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Production
Estimates and Crop Assessment Division |
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Production
Estimates and Crop Assessment Division |
June 19, 2002
Analysts from the USDA Foreign Agricultural Service traveled in Ukraine during late May and early June to meet with agricultural officials, farm managers, and independent commodity analysts to assess 2002/03 grain production prospects and monitor the state of Ukraine’s former State and collective farms. Although 2002/03 grain yields are likely to drop significantly from last year, due chiefly to less favorable weather, the agricultural sector shows signs of increasing efficiency. The next few years will be a period of adjustment, as questions regarding farm credit are resolved and smaller private farms are folded into larger, more efficient enterprises.
Overall crop conditions in Ukraine are not as good as last season, when unusually favorable weather resulted in the highest total grain yield in nearly ten years. The USDA estimates 2002/03 grain production at 34.8 million tons (against 39.6 million in 2001/02), including 18.0 (21.3) million wheat, 9.0 (10.2) million barley, and 3.7 (3.6) million corn. Winter grains were sown on a reported 8.6 million hectares (roughly equal to last season), including 7.2 million hectares of winter wheat, 0.8 million rye, and 0.6 million barley. Persistent dryness prevailed in southern Ukraine throughout the fall and winter, with an estimated 0.5 million hectares of winter wheat lost due to drought. According to the State Statistical Committee, spring grains were sown on 5.6 million hectares (compared to 5.7 million last year), including 3.7 (3.4) million barley and 1.4 (1.5) million corn for grain. Spring precipitation was below normal in western and central Ukraine, and weather was excessively dry in parts of eastern and southern Ukraine. Late-May and early-June precipitation was beneficial for both winter and spring grains, but the effect of nearly two months of below-normal precipitation is indicated in recent Landsat satellite imagery from Dnipropetrovsk oblast (1, 2, 3) and Odesa oblast (4, 5, 6) and in imagery-derived vegetation indices.
This will be the second full cropping season since the restructuring of Ukraine’s agricultural sector in April, 2000. State and collective farms were dismantled and farm property was divided among the farm workers in the form of land shares. Most new shareholders leased their land back to newly-formed private agricultural associations, under the leadership of a director who was frequently, but not always, the manager of the former State farm. Consolidation of small farms into larger and more viable enterprises has been the prevailing trend, similar to what took place in Russia several years earlier. (For a brief discussion of Ukraine’s agricultural restructuring, see June 2001 trip report.) The conversion to a more market-oriented environment is progressing relatively well according to most observers. Many farms are succeeding, under shrewd leadership, in spite of low grain prices and constraints on the availability of credit. The transition of Ukraine's agricultural sector from a command economy to a more market-oriented system has introduced the element of fiscal responsibility, and decisions on crop selection, fertilizer application, harvest method, grain storage, and all other aspects of farm management are made with an eye toward boosting farm profit. Some farm managers are striving to make their enterprises as efficient as possible. Ukraine agriculture is going through a winnowing process whereby unprofitable, usually smaller farms will either collapse or join more successful farms.
Most farms are able to receive credit from banks, but two main problems were cited by farm directors: high interest rates and banks’ unwillingness to make long-term loans. Because of this, most loans to farms are seasonal loans (six to ten months) used almost exclusively for the purchase of fertilizer and plant protection chemicals. Commercial interest rates currently run around 30 percent. The State provides assistance to farms by paying 50 percent of the interest on agricultural loans. Payment delays of the subsidy to banks are common, however, and farms are sometimes forced to pay all of the interest to avoid defaulting on the loan, then wait to be reimbursed by the State.
Since many farms are already heavily in debt to banks or suppliers of fertilizer and plant-protection chemicals, and since agricultural loans are not guaranteed by the government, banks are cautious in their assessment of farms’ ability to repay loans. Banks typically require 200 to 300 percent collateral, depending on the farm’s credit history and the risk level. Exceptionally stable farms may need to offer only 150 percent, and high-risk farms may not be able to receive credit at all. Future crop usually serves as collateral, but collateral can also be offered in the form of livestock, farm machinery, or the personal property of the farm director. Under current legislation, land cannot be used as collateral. Most observers feel that this will change eventually. Farms' difficulty in obtaining anything other than short-term, high-interest loans places severe constraints on their ability to invest in long-term capital improvements, such as agricultural machinery or storage facilities, and using land as collateral would enable farms to receive longer-term loans. Nevertheless, some farm managers remain leery of the Ukrainian banking system – which is not yet as stable as in Russia – and are reluctant to risk losing their land in default. Furthermore, many agricultural enterprises are comprised of hundreds of shareholders, whose permission would need to be obtained before the farm director could use the land as collateral.
A chronic lack of modern harvesting equipment remains one of Ukraine’s main obstacles to increasing grain output and quality. Farm managers estimate harvest losses due to inefficient machinery at 10 to 20 percent of the standing crop, and the inevitable harvest delays, when combined with unfavorable weather, can contribute to a reduction in grain quality. Custom combining services are available but expensive, with operators charging 20 percent of the crop for the harvest of food-quality wheat, and 25 percent for feed wheat. The director of a grain and livestock operation in Kharkiv oblast explained that, after weighing the benefits and disadvantages of custom combining, he decided to fix his outdated combines as best he could and harvest the crop himself. Harvest losses would amount to less than the service charge, he reasoned, and the harvest campaign would provide work for the farm employees.
There is no shortage of mineral fertilizers or plant-protection chemicals in Ukraine. Any inputs that a farmer needs can be obtained if the farm has money or can get credit. The application of mineral fertilizer reportedly has increased slightly again this year, although the average application rate is still significantly below recommended amounts. The high price of imported herbicides and fungicides has caused some farmers to cut back on their use, or to use less expensive and less effective domestic products. For farmers that can afford them, non-selective glyphosate-based herbicides (like Roundup) are popular. Farmers still rely to a large degree on mechanical weed control.
In an effort to lower operating costs and increase efficiency, some farms are experimenting with crop-management methods which are unconventional compared to traditional local practices. Two large enterprises in eastern Ukraine -- one in Dnipropetrovsk oblast, the other in Kharkiv--apply nitrogen to winter grains at planting rather than following the standard technique of spring application. This reduces fuel use and spring tillering (which can result in uneven ripening). The Dnipropetrovsk farm has also adopted fuel-saving minimum-tillage practices, which eliminate deep plowing. According to the farm director, the combination of minimum tillage and fall fertilization has reduced fuel consumption on this farm from 180 to 40 liters per hectare.
The consensus of most observers is that the already-successful farms will continue to expand as shareholders pull out of failing farms and lease their plots to stronger ones. One problem inherent in crop-assessment travel is that farm visits are typically arranged through local agricultural officials and there is an understandable tendency to view only the more efficient and successful enterprises. Directors and chief agronomists of these farms routinely cite wheat yields of 4 tons per hectare or more, which is easy to believe given the good management, but it raises questions regarding the operation of other, poorly-run farms. If the "good" farms are harvesting 4.0 to 4.5 tons per hectares, how low are the yields on the remainder of farms in order to pull the national yield down to 2.5 to 3.0 tons per hectare? Clearly, many farms will not survive the transition to a market economy, and high-risk farms with few liquid assets, heavy debt, bad credit history, and poor management will collapse.
