Ukraine Efficiency Blossoms in Face of Poor Crops

June 25, 2002

Although 2002-03 grain yields likely will decline significantly from last year, due chiefly to less favorable weather, the agricultural sector in Ukraine shows signs of increasing efficiency. The next few years will be a period of adjustment, as questions regarding farm credit are resolved and smaller private farms are folded into larger, more efficient enterprises, according to USDA. Analysts from the USDA Foreign Agricultural Service traveled in Ukraine during late May and early June to meet with agricultural officials, farm managers, and independent commodity analysts to assess 2002-03 grain production prospects and monitor the condition of Ukraine's former state and collective farms.

This will be the second full cropping season since the restructuring of Ukraine's agricultural sector in April 2000. State and collective farms were dismantled and farm property was divided among the farm workers in the form of land shares. Most new shareholders leased their land back to newly-formed private agricultural associations, under the leadership of a director who was frequently, but not always, the manager of the former State farm.

Consolidation of small farms into larger and more viable enterprises has been the prevailing trend, similar to what took place in Russia several years earlier. The conversion to a more market-oriented environment is progressing relatively well, according to most observers. Many farms are succeeding, under shrewd leadership, in spite of low grain prices and constraints on the availability of credit.

The transition of Ukraine's agricultural sector from a command economy to a more market-oriented system has introduced the element of fiscal responsibility, and decisions on crop selection, fertilizer application, harvest method, grain storage, and all other aspects of farm management are made with an eye toward boosting farm profit. Some farm managers are striving to make their enterprises as efficient as possible. Ukraine agriculture is going through a winnowing process whereby unprofitable, usually smaller farms will either collapse or join more successful farms.

Most farms are able to receive credit from banks, but two main problems were cited by farm directors: high interest rates and banks' unwillingness to make long-term loans. Because of this, most loans to farms are seasonal loans (six to ten months) used almost exclusively for the purchase of fertilizer and plant protection chemicals. Commercial interest rates currently run around 30%.

A chronic lack of modern harvesting equipment remains one of Ukraine's main obstacles to increasing grain output and quality. Farm managers estimate harvest losses due to inefficient machinery at 10 to 20 percent of the standing crop, and the inevitable harvest delays, when combined with unfavorable weather, can contribute to a reduction in grain quality.

Custom combining services are available but expensive, with operators charging 20% of the crop for the harvest of food-quality wheat, and 25% for feed wheat. The director of a grain and livestock operation in Kharkiv oblast explained that, after weighing the benefits and disadvantages of custom combining, he decided to fix his outdated combines as best he could and harvest the crop himself. Harvest losses would amount to less than the service charge, he reasoned, and the harvest campaign would provide work for the farm employees.