06/24/2008 Agribusiness eyes potential in Ukraine's fertile fields Agribusiness eyes potential in Ukraine's fertile fields
"Look at the colour, what a beautiful crop," says Richard Spinks, pointing to wheat and rapeseed fields that his company sowed this season in western Ukraine.
"If all of Ukraine's farms could produce the yields we are getting, this country could play a big role in feeding the world and establish itself as a geopolitical power," says the British chief executive of London-listed Landkom.
Once considered the bread basket of Europe, Ukraine's farms are still recovering from the economic collapse that followed the break-up of the Soviet Union. In spite of a favourable climate and some of the planet's most fertile soils, grain production halved after the Stalin-era collective farm system was broken up and wheat fields were turned over to pasture.
Landkom's business model is simple: lease inefficiently farmed land and apply western fertilisers and irrigation. With Ukraine's grain yield about 35 per cent of western Europe's, there is plenty of scope to improve returns.
Landkom, which last year raised just over $100m on Aim, London's junior market, has leased more than 100,000 hectares.
It is one of a growing number of agribusinesses that see profit in Ukraine. Leading grain and oilseed trading companies, such as Cargill and Toepfer, tiptoed into the market in the 1990s and today play a big role exporting grain. With food prices soaring, their timing looks perfect.
"Ukraine is not part of the problem; it's a part of the solution for food supplies," Jean Lemierre, the outgoing head of the European Bank for Reconstruction and Dev-elopment, said in Kiev last month.
Yuriy Melnyk, agriculture minister, says that with investment and the right technology, Ukraine could "double or even triple" production to one-seventh of world output.
Less than $3bn has been invested in Ukrainian agriculture since 1991, according to government data. Domestic producers are just starting to raise funds on international stock markets. Renaissance Capital, an investment bank, says $628m in new equity has been raised since August 2006.
Yuriy Kosyuk, chief executive of MHP, a poultry and agriculture group, says $27bn (€17bn, £14bn) could be invested over the next 15 years.
Whether that happens depends on the pace of reform in parliament. It is illegal to sell agricultural land, most of which is owned by millions of cash-strapped rural farmers.
An increasingly vociferous reform lobby is pushing hard to lift restrictions next year. Andriy Yarmak, a farming expert, says: "Companies are competing fiercely for this land today and we see more and more players."
But politicians say poor smallholders must be protected from exploitation at the hands of unscrupulous businesses that would buy the land at a fraction of its real value.
Mr Yarmak says the real boom will come when legislators sanction agricultural land sales - that with ownership rights, investment and productivity will surge.
Protectionism has also been a concern. Kiev has limited grain exports in recent years to keep bread prices down. As a result, farmers turned to exportable crops such as rapeseed, used in biofuel production. But with Ukraine joining the World Trade Organisation this year, restrictions are to be lifted.
One of the things that attracts foreign investors to Ukraine is the ease with which the harvest can be exported to the European Union via rail or sea.
Investors have been leasing land in the hope that they will be at the front of the queue to buy it or sell on the leases at a profit. Renaissance Capital, which has leased 300,000 hectares of land with the intention of reselling the leases, forecasts that they will double again this year.
Meanwhile, favourable weather and rising investment should deliver 40m tonnes of grain this season, up from last year's drought-affected harvest of 29m tonnes. About 14m tonnes of grain are earmarked for export, up from a meagre 2.4m tonnes last year.
By Roman Olearchyk in Kiev and Stefan Wagstyl
Published: June 19 2008 03:00 | Last updated: June 19 2008 03:00
The Financial Times Limited 2008
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Agrilandsales comments
Fast increasing investment in agriculture will produce quickening momentum in land lease, and later, land sale prices. Of course, much depends on the vagaries of Ukraine's oftenr squabbling politicians, but fact is most of those politicians have vested business interest and there's a good chance of land sales prestricitons being lifted sooner rather than later.
So many factors are favouring Ukraine's long neglected farmland, that it's obvious to even the most self serving politican that they are sitting on Europe's biggesst natural resource asset. It's shaping up for a classic boom
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