- Private Sector led the Renaissance of Ukraine’s Agribusiness Sector
Private Sector led the Renaissance of Ukraine’s Agribusiness Sector
Rebuilding will require a concerted effort and international solidarity
The war in Ukraine appears far from over. Nevertheless, planning and preparing the rebuilding of the country cannot begin too soon. Repeatedly, the country has shown enormous resilience and when thinking about the future, lessons can be learned from the distant and the recent past.
Twenty years ago, Ukraine was barely self-sufficient in grain production and it was importing most of the meat it was consuming. Lately, it became again the “bread basket” that it used to be and was one of the largest global exporters of grain as well as the most efficient producer of chicken meat in the world.
This impressive development became possible thanks to a dynamic private agribusiness sector. Private entrepreneurs developed mainly a vertically integrated food production and invested to restore farms, agro-industries and infrastructure.
They did not receive any government support for their investments. On the contrary: According to the Organisation for Economic Co-operation and Development (OECD), Ukraine’s agriculture sector is one of the least subsidized in the world. In fact, it had a negative net subsidy, meaning that agriculture is subsidizing the economy and generating a significant part of the country’s tax and foreign exchange revenue.
In order to access financing, these entrepreneurs made significant efforts to implement best international standards in terms of technology, environment, social, and governance (ESG) standards, and, most importantly, transparency and integrity.
To do so, they worked closely with development financial institutions such as the European Bank for Reconstruction and Development (EBRD), which over the years became the biggest provider of finance to the private sector in Ukraine.
For example, a company like Nibulon, one of the largest family-owned exporters of grain in the country, invested more than US$2 billion to improve its export logistics infrastructure by reviving river transportation and building its own network of river silos and grain terminals. Nibulon even developed its own shipyard to build barges, tugboats and a huge floating crane able to load vessels directly from the barges without going through any sea terminal. Most of its financing came from private sector development financing institutions.
Other companies accessed international financing through public listings on stock exchanges. For example, Astarta, one of the largest vertically integrated farms in Ukraine producing sugar, milk, soybean oil and meals as well as grain, raised funding on the Warsaw Stock Exchange. The company invested heavily in energy efficiency, new technology and digitalization. It also worked closely with development financing institutions. Astarta soon became a global reference in terms of modern and efficient sustainable farming.
The development financial institutions, owned by governments, also worked together to promote better communication and coordination between private enterprises and local policymakers in Ukraine. This was a lesson successfully learned. The Ukrainian Grain Association was created with the support of the EBRD and the UN Food and Agricultural Organization (FAO), and a number of working groups were established to work on specific regulations aimed at facilitating production and trade.
The impressive success story is now in acute danger. Millions of tonnes of grain are stuck in warehouses as they cannot be exported via the Black Sea. Prices for soft commodities have reached historical peaks, exceeding the food security crises in 2008 and 2010.
More importantly, farms in Ukraine today cannot access working capital and inputs to prepare for the next season’s spring planting. Before the current crisis, Ukraine and the Russian Federation accounted for 30 percent of global wheat exports, 20 percent of corn and 80 percent of sunflower oil. The impact of the war is now being felt around the world (see story on page 20). We learned from history that severe economic shocks – and especially food insecurity – tend to destabilize seemingly rock-solid political systems.
Rebuilding Ukraine will be an almost unprecedented challenge. It will not succeed without the private sector as its driving force. And its success will depend on international support. Given the pivotal role Ukraine plays in feeding the world, helping Ukraine means ultimately helping us all.
Gilles Mettetal is a member of the Supervisory Boards of Astarta and Nibulon as well as Chairman of the Investment Committee of Diligent Capital Partners in Ukraine
Read more on the issues facing the agriculture sector in the 2022Q1 issue of the OPEC Fund Quarterly.