More than 80 billion in losses: how the war has changed the Ukrainian agricultural sector
Vitaliy Koval, Minister of Agrarian Policy and Food
On the day after the third anniversary of the full-scale invasion, the Government of Ukraine, the World Bank, the European Commission and the United Nations presented the fourth assessment of the damage and recovery needs after the full-scale invasion. According to this assessment, the total losses of the agricultural sector are estimated at over $80 billion, of which direct losses in the agricultural sector amounted to $11.2 billion, and the needs for reconstruction and recovery of the sector amount to $55.5 billion. What does this mean for the Ukrainian agricultural sector, and how does it compare to the previous estimate presented a year ago?
Basic definitions
In general, the report identifies two categories of losses in the agricultural sector: direct losses and sectoral losses.
Direct losses are the destruction of assets and the destruction of products. Indirect losses are the lost income of agricultural producers. The report also identifies two categories of recovery needs - reconstruction needs (the cost of replacing damaged and destroyed assets) and rehabilitation needs - the funds needed to bring the sector back to pre-incursion levels, taking into account the principle of "Build back better" (the need to rebuild better, with higher quality than before and with greater resilience to risks).
Direct losses amounted to USD 11.2 billion.
In total, direct losses amounted to USD 11.2 billion. Among the categories of direct losses, the largest share is occupied by destroyed and damaged agricultural machinery and equipment - $6.5 billion, or 58% of all direct losses, grain storage facilities ($1.9 billion, 17% of all direct losses) and manufactured products stored in warehouses at the time of the invasion and destroyed or stolen by the occupiers ($1.9 billion, 17% of all direct losses).
Compared to last year's assessment, direct losses increased by $1 billion. This figure is impressive in scale, but in percentage terms, direct losses rose by only 9.2%. This is mainly due to the fact that a large share of assets located in the occupied territories and in the war zone had already been destroyed at the time of the previous assessment.
However, the true direct losses of the agricultural sector are likely to be higher than this estimate, as they do not take into account direct losses as a result of terrorist attacks on port agricultural infrastructure and products lost during such attacks, as well as, as the authors of the study note, destroyed agricultural premises (except for grain storage facilities).
Based on the direct losses, the reconstruction needs (based on the principle of "rebuilding better than before") were calculated to be $10.5 billion. This figure is lower than the direct losses, as it does not take into account the need to restore destroyed and stolen products.
To understand the scale of the reconstruction needs, the amount of capital investment in the agricultural sector in 2021 was about $1.8 billion. Therefore, replacing damaged assets will require doubling the level of investment in the sector over six years just to return to the number of assets that existed before the full-scale invasion.
Indirect losses amounted to USD 72.7 billion.
The second part is indirect losses, which reflects the lost income of agricultural producers. Indirect losses amount to USD 72.7 billion and include several categories. The largest category is losses due to reduced production: for example, as a result of the decline in production of annual crops, farmers lost $37.4 billion, losses due to the decline in production of perennial crops amounted to $1.4 billion, and for livestock products - $3.5 billion
The second largest category losses due to export disruptions that led to lower prices for producers - $24.8 billion. The remaining indirect losses are losses due to increased production costs ($4.5 billion), reclamation ($0.5 billion), the need to dismantle destroyed grain storage facilities ($0.3 billion), and losses in fishing and aquaculture ($0.2 billion).
Compared to the previous assessment, indirect losses increased by only 4% (or USD 3 billion). However, this does not mean that Ukrainian farmers are not losing income due to Russia's aggression. The main reason why the growth of indirect losses has decreased is due to a change in the methodology for certain categories of calculation and clarification of information. This is mainly the case for losses due to reduced livestock production. While last year's estimate of losses in this category amounted to USD 5.6 billion, this year's estimate is only USD 3.5 billion due to the revision of livestock production data. Similarly, due to the clarification of data, the estimate of losses due to the reduction in the production of annual crops in 2023 was revised from $12.2 billion to $10.1 billion. This figure for 2024 was also revised from $11.4 billion to $8.3 billion due to a change in methodology.
If we don't take into account these revisions due to methodological refinements and the availability of more reliable data, the total indirect losses due to the ongoing aggression actually increased by about $10.2 billion, rather than $3 billion.
Reconstruction and rehabilitation needs amount to USD 55.5 billion.
As we have already noted, the needs are divided into reconstruction needs ($10.5 billion) and restoration needs of the agricultural sector ($45 billion) and are calculated for the next 10 years. At the same time, the reconstruction needs, due to the increase in the value of destroyed assets, have increased by about $1 billion compared to last year's estimate, while the restoration needs have decreased by $2 billion.
In general, the recovery needs are divided into immediate support for the agricultural sector, support for the long-term sustainable development of the sector, and support for institutions in the agricultural and related sectors.
Immediate support amounts to USD 6.1 billion and is distributed as follows. The largest category is the reduction in the cost of loans ($3.2 billion), followed by support for small farmers ($1.1 billion), the need for reclamation of damaged land ($1.1 billion), partial loan guarantees for farmers ($600 million), and grain sleeves and other inputs ($32 million). The amount of immediate support in the current estimate is the same as last year.
As for the support for the long-term sustainable development of the sector, the total amount of these needs is $35.8 billion) and is in line with last year's assessment. The largest categories are agricultural technology development ($15 billion), investment grants ($10 billion), supply chain development ($10 billion), other support ($501 million), and the need to dismantle destroyed grain storage facilities ($289 million).
The last category of recovery needs is support for public institutions for sustainable development of the agricultural sector, and the total amount of needs in this category is $3 billion. This is the only category of recovery needs that has changed significantly compared to last year's figure (which was $5 billion). This indicates that the institutions in Ukraine's agricultural sector are functioning much better than our international partners had previously expected and do not require as much support as previously thought.
These estimates are not comprehensive
Most importantly, the figure of total losses of more than 80 billion, although an estimate of losses in the agricultural sector, does not reflect the true impact of Russian aggression on Ukraine's agriculture due to the peculiarities of the methodological approach. This figure does not take into account the losses of irrigation infrastructure and water resources (an additional $746 million in direct losses and $872 million in indirect losses), demining (the total cost of demining, which includes not only agricultural land, is $30 billion), and losses of agricultural processing enterprises (not separately calculated). Thus, a realistic assessment of the impact of aggression on the agro-industrial complex is significantly higher than the one stated in the report.
But despite the destruction, loss of assets and income, agriculture continues to function, ensuring domestic and global food security.