the EU is about 1/3 of all agri exports).

-          In 2013 there were some changes in Ukrainian business climate reflected though share performance of Ukrainian public agro holdings. Despite these difficulties, one company (Cereal Planet) managed to complete IPO on Warsaw Stock Exchange New Connect platform. The financial performance of Ukrainian agrarian companies remained positive however, the growth rates were slower.


Investors still were interested in Ukrainian agribusiness, but the type of investors faced changes. Till 2011 the shares of Ukrainian companies were bought as a long-term investment, but now it is the tool for fast earning on Ukrainian market high volatility.

In 2013 the Ukraine-Asia agricooperation was one of the market headlines. In the beginning of 2013 Ukraine signed the government agreement with China. As for private companies it was not that big success – no results with attempts to enter Hong Kong commodities exchange (at least 2 big players were trying to do it).

2014 prospects

According to the EBRD, Ukrainian agriculture needs 50 bln USD of investments, it’s about 5 bln USD per year for next 10 years. It will help the country to produce 80 mln tones of grains per year. But if we consider the main risks it sound not that easy:

-          Lots of law project about big agriholdings activity (limits of lands by 100 000 ha, creation of Zembank (monopoly state land bank with the ambitions to get 10 mln ha).

-          Main news of 2014 is the bankruptcy of #10 in the list of Ukrainian land-owners – Sintal.

-          Also Cargill takes 5% of ULF.

-          Seabord Food (2nd meat producer in the USA) and Kernel announced mutual project – the biggest meat plant with total investments of 700 mln USD.

-          Political and war risks dramatically increased. It’s frightening for most current players and investors, but we are surprised to see some new deals on the Ukrainian market. We are having now “Black Swan effect” during “era of turbulence”, it’s the trying time for business, but challenging. It’s the time when only the bold one left to change the markets dramatically….


*Article version of the presentation during the conference Global AgInvesting Middle East 2014 (Feb. 24-26, Abu Dhabi)


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