Should Ukraine become agrarian superpower?

Author : Bohdan Danylyshyn

Source : 112 Ukraine

Ukraine still lags behind developed and many developing countries in terms of agriculture labor productivity
12:10, 28 January 2019

112 Agency

In February 2016, the then US ambassador to Ukraine Geoffrey Pyatt said: "Ukraine is already one of the world great agricultural producers, but it should become an agricultural superpower."

After hearing Geoffrey Pyatt’s statement, I immediately recalled the so-called Morgenthau Plan. Henry Morgenthau, United States Secretary of the Treasury, was at first an amateur farmer, operating near the Roosevelt estate in upstate New York. He was a friend of Warren, a specialist in agricultural economics at Cornell University.

Related: First Ukrainian Agricultural Cooperative to establish agricultural clusters in Khmelnytsky region

Morgenthau became Finance Minister due to the fact that William Woodin was forced to resign due to problems with health. Therefore, Morgenthau was hastily appointed.

By the way, before this appointment, he worked as a chairman of the Agricultural Advisory Commission, founded by Franklin Roosevelt. Henry Morgenthau was a financier with an agricultural bias. It has ideologically led him to develop a plan for Germany, turning it into an agricultural power.

When it became clear that the Allies were winning the Second World War, the question arose: what should be done with Germany, which had launched two world wars in the previous 30 years. Morgenthau made a plan in 1944, which made it possible to secure the world from a militant nation. He proposed to completely destroy German industry and turn it into an agricultural country.

Related: Ukraine’s exports of agricultural goods to EU increase by 37% in 2017

It was proposed to remove the industrial equipment and flood all the mines with water or cement. De-industrialization of Germany was perceived as a guarantee of the neutralization of German militarism, which caused the two world wars.

However, in 1946, it became clear that the Morgenthau Plan poses serious social and economic problems in Germany. The implementation of the plan was accompanied by an increase in unemployment and impoverishment of the population. The destruction of the industry led to a decrease in agricultural productivity.

Former US President Herbert Hoover has conducted an investigation and concluded: "there is an erroneous opinion that the new Germany can be turned into a rural country. This cannot be done without destroying or removing 25 million inhabitants from it."

Related: Three quarters of Ukrainians oppose abolition of moratorium on sale of agricultural land - poll

After that, the Morgenthau Plan was quickly replaced by the Marshall Plan, the result of its realization is current Germany, the world leader in industrial development and exports.

We are offered to become an agrarian superpower. Maybe in the present conditions, it is really promising for Ukraine. After a sharp drop in 2015-2016, the world price for the number of agricultural products has increased. But along with rising prices, their volatility and amplitude of fluctuations increase as well, which makes the market less predictable.

In addition to increasing food demand from developing countries, climate change and energy savings have led governments to resort to more extensive use of ethanol and biodiesel fuel (which are almost entirely made from food) and livestock feed (corn, sugar cane, palm, and soybean oil).

Related: 474 investment projects worth $1.6 billion currently underway in Ukrainian agriculture

It would seem that Ukraine has good prospects if it stakes on agricultural development. However, not a single country managed to get rich without a developed industrial and services sector. And I am not talking about sporadic economic bursts, but stable economic growth. Developing countries will never enter the club of the developed ones, relying exclusively on exporting the food products to the rich countries.

In 2016, Ukraine has exported goods to the amount of $ 36.36 billion, including 15.26 agricultural exports (its share was 42%), industrial exports - $ 4.9 billion (13.5%). In 2017, Ukraine’s export amounted to $ 43.27 billion 17.79 billion (41%) of agricultural products, 5.8 billion (13.4%) of industry; for 11 months of 2018, export amounted to 43.25 billion dollars, including 16.81 billion for agriculture (39%), 5.8 billion for industrial products (13.4%).

Of course, agricultural products could be a high-value-added product. But, unfortunately, the share of exports of finished products in the total volume of its exports is rather small: 16% in 2016, 16.3% in 2017, and 16.1% in 2018 (11 months).

Related: Exports of agricultural goods from Ukraine reach $2.8 in January-February 2018

Destructive changes last for more than ten years. If we take the pre-crisis 2007 year and compare it with the current situation, the share of agriculture in the Ukrainian economy has more than doubled, while the share of the manufacturing industry has decreased by 1.5 times.

Ukraine still lags behind developed and many developing countries in terms of agriculture labor productivity; and the reasons aredue to de-industrialization of its agrarian production, low crop yield, excessive employment, and irrational organization of production.

A low level of productivity is caused by worn out production assets, the use of the most modern technologies, and an insufficiently developed infrastructure. These factors reduce productivity and quality of agricultural products. Business conditions in the agricultural sector of our country are often extensive.

Related: Ukraine’s Ministry of Agrarian Policy: China wants to produce agricultural goods in Ukraine

The third part of the world black soil, favorable geographical location, favorable climatic features – why don’t we use these factors?

The potential of the export-raw material development of the Ukrainian economy has been exhausted. After all, our economy was focused on the export of raw materials, and this orientation has preserved. Metallurgy has lost its leading position.

But prices for the low-value-added commodities and products often fall during the periods of slower growth in the global economy, and International Monetary Fund, the World Bank, and many prominent international economists warn us about it. Long-term trends in commodity prices do not give hope for their growth.

But we have the opportunity to receive strategic benefits from the current situation, based on stable global food demand, creating the conditions for the rational direction of resources to promising industries. Ukraine can build a new industry that meets the challenges of the third and fourth industrial revolutions.

Related: Saudi company Salic purchases Ukraine's agricultural holding

Therefore, a tactical focus on the agricultural sector, especially if the market situation is favorable, should be used to develop the industrial and post-industrial sectors in the Ukrainian economy. This is the real way for modernization of the Ukrainian economy.

And another task should be the implementation of innovative technologies in the agricultural sector.

This is exactly how Ukrainian agricultural production will move towards high productivity. And would push the development of modern Ukrainian industry through the demand for its high-tech products.

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This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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