Ukraine has been a growing player in the international grains market for over a decade now. Once known as the “breadbasket of Russia,” many argue that the country has never truly lived up to its full agricultural potential. That’s largely thanks to lingering Soviet-era policies that have severely limited investment in the sector, despite the country being free of communist rule since the fall of the USSR in 1991. Beginning in July, the country is ridding itself of one of those shackles when it finally opens its farmland market, which could have a significant impact not just on the Ukraine farmers, but the broader global agricultural market.
For decades, land reform was opposed by Ukrainian tycoons and politicians who extended the country’s longstanding moratorium and used the shadow land market to wield power. Under the new law, as of July 1, 2021, the country will finally open its farmland market, allowing Ukrainian citizens to purchase up to 247 acres. In the second stage starting from January 1, 2024, the cap will be raised to 24,710 acres, while legal entities will also be allowed to acquire land plots. It’s estimated that only about three-quarters of the country’s agricultural land is currently cultivated.
Two-thirds of Ukraine’s farmland, or approximately 104 million acres (about the size of California), is made up of “chernozem,” the legendary black soil that is widely regarded as the world’s most fertile. Pockets of this soil occur in a number of countries but Ukraine is home to 30% of the world’s known supply. Since the country’s independence some thirty years ago, the country has failed to fully capitalize on this invaluable resource, however. Instead, it adopted rules that prohibited a public farmland market, joining the likes of South Korea and Venezuela. This has effectively kept a stranglehold on production potential as large farms depend on land leases. That, in turn, hinders financing because the land can’t be used as collateral, leading to a chronic state of underinvestment.
Despite the underfunding, Ukraine farmers have managed to become a real force on the global market. Grains, oilseeds, and pulses production has steadily increased over the last two decades from under 10 million metric tons 20 years ago to a record 98.3 million metric tons in 2019-20, according to the Ukrainian Grain Association. The group forecasts production will reach 113 million metric tons by 2026, largely driven by increased yields. Already in the last 20 years, wheat yields have increased by a third while corn yields have risen by nearly +150%.
Increased production and diminishing domestic demand for feed grains have contributed to a big jump in Ukrainian ag exports over that timeframe. What’s more, the country’s location on the Black Sea makes it an ideal supplier to major European, Asian, Middle Eastern, and African markets. Ukraine is the world’s fourth-largest corn exporter, the top shipper of sunflower oil, and a major supplier of wheat. China accounted for 25% of Ukraine’s grain exports last year. The countries of the Middle East represent a particularly promising focus for Ukrainian agricultural exporters. In fact, Ukraine President Volodymyr Zelenskyy aims to provide food security for the UAE as well as a number of other countries in the region including Saudi Arabia and Qatar. (Sources: Atlantic Council, UNIAN, Bloomberg)