Authors: Lorina Fedorova, Christoph Kubitza, and Danya-Zee Pedra
The Russian attack on Ukraine has upended the lives of millions of Ukrainians and is causing one of the most severe humanitarian crises in Europe in decades. Aside from the humanitarian threat, economic concerns have begun to surface as people start to ask how Ukraine will recover from the enormous damages caused by the war. In the agricultural sector, one immediate effect is that large-scale investment deals have suddenly become a lot riskier. As the Land Matrix Regional Focal Point for Eastern Europe, Ecoaction has been documenting these changes and found that no new deals have been concluded in the country since 24 February 2022. This is likely because it is too dangerous in terms of the current financial climate to make new investments, points out Ecoaction’s land use expert Lorina Fedorova.
However, even though new investments have ceased, large-scale agricultural farms are still operating. “It seems that most of the existing deals have stayed concluded and production is ongoing, despite the war,” says Fedorova. “The only apparent exception here are deals in occupied territory or areas really close to the war action. Many of these deals remained concluded in legal terms (that is, the company did not fail land contracts), but the operations stopped.” In addition, some international banks are supporting agricultural holdings, and many of the diversified large-scale companies that are active in the sector are relatively resilient. The European Bank for Reconstruction and Development (EBRD), for example, loaned €24 million to Ukraine's largest poultry producer, MHP Agro and Industrial Holding, ‘to enable sufficient financing for successful crop farming season’. In fact, these bigger agricultural companies, which are stock-exchange listed, show stock growth despite the war. “In late March, when things became more clear, they restored their pre-war indicators. As such, with Ukrainian agricultural companies showing resilience and restoring operations fairly quickly, it now looks as though investors feel ready to invest in the country again,” Fedorova explains. “The only strong restraint remains, of course, that grain blockades make export more difficult, although it is too early to fully assess the damage.”
Nevertheless, while the blockade of seaports makes export challenging, it also presents an opportunity for the Ukrainian government to rethink its agricultural production model. Now may well be the time to switch to value-added products, both for international and national investors, rather than just focusing on export of raw agricultural materials without any specific processing – which leaves the economy vulnerable to external factors and restrains economic development in Ukraine’s rural areas. In addition, despite their importance for the current war economy, smaller farms are now often severed from financial support, unlike large-scale companies, which only aggravates an already unhealthy imbalance in Ukraine’s farming sector.
It is crucial to recognise that small and medium farmers are the backbone of agricultural production in the country and require the same level of support from international banks. Indeed, long-term sustainability beyond the war depends on it.