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Will Ukraine be able to increase agricultural exports?

Author : Bohdan Danylyshyn

Source : 112 Ukraine

Our agricultural sector is a self-sufficient part of the national economy (it feeds the country), and, on the other hand, it is one of the most important sources of filling the state budget, as well as of foreign currency inflows
20:54, 25 September 2019

112 Agency

We have the right to be ironic over the introduction of the term "agricultural superpower" by ex-US ambassador Jeffrey Payette. But also we can seriously consider the possibility of realizing the potential that Ukraine has.

I have repeatedly wondered how long can we bet on agro-export? But, since our export of industrial products does not grow at the desired pace, this issue is crucial for the economy in the medium term.

Ukrainian agricultural sector is a self-sufficient part of the national economy (it feeds the country), and, on the other hand, it is one of the most important sources of filling the state budget, as well as of foreign currency inflows.

Therefore, the export of agricultural products, along with the export of industrial goods and services, is very important for the economic development of our country.

How are we doing now? According to the results of 2018, the foreign trade turnover of agricultural products amounted to $ 24.3 billion, of which $ 18.8 billion accounted for agricultural exports, which amounted to 39.8% of the total export of Ukraine. Agricultural export maintains leadership in the commodity structure of exports.

Last year, its volume was $ 880 million more than in 2017. In 2018, the 2012 record was exceeded when agricultural exports amounted to $ 18,2 billion. The largest share of agricultural exports was formed by grain crops – 38,4%, oil – 23,3% and oilseeds – 10,2%.

Last year, export growth was mainly driven by corn, wheat, rapeseed, poultry meat and offal, oil, tobacco, and its products, eggs and confectionery. The largest importers of Ukrainian agricultural products in 2018 were India, where we exported agricultural products worth more than $ 1.8 billion, China - $ 1.2 billion, the Netherlands - $ 1.2 billion, Spain - $ 1 billion, and Egypt - 0, 9 billion dollars.

For the period May 2018 - April 2019, Ukraine became one of the three largest exporters of agricultural products to the European Union, selling its agricultural products worth 6,3 billion euros. This is a 14.2% increase over the period from May 2017 to April 2018.

According to the European Commission report, in May 2019, Ukraine exported agricultural products to the EU countries by 519 million euros, which is 173 million euros more than in May 2018. This means that in May 2019, our country took first place in the world in terms of growth in agricultural exports to the EU countries.

Thus, Ukraine is confidently realizing its "comparative advantage" (according to David Ricardo) in the production of agricultural products. To continue success in this direction, it is necessary to assess global trends.

What global trends in the development of agricultural exports may affect the Ukrainian agricultural sector in the future? What do we need to know about the future in order to maintain a positive trend?

The main threat to world agriculture in the future, according to leading world experts, is global warming. How does it threaten agriculture? The fact is that by 2040–2050 already, an increase in average temperatures, changes in the precipitation regime, an increase in extreme weather events, and an increase in damage caused by pests and diseases will affect global crop production and animal husbandry.

However, in the world, this effect will be uneven. In the southern, low-latitude countries, the changes will be very negative, which will affect the decrease in the yield of agricultural crops.

Climate change will be so great that it can even cause food security problems in these countries. However, warming will positively affect the growing season in countries located in high latitudes. Numerous forecasts indicate that it will have negative consequences for India, sub-Saharan Africa and South Asia.

However, global warming will primarily benefit North America, parts of South America (for example, Chile), Eastern Europe (for example, Ukraine) and Central Asia. The concentration of international agricultural markets is coming - in the context of climate change, the bulk of exports will fall to fewer regions.

So Ukraine in the future can and should significantly increase the volume of food exports to world markets. And this is good news for us. Analysts' forecasts suggest that already in 2040-2050 there will be a decrease in agricultural production in the world, while prices for agricultural products will rise.

Therefore, comparatively soon, agricultural trade in the world can change very much, reflecting the impact of climate change on agriculture in countries with different geographical locations.

Related: Ukrainians slave away on foreign soil, but cannot work in their homeland, - MP Vereshchuk

In this regard, the comparative advantages and the level of competitiveness of agriculture in various regions and countries will change. Someone will benefit from this, while someone will lose. Ukraine, most likely, should be among those who receive profits from global warming.

Then Ukrainian agricultural export will become a means of delivering food to regions affected by global warming, and this will unleash the problems of falling agricultural production in these countries. Naturally, for the benefit of our country.

Therefore, if we want to continue to increase agricultural exports, the task in the near future will be not to miss the chances that global climate change gives us, and to implement all the overdue reforms so that in the future we can increase production volumes, reduce costs by stimulating large agricultural companies, small family farms, introduce the latest innovative techniques from precision farming, up to the organization of urban farms.

R&D in agriculture is of tremendous value. The annual domestic return on investment in such R&D is 20-35% in the leading agricultural countries. The positive impact of such investments on the value of agricultural products, determined by the ratio of costs and incomes, is about 6-12% (depending on the country).

The rapid development of innovative forms of agriculture suggests that we will face tough competitive pressure. Food shortages associated with warming, with the ever-growing population of the Earth and rising food prices, will lead to an increase in the number of players and the supply of agricultural products in the global agricultural sector.

And this, of course, will put pressure on our agricultural exports. We need to prepare for this today. I think that one of the priorities of the medium-term government program should be the creation of conditions for investment in agricultural research and development in Ukraine. It may be worthwhile to provide for appropriate tax incentives to stimulate the investment of agricultural companies in R&D.

But, if we are talking not only about the agricultural sector and its exports, but about the Ukrainian economy as a whole, then of course we should not forget about the problems that are caused by excessive enthusiasm for agriculture. There are many examples in history when such a strategy did not lead to good.

It is enough to recall the famine in Ireland (1845-1849), associated with the failure of potatoes, or the stagnation of the modern economy of Argentina, which at the beginning of the twentieth century was one of the most developed countries in the world, relying on agriculture, but without paying attention to other sectors.

These examples are enough to realize all the risks of unilateral development of the country. "The modern world is constituted by technology," wrote the eminent German sociologist Ulrich Beck. I can add that not only industry is constituted by technologies, but also agriculture (a synergistic effect can be achieved by actively developing agricultural machinery, which Ukraine was famous for in Soviet times).

Ukraine also bears these risks. The combination of efforts for agricultural development for the domestic needs and for export, as well as industrial policy for the future export of our industrial products, as competitive as our grain, corn, sunflower oil - this is the best way to achieve the prosperity of Ukraine.

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