Modifying Agriculture

Economic News

22 Jul 2010
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In a speech to agricultural sector workers at the International Centre of Culture and Arts on November 15, President Viktor Yushchenko promised government investment of $2.18bn into the sector in 2007 and the introduction of targeted subsidies. Measures have already been taken to improve conditions for farmers and to improve the climate for investment in the sector.



The promise of investment comes with the row over the imposition of grain export quotas still unresolved. Ukrainian ports are currently full of ships loaded with over 150,000 tonnes of grain, while port elevators have a further 1.5m tonnes waiting to be unloaded. On November 29, Prime Minister Viktor Yanukovich appeared to offer some hope of a resolution when he noted during a session of the Verkhovna Rada that the government had finally determined its position on the grain issue. "If you give me assurances that the state resources are full, we won't restrain exporters," he said. According to the agriculture minister, the reserves have been filled.



This follows warnings from the US, German and Netherlands Ambassadors about the negative consequences the imposition of quotas could have on market growth. US Ambassador William Taylor noted during a news conference, "damage is being done to World Trade Organisation (WTO) prospects and to the investment climate, not just in the food sector."



Government control of internal pricing for grains and foodstuffs is also an area of concern for free market adherents, including Yushchenko who spoke recently on the issue. Many believe the intervention is stifling the growth of the industry. However, equally vocal on the subject are those who believe 'food security' to be a prime responsibility of the government and that pricing mechanisms are wholly necessary.



Observers close to the development of the agricultural industry note that with the close proximity of such large grain producers as Russia on the Siberian steppe, the agricultural future of Ukraine may lie in the production and exporting of vegetables.



Another area of significant potential for Ukraine is the development of a bio-fuel industry, with rapeseed or grain used to produce ethanol for fuel. European companies such as BioDiesel of Austria and a second German investor, which is planning to invest in the Kharkiv region, have indicated over the last week about their desire to construct plants in several areas of the country, with investments totalling upwards of 200m euros ($263.84).



Soil in Ukraine is said to be nearly perfect for producing rapeseed, a crop that has a high oil content making it ideal for bio-fuel. This would represent a change in usual practice for the farmers, and would require initial investment and confidence building measures. Subsidies would also be required from the government, as is the case in the EU, to foster the transition.



Diversification in this field would lead to opportunities for export of the fuel to Europe. EU regulations stipulating that all petrol sold in EU territory must contain at least 5%, by volume, of bio-fuel additives, drive the import of at least 5m tonnes of bio-fuel into the EU each year.



The future potential for the use of bio-fuel as a mechanism for the reduction of gas consumption for domestic heating, industrial plants and transport is also clear and could form an important part of a future strategy for reducing petroleum imports.

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