Productivity and profitability developments in Ukrainian agriculture: Agroholding versus independent enterprises Igor Ostapchuk Alfons Balmann Jarmila Curtiss Pre-conference workshop of the 29 th International Conference of Agricultural Economists, August 8, 2015
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Productivity and profitability developments in Ukrainian … · 2015-08-20 · Productivity and profitability issues • Wheat production figures (same applies to other crops) Individual
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Productivity and profitability developments in
Ukrainian agriculture:
Agroholding versus independent enterprises
Igor Ostapchuk Alfons Balmann Jarmila Curtiss
Pre-conference workshop of the 29th International Conference of Agricultural Economists, August 8, 2015
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• Strong increase in land bank of agroholdings
Ukrainian agriculture before the crisis
Source: AGRISURVEY (2013)
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• Strong increase in land bank of agroholdings
• Significant investments of agroholdings – in modernization of production technologies
– in livestock production
– in infrastructure
Crop farming Animal farming
Ukrainian agriculture before the crisis
Source: AGRISURVEY (2013)
18,7%
36,3%
45,0% 24,8%
17,0%
58,2%
Agriculturalholdings
Independententerprises
Privatehouseholds
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Ukrainian agriculture before the crisis
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• Strong increase in land bank of agroholdings
• Significant investments of agroholdings
• Positive yield trends
Ukrainian agriculture before the crisis
Source: USDA
01234567
1989 1994 1999 2004 2009 2014
mt/
ha
Yield development in Ukraine
Wheat Corn Trend Wheat Trend Corn
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• Strong increase in land bank of agroholdings
• Significant investments of agroholdings
• Positive yield trends
• Growth of agroholdings financed by – lendings of (international) banks and financial institutions
– placement of Euro bonds
– IPOs
Relatively high indebtedness of agroholdings!
Booming prices for land and acquisitions!
Ukrainian agriculture before the crisis
no long-term loans
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• Political crisis Political uncertainty
Inflation
Increasing interest rates
Decreasing availability of loans (nationally and internationally)
Ukrainian agriculture since the crisis
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• Political crisis
• Decreasing international food prices
Ukrainian agriculture since the crisis
0
100
200
300
2000 2002 2004 2006 2008 2010 2012 2014
US
$/
t
Development of corn prices since 2000
monthly average trend
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• Political crisis
• Decreasing international food prices
Decreasing share prices of agroholdings!
Ukrainian agriculture since the crisis
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Ukrainian agriculture in 2014 • Political crisis
• Decreasing international food prices
Decreasing share prices of agroholdings!
Increasing number of struggling agroholdings!
Why are agroholdings so affected?
Ukrainian agriculture since the crisis
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Why are agroholdings so affected? • Booming agricultural prices and yields caused a kind of "gold rush"
– Enormous competition for growth opportunities caused high prices for land and acquisitions!
– Fast growth requires enormous financial means! (not only in the short run, but also in the long run -> short-term lending)
– Growth causes adjustment costs! (i.e. the returns can only be expected in the long run)
– Significant productivity deficits were not resolved!
Is this really surprising?
Ukrainian agriculture since the crisis
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How important do you assess the following strategies?
2,5 3 3,5 4 4,5 5
Expansion and growth
Internationalization
Diversification
Specialization
Consolidation
Efficient production
Vertical integration
Horizontal integration
Protection from a takeover
Strengthening human resources
Improving financial situation
Views of agroholding managers (2012)
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Views of agroholding managers (2012)
What do do consider as your main risk factors?
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Productivity and profitability issues • Wheat production figures (same applies to other crops)
• Agroholding farms – higher yields at much higher costs
– higher profits only in case of high prices
Economic issues of production
Agroholdings Individual
enterprises Ratio agroholdings versus enterprises, 4 years average, % 2010 2011 2012 2013 2010 2011 2012 2013