Commodity trends for the season Volodymyr Konovalchuk, Ph.D. Head of Consulting, Co-founder, Bridges

Content Global trends and position of Ukraine in international food markets Commodity trends for the season: wheat, rye, corn, barley, soybeans, sunflowers Agricultural policy issues and ways to improve

Global trends and position of international food markets

Developments in world food markets Food prices are likely to increase in the future: Demand and supply are the major forces determining prices Higher demand: - Diet changes due to income growth – more meat, especially in developing countries - Population growth - Expansion of biofuels production Inadequate supply: - Bad weather - Exporter policies (export quotas and other trade restrictions) - Competition for agricultural land - Increasing input (energy) prices - Agricultural land area is limited

Total world grain & oilseeds: Future increase in food production can only be achieved by increasing yields

Agribusiness: A Global Industry North America, South America and Eastern Europe are key global suppliers Asia is expected to remain a major importer of agri-commodities Africa and Middle East will continue to depend on grain imports Regional Imports and Exports of Selected Agri-Commodities (in millions metric tons) Soybean and Meal Imports 24 Soybean Imports 131 (36) (38) 16 57 (28) (57) 54 Wheat Exports 33 33 4 Corn Exports 75 (3) Soybean and Meal Exports Corn Exports Soybean Meal Imports Wheat Imports (8) (12) 26 (31) (37) 12 2011 2016 Exports Corn Exports Soybean and Meal Exports 2011 2016 Imports Annex - 1

Position of Ukraine: Leading world wheat producers

Position of Ukraine: Leading world barley producers

Position of Ukraine: Leading world sunflower seed producers

Main Types of Farms/Ag Producers in Ukraine Agricultural Enterprises and agro-holdings, Some farm up to 500,000 ha Legal & organization status: joint-stock companies, limited liability companies, private enterprises, etc. Private family farms Average size 45 hectares (vary from 2 hectares to 4,000 hectares), employ on average 5 workers Legal status: a private family-run ag. business/enterprise Small land plot holders Land shares received by former collective farm workers Average land share size is 4 hectares (varies from 1 to 8 hectares depending on region) Most of land plots are rented out to bigger agricultural producers.

Present Environment in Ukraine Land of former collective farms was distributed among its members. Each member received “share” (or plot) of land that varied in size depending on the region. Average share size is 4 ha (or about 9-10 acres) Currently there is a land sales ban (moratorium), so owners of land plots can not legally sell them. The main method of agricultural land distribution is rent. Farmers and agricultural companies rent land from multiple plot owners. Rent payments range between $20-60/hectare/year depending on the region

NUMBER OF PRIVATE FARMS BY OBLASTS Odesa vs Ivano-Frankivsk oblast Area of cultivated land is 4,1 times greater in Odesa There are 13 time more private farmers in Odesa oblast. Farm size is almost the same – about 40 ha as of January, 2011

COMMODITY TRENDS FOR THE SEASON IN UKRAINE: WHEAT, RYE, CORN, BARLEY, SOYBEANS, SUNFLOWERS

AREA PLANTED UNDER GRAINS AND LEGUMES IN UKRAINE FOR SUMMER 2012 CROP

Wheat supply and demand Units: 1000 tons; yield: tons/ha Source: USDA/FAS

Barley supply and demand Units: 1000 tons; yield: tons/ha Source: USDA/FAS

Corn supply and demand Units: 1000 tons; yield: tons/ha Source: USDA/FAS

Rye supply and demand Units: 1000 tons; yield: tons/ha Source: USDA/FAS

Production Highlights: 2011 MY VS 2012 MY Notes: Total grain crop this marketing year is expected to be about 45-46 million tons (vs 56.7 million tons last year); The average total grain crop during 2002-2011 was 39.8 million tons

GRAIN CROP PRICE TRENDS IN UKRAINE, USD/ton

OIL CROP PRICE TRENDS IN UKRAINE, USD/ton

Wheat and Barley price trends Chicago Board of trade, USD/ton World markets Wheat and Barley price trends Chicago Board of trade, USD/ton

COMMODITY TRENDS FOR THE SEASON: SOME KEY POINTS The total grain crop in Ukraine is above average but lower than last year’s record crop High world market prices Ukraine has accumulated significant ending stocks of major crops that should allow the country to fully satisfy its domestic consumption needs and to have some exportable surplus Wheat and barley production in MY 2012/13 is projected to decline compared to last year, mainly due to winter kill and anticipated lower yields than last year Marketing Year 2012/13 may well be called the year of corn in Ukraine, which was gaining popularity in the country in the last several years Increase in corn production is mostly attributed to the need to replant large areas of lost or damaged wheat and barley and some favorable market conditions for corn. Large supplies of corn may result in lower corn prices later in the season

CORN PRODUCTION, YIELD, DOMESTIC CONSUMPTION AND EXPORT TRENDS

While Ukraine is important world agricultural player, productivity of agriculture in Ukraine remains low

Yield comparisons across countries 1.8 Yield comparisons across countries Oil crop yields, t/ha Grain yields, t/ha USA 6.4 2.6 4.9 2.6 EU-25 China 4.6 2.1 Argentina 4.4 2.8 Brazil 3.2 2.8 Romania 2.9 1.5 Canada 3.0 1.9 Ukraine 2.5 1.4 India 2.0 0.9 Russia 1.8 1.2 Kazakhstan Source: UNDP reports

Agricultural policy issues and ways to improve Ukraine’s agriculture

SOME POLICY DEVELOPMENTS DURING THE LAST YEAR The Ministry of Agriculture agreed with the traders that they will export no more than 19.4 million tons of grain, which includes only about 4 million tons of wheat. Because the export limit for wheat has almost been reached, the government announced wheat export ban beginning in mid November. There is lack of grain transporting railroad cars in Ukraine. Possible restrictions for wheat exports worsened the situation. Another policy change affected planting seeds market. Beginning in the fall 2011 State Customs Service started requiring GMO test results for every single shipment of planting seed. In MY 2011/12, the government introduced grain export tariffs starting July 2011 that were later lifted. In spring 2012, the government revived the idea of bio- ethanol production from agricultural crops. Draft legislation is considered for adoption.

Agricultural land sales ban (or moratorium) may be lifted in the future What is going to happen? What will be the agricultural land price in Ukraine?

FORECASTED VALUE OF AGRICULTURAL LAND AFTER LIFTING THE LAND SALES BAN, UAH/HECTARE ($1=8 UAH) After lifting the agricultural land sales ban expected value of agricultural land in Ukraine will range $190-690/hectare Free ag land sales will result into the following: The farmers will be able to obtain credits much easier, as they could use their land as a collateral More efficient land redistribution The country will attract far more investments to agriculture and will be able to implement new technologies that are necessary for better yields. Lower inflation, as food prices will decline domestically.

Challenges to achieve full potential for Ukrainian agriculture Lack of working capital in agribusiness Lack of new technologies, inefficient land use and input use, thus a lower productivity Poor supply chain logistics and infrastructure Undeveloped farm credit system

How to exactly resolve these challenges? Some of the most important measures include: Lift agricultural land sales moratorium (currently the major way of land re-distribution is lease). Improve agricultural education Reduce government bureaucracy and intervention (obey WTO rules, remove export quotas forever, reduce tariffs and other non-tariff barriers) Enforce property rights and protect investors

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