The spring sowing campaign has started in all areas of Ukraine, except for the temporarily uncontrolled and those extremely close to the frontline. By the end of the first ten days of April, about 700,000 hectares had been sown. Although the sowing campaign is proceeding in a much calmer environment than last year's, when the whole country and the agricultural business in particular were at the peak of the shock, many of the industry's problems have only intensified over the year.
An indirect sign of the escalating crisis in the agricultural sector is the decline in the harvest forecast for 2023, even compared to the previous, turbulent season: 44.3 million tonnes versus 53.1 million tonnes.
The figure of 44 million tonnes is equivalent to the performance of the agricultural sector a decade ago. This amount is enough to meet the current needs of the domestic market, especially given the outflow of population. However, the agricultural sector is an export-oriented industry, and it is also the only one fit for sea exports, albeit in its reduced version. This makes it an unreplaceable donor to the budget for the time being, so a decline in the export base promises bleak prospects for the economy.
Mind explored what risk factors accompany the current sowing campaign and what to expect in the aftermath.
What were the factors behind such a radical reduction in the forthcoming harvest? The main reason for the inevitable decline in output is the reduction in sown areas. This, in turn, is due to a combination of the temporary occupation of a portion of the territory and mine contamination in the areas controlled by Ukraine. This generated the withdrawal of about 7 million hectares of arable land, or 25% of the cultivated area, from circulation prior to the escalation on 24 February 2022.
The figure is not final.
Further reduction of the area is directly dependent on the availability of resources, primarily financial. The shortage of funds in the industry may generate up to 5 million hectares of unseeded fields.
Other factors that negatively affect the progress of field work and its future results include
- power outages that have made drying and storing crops more cumbersome and expensive;
- uncertainty about the sea export regime;
- the mobilisation of male workers and the outflow of women abroad. Despite the fact that the agricultural sector is among the top three industries with the most conscripts – 63,000 people out of a total of 528,000 people who have been exempted from the draft – the problem of staff shortages is still very acute;
- lower yields due to savings on inputs. According to the National Academy of Agrarian Sciences, expected yields may decline by 15-30% depending on the region and crop, compared to the average yield of previous years. The relatively good news is that agricultural producers prefer to sow even in a truncated version, with less fertiliser and other resources, rather than leave the land untreated.
What is expected in terms of crops?
The area under grain is 9.6 mln ha, including
- wheat – 4.3 mln ha;
- corn – 3.3 mln ha;
- barley – 1.4 million hectares.
If these targets are achieved, we can expect to produce 39.6 million tonnes of grain, including
- wheat – 15.8 million tonnes
- corn – 18.5 million tonnes;
- barley – 4.2 million tonnes.
The area under oilseeds is expected to reach 9.3 mln ha, including:
- sunflower – 6.1 mln ha;
- soya – 2.0 mln ha;
- rapeseed – 1.2 mln ha.
The forecast for the gross harvest of oilseeds is 19.8 mln tonnes, including:
- sunflower – 13.0 mln tonnes;
- soya – 4.0 mln tonnes;
- rapeseed – 2.8 million tonnes;
Is the harvest forecast final? No, the figure has already been revised and is going to be revised further. Thus, at the beginning of 2023, expectations for the season became much more optimistic due to lower fertiliser prices and increased access to fertilisers, as well as favourable assessments of winter crops.
Further corrections will depend on weather conditions, the situation on neighbouring commodity markets and the war situation.
What is the export figure behind this supply and can it be sold? Taking into account the transitional stocks, the export potential for the season starting on 1 July 2023 could be around 41 million tonnes. And even with the capacities available today, Ukrainian logistics is quite capable of selling it.
Despite the problems in the grain corridor, including confusion over the last extension of its validity and restrictions on land logistics, Ukraine is gradually increasing grain exports, reaching 6 million tonnes per month by March 2023, which is the same as before the war.
Any forecasts before the end of active hostilities are not viable. However, if the status quo remains, Ukraine is expected to be able to export any surplus that will be generated by the crop collection.
What crops will be among the favourites? 2023 will be the year of sunflower. This year, the area under this oilseed is expected to reach 6.1 million hectares. This is close to the record figure of 2021 (almost 6.8 mln ha) and unprecedented for the current season.
The area under sugar beet is also expected to increase to 220,000 hectares compared to 180,000 hectares last season. Sergiy Tsariuk, Director of Niva agrarian company (Vinnytsia Oblast), called sugar beet "the most profitable crop this year" in a comment to the media, saying that his company has enlarged its area under sugar beet, although it has not grown sugar beet for the last five years.
Traditional technical crops are popular, primarily rapeseed. Many farmers are also looking for niche crops, such as chickpeas, peas, buckwheat, millet, etc. The crop rotation is regularly supplemented with a vegetable group in the hope of compensating for the temporary drop in supply due to the occupation of southern Ukraine.
In all cases, the guarantee of presence on the field is trouble-free sales, i.e. focus on the European market and/or high purchase prices.
And outsiders? As clichéd as it may sound, corn is no longer the "queen of the fields".
The reasons are: it is expensive to produce, requires special storage conditions, and is costly in logistics due to its volume; exports were focused mainly on China, whose supplies to Ukraine declined dramatically after the Black Sea blockade and have not even recovered to comparable levels.
Grain crops – in particular, wheat – have also fallen in popularity due to the low level of earnings from it this season.
How has the budget for the sowing season changed? The total cost of the spring sowing campaign is estimated at UAH 228 billion, up 17% year-on-year. This estimate takes into account the significant savings on technology that farmers have to make.
According to preliminary estimates, the use of fertilisers and plant protection products will decrease by at least 15% and 10% respectively. If all technological standards are maintained, the cost increase will be around 25%.
The reasons for the rise in prices include the devaluation of the national currency and rising fuel and fertiliser prices. The latter increased by 1.5-2 times year-on-year due to higher energy costs. For a total area of 20 million hectares, this generates additional costs of about UAH 70 billion.
Depending on the location of the farm and the current operating parameters, the delta of the cost growth could reach 40-50% compared to spring 2022.
The good news is that there is no shortage of basic inputs such as fertilisers, plant protection products and fuel; the problems belong to the area of their cost. Potash fertilisers are the most frequent item of savings.
What is the essence of mobilisation challenges in the industry? Before the full-scale invasion, about 3 million people worked in agriculture. According to the general approach to the formation of the mobilisation reserve, up to 50% of them can be called up. In order not to block the work of the industry and to balance the goal of national and food security, farmers propose to adjust the approach and calculate 50% not from the total number of employees, but at the trade level.
Last week, the European Business Association (EBA) appealed to the government and the General Staff of the Armed Forces of Ukraine to consider documents within the new exempting mechanism for employees more rapidly in order not to disrupt the current sowing campaign and preserve Ukraine's development potential in the agricultural sector.
"In March, the sowing campaign started in Ukraine. The biggest risk that agrarians see now is the slowdown in the mechanism of reserving workers. Yes, it should be carried out according to the new procedure, but nothing has happened for almost a month now," the association said in an appeal to the Cabinet of Ministers and the General Staff.
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