20:32 19.10.2023

Ukrainian Agrarian Council, Ukrainian Agribusiness Club, Ukrainian Agrarian Forum ask govt to foresee funding for 5-7-9% program in 2024 budget, raise limits on its lending

5 min read
Ukrainian Agrarian Council, Ukrainian Agribusiness Club, Ukrainian Agrarian Forum ask govt to foresee funding for 5-7-9% program in 2024 budget, raise limits on its lending

The calculation of the profitability of the main agricultural crops in the 2023 season, carried out by the Ukrainian Agrarian Council in October of this year, demonstrates the unprofitability of corn, wheat, sunflower, barley and rapeseed, which could bankrupt the majority of medium-sized farms in the industry, said Deputy Chairman of the Ukrainian Agrarian Council Dmytro Kokhan at a press conference at the Interfax-Ukraine agency on Thursday.

According to him, the council-modeled forecast of the financial situation and financial results of the agricultural sector, in particular crop production, using the example of agricultural enterprises in central Ukraine, taking into account the cost of production and purchase prices as of October 2023, provides for two scenarios.

Optimistic: the cost of growing corn is $149/tonne. At the same time, the purchase price for it is now $94/tonne. Accordingly, the farmer will suffer losses of $55/tonne. With corn production projected at 28 million tonnes in 2023, losses will reach $1.54 billion.

A similar situation is with the cultivation of wheat, the cost of production of which is $146/tonne, the selling price is $102/tonne, the loss is $44/tonne. With an expected production volume of 22 million tonnes, losses will reach $968 million.

When growing sunflower, there may be losses of $36/tonne, which would amount to $500 million in losses nationwide. Barley production causes the average farmer a loss of $66/tonne, which for the entire agricultural sector will amount to $383 million, rapeseed – $5/tonne and $21 million, respectively.

The only profitable crop in the current season is soybeans, from the production of which the farmer receives $48/tonne profit, which on the national scale will allow for $230 profit, which will not cover $3.181 billion in losses in the current season in a pessimistic scenario for the development of events, Kokhan stated.

The optimistic scenario for the development of events in 2023-2024 takes into account some progress and revival of logistics in the Black Sea, according to the council.

“We have some optimism. It is still difficult to assess how much the pace of exports will increase and what the situation will be, however, we have made some forecast taking into account the revival of logistics on the Black Sea, since it (logistics by sea) is significantly cheaper than along the Danube, which is now the main export corridor,” Kokhan said.

According to the council calculations, under the optimistic scenario and a reduction in logistics costs, grain purchase prices will increase by $20-40/tonne. However, even in this situation, farmers will suffer $1.216 billion in losses in the crop production sector alone.

General Director of TAK Group of Companies Ruslan Holub said that his company has structural divisions in central and southern Ukraine, in particular in Kyiv, Odesa and Kherson regions. Some enterprises in 2023, in particular in Kherson region, belong to the “red zone” and were unable to sow grain crops due to problems with mining. At the same time, enterprises bear a full burden to the financial and tax authorities.

According to Holub, at the location in Odesa region, sunflower showed record yields, while wheat and barley showed average yields. This allows us to hope for an optimistic scenario for the development of events in the current season. However, according to him, his colleagues, who are forced to refuse to plant winter crops or reduce the area under them by 20-30%, cannot talk about such a result, he said.

The main problem, according to him, is the cost of resources, in particular fuel, which in February 2022 cost below EUR1/liter, and has now reached EUR1.5-1.6/liter. Fertilizers have become more expensive, in particular, the cost of nitrate exceeds $1,000 per tonne. The cost of spare parts has doubled since the beginning of the war.

The director of the TAK Group of Companies recalled that the basis of Ukrainian agribusiness is not agricultural holdings and micro-enterprises, but enterprises operating on areas of 500-15,000 hectares (market share - 65-70%).

“If the state does not decide to help the agricultural sector, the bankruptcy of many enterprises will become a serious threat and in the short term this will affect the Ukrainian economy,” he stated.

Chairman of the Ukrainian Agrarian Council Andriy Dykun said the agricultural sector throughout the world is subsidized. At the same time, the Ukrainian agricultural sector, which is represented by small, medium and large businesses, not only operates without subsidies, but also pays taxes.

“The only thing that allowed everyone to survive was the Affordable Loans 5-7-9% government program, which is financed by the World Bank and other donors. It has proven itself very well because it is equal and fair for everyone,” he stated.

Dykun, citing council analytics, said that this program is used by almost all representatives of medium-sized businesses.

At the same time, he said that all leading agricultural associations do not agree with raising the interest rate to 13% - it should remain at 5%. In addition, they do not agree with the proposed limit for receiving a loan under this program within UAH 90 million, believing that the limits should be at least UAH 150-200 million in order to begin to gradually develop added value in agriculture.