What are the new political, economic and logistics routes for Ukrainian grain in the world? Insights from the main grain conference Grain Ukraine

For the third year in a row, business, infrastructure and the economy have been operating in a full-scale war. Ukrainian agricultural producers are facing new challenges every day: complicated logistics, blockade of the sea and western borders, mined fields, mobilization and lack of labor, security, difficult energy situation, or significant reduction of investments in the agricultural sector. What are the prospects for the development of the grain industry today, according to Ukrainian and foreign experts? We have gathered the key insights from the IX International Grain Ukraine Conference held in Kyiv on May 30-31, 2024.

“Ukraine remains a strategic supplier of food to the world,” Marianne Ward, Country Director of World Food Program Ukraine, began her speech with these words. She presented the Grain from Ukraine initiative at the event and assessed its impact on global food security. “For decades, Ukraine has been one of the key suppliers of grains and oilseeds to the World Food Program (WFP). And even during the full-scale invasion in 2023, Ukraine was the first of the top 10 countries supplying food to the WFP. Thanks to the Grain from Ukraine program initiated by the President of Ukraine, more than 160 thousand tons of Ukrainian grain were exported to African countries, which guaranteed food security for 8 million people,” the expert said.

However, Ukrainian grain and food exports face many obstacles, including the EU restrictions, bureaucratic and regulatory difficulties. During the panel discussion “Prospects for European Integration of the Ukrainian Agricultural Sector” at Grain Ukraine, speakers discussed how to build a constructive agenda for the integration of the Ukrainian agricultural sector with the EU and reduce the influence of political factors on the economic interests of the EU countries.

“Speaking about the readiness of the Ukrainian agro-industrial complex to join the EU, although most of the regulations governing the quality of agricultural products have been implemented as part of the Association Agreement, the legislation governing agricultural production within the domestic market has not yet been implemented. We have to pay attention to our homework, in particular, regarding the regulation of competitive relations in the domestic market and the protection of the rights of small producers so that their interests are not infringed. We also need to work on the development of PLIS, IACS and FADN systems, which are three important pillars of the EU’s common agricultural policy,” said Olga Trofimtseva, an expert in the agricultural sector, former Minister-at-Large at the Ministry of Foreign Affairs of Ukraine.

Taras Kachka, Deputy Minister of Economy and Trade Representative of Ukraine, is convinced that European farmers need to realize that Ukraine is already part of the EU market and cannot survive without the agricultural model that exists in Ukraine and that Ukraine, in turn, needs to ensure that there is no resistance to the introduction of EU rules.

“One of the key tasks for Ukraine is to win people’s minds and hearts,” said Helen Fairlamb, agro-finance consultant, “You need to invite European farmers to Ukraine and tell them what you would like to achieve.”

Martin Teplý, Managing Director of HaBeMa Futtermittel GmbH & Co. KG, outlined another tool for European integration of the Ukrainian agricultural sector. He believes that Ukraine has a powerful agriculture and high-quality food products that need effective marketing to be promoted among European consumers.

In addition to external challenges, Ukrainian agricultural producers have to overcome difficulties caused by Russia’s full-scale invasion of Ukraine. One of the most significant local challenges facing the Ukrainian agricultural sector is the imbalance in regional development. Moderating this panel discussion, Bogdan Kostetskyi, Operational Partner of Barva Invest trading and analytical company, said that farmers in the frontline areas have to work despite damaged land and infrastructure — in particular, by the end of 2023, 36% of pre-war grain areas were affected, one in four farmers reduced production, and 1/3 of companies left the market.

Petr Krogman, Owner of Agromino and President of Czech-Ukrainian Chamber of Commerce, noted that the conditions for farmers in the war are too different depending on the region and emphasized that regions suffering from the fighting need more solidarity and understanding from those in safer areas. “Currently, agricultural producers in the frontline regions are losing $250 per hectare. We need to actively support people in these areas, as it is an investment in their loyalty to Ukraine.”

Petr noted that in order to help frontline farmers, the state should compensate them for their operational costs, including very expensive logistics or losses due to the active hostilities. This should include compensation for both the destruction of fields and strategic decisions of the Armed Forces that do not allow certain fields to be used, such as Agromino’s failure to sow 20% of the fields already prepared for soybeans. Petr added that there is a lot of free land in the frontline areas and it can be used as a resource for compensation instead of money — it would be a good investment in economic life in these regions.

To compensate for the impact of the war on the regions most affected by enemy attacks, the government is initiating programs to support farmers. Taras Vysotskyi, First Deputy Minister of Agrarian Policy and Food of Ukraine, spoke, in particular, about the introduction by the Cabinet of Ministers of a zero quota on sugar exports to the EU on June 1. According to Artem Chornomorov,  MP, member of the Committee on Agrarian and Land Policy, Chairman of the Subcommittee on Economic and Financial Development in the Agricultural Sector of the Verkhovna Rada of Ukraine, a tax break is planned for the areas contaminated by explosives, as well as other programs to support agriculture in the temporarily occupied territories.

Experts discussed how military risks affect maritime logistics during a panel moderated by Mykola Gorbachov, President of the Ukrainian Grain Association (UGA). In his introduction to the discussion, he emphasized that in times of war, the logistics component has become even more important in the Ukrainian agricultural sector. “Ukraine remains one of the largest grain exporters in the world. Ukraine accounts for more than 10% of international trade, so if we do not supply this grain, we will see food inflation in the world,” the expert believes.

At the same time, the logistical difficulties caused by the war, according to Yuriy Vaskov, former Deputy Minister of Development of Communities, Territories and Infrastructure of Ukraine,  also had positive consequences, as they led to the diversification of routes, taking into account all the challenges experienced, including the complete blockade of the sea and the shutdown of the western borders. Similarly, the situation has affected the development of the Chornomorsk seaport, which is currently one of the best ports in Ukraine in terms of transshipment volume, which accounts for 44% of production. This also affected the development of the Ukrainian Danube Shipping Company.

Experts from another logistics panel, dedicated to land, also spoke about diversification as a way to overcome logistical challenges and create an alternative to the sea on Ukraine’s Western border. “In order to increase the transfer of goods, we are lobbying for the creation of a common border so that control is carried out in one place, for example, customs officers from the Polish and Ukrainian sides jointly inspect wagons,” Valeriy Tkachov, Deputy Director of the Commercial Department at Ukrzaliznytsia, told the conference participants, as he believes that one of the main reasons that hinders the transfer of goods on the Western border is coordination with controlling authorities.

“Despite the challenging times, Ukraine still has good export performance in 2023, including a 13% share of corn supplies in the world, and 8% of wheat and barley. India became the opening market of the season, where Ukrainian wheat was exported for the first time,” — Svitlana Malysh, Agricultural Price Indicators Manager, Senior Black Sea Agricultural Market Analyst at Refinitiv, moderator of the trade panel, started the discussion.

Dmytro Furda, Senior Trader at Tiryaki Group, also emphasized the good performance in exports. Thus, according to the results of 2023, the export of Ukrainian products to Turkey amounted to 19%, including 51% of corn. The expert also emphasized that a large number of new suppliers have appeared in Ukraine, and this is a good signal for the market. He believes that we need to think about the identity of Ukrainian products in foreign markets. “Producers and exporters should pay attention to quality control, as this is the way to increase profitability. Corn is an example: in Ukraine, it is not GMO, so it needs to be positioned, otherwise the Ukrainian producer will be lost among suppliers from South America that produce more sustainable and cheaper GMO corn.”

Jonathan Grange, Partner at Sunstone Brokers, noted Ukraine’s ability to adapt to challenges along the entire supply chain since the beginning of the russian invasion. He noted that there used to be prejudices about the quality of Ukrainian products in the world, but now, after the opening of new markets, they are gradually disappearing.

Forward contracts are returning to the market, which means that, according to the panelists, the year will be very competitive.

Grain Ukraine speakers did not ignore the problem of attracting investment in the Ukrainian agricultural sector during the war. Today, agricultural companies mostly finance their own development on their own, and this has its advantages, as it demonstrates the sustainability of the business and its independence from the investment market. “At the moment, there are no problems with money, but there are problems with desire. Businesses are in an investment depression because they are concerned about booking, logistics, mechanisms of cooperation with international partners, etc. But this fear must be overcome by daily planning of its own development,” said Sergiy Tsivkach, Managing Partner in Ukraine of the American investment company Chicago Atlantic.

Other panelists emphasized that infrastructure investments are being made cautiously, with Western Ukraine being a priority for investors, and that investors are most interested in processing and value-added products.

Anna Lebedynets, Associate Director, Senior Banker, Agribusiness Department, EBRD, spoke about financing opportunities. She announced the launch of a grant investment program for farmers on July 1, which will be backed by EU guarantees, so banks will be able to take on more risks. Oleksandr Prykhodko, USAID AGRO Agricultural Market Development Manager, also spoke about programs to support agricultural producers in building grain and oilseed storage and processing capacities, as well as in developing processing facilities, announcing the launch of the new Harvest program.

During a panel discussion on the prospects for grain consumption by Ukrainian food companies, experts spoke about domestic and foreign consumers. “The model that existed since the 2000s before the full-scale invasion no longer works because it is focused on crop production and exports. We need livestock farming that could not increase grain consumption, but change the use of land and crop rotation,” said Arsen Didur, Executive Director of Dairy Union of Ukraine.

The panel on the land market during the war began with a presentation of the Land Bank by Vitaliy Koval, Chairman of the State Property Fund of Ukraine: “We have created a transparent market for the lease of state agricultural land — the Land Bank — to transform the agricultural sector into a transparent, competitive, open field through sublease auctions.” The speaker added that such a decision will help to fill the state budget with up to UAH 8 billion annually and bring more than 800 thousand hectares of land out of the shadows, which had no systematic approach to resource management and generated corruption.

Regarding land prices, Mykhailo Rizak, Director of Government Relations at NIBULON, said that they are about the same as before the full-scale war, and depending on the region (frontline or central regions), they range from $1,000-1,200 and $2,000-2,300 per hectare, respectively.

Andriy Usenko, Co-founder and CEO of Tvoe Kolo, emphasized that he sees obvious advantages in opening the land market to legal entities and that they already account for more than 20% of the market. “In the four months since the land market was opened, we have seen an interesting trend: the pace of the market and its demand are set not by agroholdings, but by medium-sized farmers with 3-5 thousand hectares of land. They see their main task as forming, retaining and expanding their land banks,” the expert said.

The event is organized by IdeasFirst. The partners of the annual conference are TIS Group of Terminals and SD Capital investment company. The content partner of the conference is Trend & Hedge Club. General sponsors of the conference are Ukrgasbank and Container Terminal Mostyska. The official partner of the event is OTP Bank.

Grain Ukraine conference is an international industry platform for dialogue between the largest representatives of the agricultural market, heads of agri-food companies, commercial and investment banks, as well as technological trendsetters in the agricultural sector, which has existed since 2016. It discusses trends in the agricultural market, as well as the development of sustainable business models and the introduction of technological agricultural innovations.