The year of unbreakable strength: How the agro-industrial complex fared over the past 12 months and what it will face in the new agricultural season. Views of market participants

The agro-industrial complex is a high-risk industry, where business results can be affected by many factors beyond the control of entrepreneurs, from weather conditions to changes in the market conditions of third, even the most distant countries. Perhaps it was this stress tolerance, gained over decades, that helped the industry to fight and overcome the consequences of a full-scale invasion and retain Ukrainian agriculture, and with it the entire national economy, at a level comparable to the pre-war level.

Even though there was no agrarian collapse, the industry suffered enormous losses. According to KSE Institute estimates, direct losses in agriculture alone as a result of russia's aggression as of September 15, 2022, amounted to $6.6 billion. Again, according to preliminary data, 2.8 million tons of grain and 1.2 million tonnes of oilseeds were destroyed/stolen as a result of russia's full-scale invasion. Up to 25% of arable land is under occupation, and part of the controlled territories is contaminated with mines. Logistics has undergone dramatic transformations due to the blockade of seaports.  

Mind asked agricultural market participants how they managed to keep their businesses alive amid military aggression, and what long-term changes in the industry were shaped by the full-scale war.

Kateryna Spivakova 
Head of Communications and Government Relations at Kernel Holding

main challenge for Kernel, as one of the key suppliers of grains and oilseeds from Ukraine to global markets, is the virtual cessation of sea export in the first five months of the full-scale invasion.

We had an annual plan to supply our products abroad, and when the sea routes were disrupted, not only we but the whole world felt it.

The situation has improved significantly since the signing of the Grain Agreement. And although the Grain Initiative is currently experiencing difficulties due to sabotage of ship inspections by the russian side, the corridor must continue operating under any circumstances. It is important both to support the economy and bring Ukraine's victory closer, and to ensure global food security.

The tense situation in the country also affected the spring sowing campaign in 2022. We had to promptly adjust our crop rotation. From now on, we are avoiding crops that require significant production resources. In particular, we have drastically reduced the area under corn. Growing more profitable crops is a wartime trend that will continue in the coming years.

There will always be challenges, and the task of the business is to adapt to the changed conditions. After all, in times of turbulence, when stability fades into the background, resilience comes first.

Sergiy Dobrogorsky,
Director of MHP's Agrodepartment

MHP is a vertically integrated business that employs tens of thousands of people and covers all stages of production: from growing grains and oilseeds, producing feed and raising broiler stock to processing, marketing, distribution and selling the final product – ready-to-cook and ready-to-eat food.

Logistics disruptions were the main factor that had the biggest impact on the industry. It led to a decline in export and an increase in grain stocks on the domestic market, which triggered a decline in grain prices.

Other factors included a decline in sown areas and an increase in the cost of inventories, especially fertilisers, which will affect yields. As a result, this combination will impact margins and lead to lower profitability for agricultural producers.

If we talk about production volumes, it means years, as the production cycle actually takes a year, so what is sown in the spring can be changed only in a year.

In 2023, measures to improve business resilience will include looking for opportunities and implementing them in the current situation.

The search for new markets, routes, and products should continue. Improving energy efficiency and developing our own renewable energy sources will contribute to sustainability. We have successful cases of re-equipping grain drying complexes, which allowed us to stop using gas.

Svitlana Sobipan,
Director of Volodymyr-Volynsky Poultry Farm

2022 is a year of testing strength, speed of problem-solving, and courage to some extent because you can never fully predict the next challenge that production may face at any moment. If at the end of February 2022 we had a problem in ensuring all production logistics and critical imports, we are currently operating in a power shortage.

If we talk about agriculture in general, yes, there are downward trends. However, every producer is now quite motivated and responsible for their activities. Previously, it was a purely business issue – if it was profitable, then we would work, and if not, then we would change direction. Now it has become a secondary issue, and the actual need of Ukrainians for these products has come to the fore, which every conscious company is trying to meet. We are really trying our best to maintain a niche that is necessary for the full functioning of the entire population of our country.

As for the impact of the war, it would be wrong to highlight one factor and say that it is the only one that has affected the industry. Ukrainian business is quite adaptive. Now we are talking about such a negative impact on the industry only because it is a combination of different things that have happened at the same time.

Recall that military operations began in almost all provinces of Ukraine, with attacks on cities and the aggressor's offensive. At that time, businesses got paralysed roads, fuel shortages, an outflow of people from cities to villages, the closure of supermarkets and many shops, blocked seaports and currency price increase. All of the above happened in half a day. It was impossible to be prepared for so many problems at once.

Then government decisions came to our rescue – fixing the currency exchange rate on the interbank market, growing domestic demand (Ukrainians were making stocks), and national chains began to gradually resume operations. Then it all depended on the team: whether people were ready to work in the new environment, how quickly the business adapted, and whether it was flexible in its decision-making.

At the moment, the only relevant issue is the increase in lending rates, which also has a negative impact on the agricultural sector.

As for returning to the pre-war level, the first thing we need to understand is that things will not be the same as they have been before 24 February. There have been too many changes over the past year, but we should not say that all of them are negative. The business has become more adaptive, efficient, pragmatic, optimised and sustainable.

As for the recovery of the industry's performance, it will be possible after Ukraine's victory, when even more of our compatriots return home and the destroyed infrastructure is restored.

The values that guide business have changed irrevocably. Whereas previously the first priority was to get the best possible product margin, now business is more about people and meeting their needs. It is necessary to provide the product that is needed and at the same time survive in the face of economic instability.

To increase business resilience in 2023, a set of solutions is needed. One of them is to fix the exchange rate and regulate it at the level of the National Bank. It is important for our import.

There can be no universal recommendations. However, speaking about us, it is to be able to switch between several types of energy (conventional and alternative). At the same time, we have to take into account that alternative energy is not a panacea, because it is much more expensive to produce.

Mykola Solsky
Minister of Agrarian Policy and Food of Ukraine

We all understand that the margin of error of any forecast is much larger than in standard years, and they can be heavily adjusted due to the war. We expect to export about 50 million tonnes of grain, including oil and grist, by July 2023. Of course, this figure can be adjusted both upwards and downwards.

It all depends on the volume of domestic consumption. In Ukraine, it fell by 3-4% in grain compared to previous years due to the outflow of people from the country and certain changes in the diet due to the war (there are more fast foods and those that do not require heat treatment or require minimal heat treatment, as well as more canned foods – Mind). The indicator may also be further affected by the activity and productivity of the grain corridor. However, as a benchmark, the figure I have mentioned is quite acceptable.

In general, the work to extend the corridors is being actively pursued through all channels – from the Ukrainian side, from the allies, Turkey and the UN. Everyone is trying to ensure that this agreement is extended.

In terms of the upcoming harvest, we have seen a drop in winter barley and winter wheat. There was virtually no reduction in winter rapeseed acreage.

This year, we expect the area under corn to shrink. It is an expensive crop to plant that requires a lot of nitrogen fertilisers and more logistics costs, so farmers take these nuances into account when sowing this year.

However, it matters here what we are comparing with what. In this case, we are comparing this year with 2022, meaning we are comparing the areas we have controlled then and now. And now we control more areas than last year thanks to the de-occupation of Kharkiv and Kherson oblasts.

We also envisage an increase in sugar beet plantings this year compared to 2022. After all, sugar is now at a good price: a lot of it has been produced, and it is well exported to Europe because Ukraine has lifted restrictions on access to this market. However, it should be kept in mind that wartime is unpredictable. So this year, farmers will often make decisions at the last minute for reasons that are clear to everyone.

Traditionally, we have had a lot of winter wheat and sunflower in the occupied areas, and a little less corn. However, we do not see a shortage of these crops because we have always exported them with a reserve.

As for early fruits and vegetables, they have always been more expensive. Last year, we had a slightly larger deficit because the situation was unexpected and unpredictable. This year, however, businesses and farmers are ready for it. The regions of Odesa oblast, for example, have sown a little more vegetables, which they are confident they will be able to sell, in particular for export.

Read also: Minister of Agrarian Policy and Food: "The number of ships passing through the Bosphorus does not allow even Odesa to be loaded, let alone Mykolaiv"

Denys Marchuk,
Deputy Head of the Ukrainian Agrarian Council

February, March, and April is the period when we actively increase agricultural exports. However, since the start of the full-scale war, when the ports were closed, we had not been able to export. Logistics via land routes could not accept the large volume of grain we needed, either from Poland or Romania.

Thanks to the lifting of duties and quotas, we managed to improve our export potential to the European Union, even compared to the pre-war level. We are currently actively negotiating the extension of this regime, while looking for ways to provide farmers with a tax break to compensate for the presence of Ukrainian products.

In addition, there were delays in the supply of material resources: recall the problems with fuels and lubricants. There was not enough diesel to fuel the machinery. Even then [in the spring], we felt that farmers had not fully sown out, and some failed to do so at all. All this affected the final result in the summer. Although we can say that despite the decrease in the harvest, it is still good. During the military year of 2022, 65 million tonnes of grains and oilseeds were harvested.

Farmers know that their frontline is the fields. And even in Kharkiv and Sumy oblasts, where there was very active fighting, farmers went out into the fields and worked.

In terms of changes in the production structure caused by the war, some farmers changed their approach to their crops due to internal migration to the West; someone increased the area under niche crops such as buckwheat and peas; and someone, foreseeing a decrease in early vegetable production in Kherson and Zaporizhzhia oblasts, increased their production on their plots accordingly. These trends will continue this year. Still, the main factor affecting the structure of crops is that grain prices in the country are very low, and at this level, it will be difficult to even recoup costs, let alone make a profit.