Russia’s invasion has been enormously destructive to the agriculture sector in Ukraine. Pre-war annual agricultural exports totaled $27.8 billion – 41 percent of the country’s total exports. As of June 2022, the UN Food and Agriculture Organization estimated that the war has cost the Ukrainian agriculture sector between $4 billion and $6 billion. The estimated cost of replacing and repairing damaged agricultural machinery alone is so far estimated at $926.1 million, or 2,281 units of agricultural machinery. Further, the cost of damaged or destroyed grain storage facilities is estimated at $272 million, and the value of lost livestock is around $136 million.
Decreased export capacity, destruction of infrastructure and farmland, and increased fuel and input costs have drastically inhibited investment in new machinery and equipment. As a result, in the first 7 months of 2022, agricultural machinery and equipment sales have dropped by a factor of 2.4 from the previous year.
According to the United States Department of Agriculture, Ukraine is forecast to harvest 58 million metric tons of grain in marketing year 2022 – a 31 percent decrease from the 2021 harvest of 85 million tons. Despite the disruptive effects of the war, the Ukrainian Ministry of Agrarian Policy and Food estimates that Ukraine will export 30 million tons of new harvest and 20 million tons of grain on hold from the previous year in 2022.
Prior to the Russian invasion, 98 percent of Ukraine’s grain exports were transported through the Black Sea. During the first several months of the war, Ukrainian shipping was cut off, impacting global food security. In response, the UN brokered the Black Sea Grains Initiative (BSGI), which is facilitating the export of grains from three ports in Odessa to Turkey. Despite the deal, trade volumes via the Black Sea remain below pre-war capacity and Ukraine has relied heavily on rail, road, and barge routes to export agricultural products.
Though limited, CS Ukraine predicts that the inflow of export revenues and the harvest loss mitigation will allow the Ukrainian agriculture sector to recover.
When the war concludes, the Ukrainian Government will resume the implementation of its Irrigation and Drainage Strategy, incentivizing farmers to invest in irrigation and drainage technologies. This strategy will also create public procurement opportunities related to engineering land reclamation systems.
Despite the current challenges, the CS Ukraine holds a positive long-term view on sales prospects for U.S. agricultural machinery and equipment manufacturers in Ukraine, including:
- Tillage equipment
- Seeding equipment
- Sprayers and fertilizer distributors
- Grain storage and handling
- Irrigation Infrastructure
- Agricultural chemicals, including growth enhancers and micronutrients
Food Processing and Packaging Equipment
Ukraine’s food processing industry comprises over 40 different sectors. However, the majority of agricultural exports, with the exception of vegetable oils, are raw goods such as corn, wheat, rapeseeds, and soybeans.
Despite exporting large volumes of raw materials, Ukraine’s pre-war grain loss due to inefficient logistics were estimated at $20 per ton. According to the World Bank, this inefficiency has cost the industry between $0.6 and $1.6 billion per year. In addition, due to chronic shortfalls in grain transportation capacity, around 20 percent of transport demand is not met on an annual basis. The war has further exacerbated logistics problems.
In the short term, experts anticipate a slowdown in investment activity in the food processing sector due to the unfavorable conditions. Longer term, however, small and medium sized producers will need to invest in processing capacity for grain crops.
In the long run, CS Ukraine holds a positive post-war view of sales prospects for U.S. suppliers of food processing equipment and bioprocessing technologies for:
- Starch sugars
- Yeast extracts
- Fuel ethanol
- Amino acids
- Carboxylic acids
- Animal fats and vegetable oil
- Confectionary products