Ukraine is struggling to protect its agricultural producers
from the effects of the credit squeeze, which could impact both
short-term inputs purchases and longer-term infrastructure
investments while Russia is using some of its oil wealth
to boost grain exports.
Another good harvest is forecast in both Ukraine and Russia,
and grain exports have been boosted by local currency
devaluations. But both government and international agencies
fear that the financial crisis could impact production.
Pessimists fear output could fall sharply. A sombre US
Department of Agriculture report forecasts a 20% drop in
production of grains and pulses in Ukraine, as the credit
crunch may result in decreased input application,
possibly lowering crop yields and grain quality.
Prime minister Yulia Timoshenko announced on Thursday that
2.2 billion hryvna ($295 million) of spending on
agriculture-related programmes. Oleksiy Blinov, analyst at
Astrum Investments, said the disbursement is a top
priority, since agricultural producers are facing
huge problems in obtaining loans they need to start the
The agriculture ministry warned last month that out of 5
billion hryvna required to finance the harvest, only 1 billion
hryvna had been found. Although most of Ukraines farmers
traditionally finance inputs from their own resources, the
shortfall is still serious.
The National Bank of Ukraine has signed a framework
agreement with Raiffeisen Bank Aval, Ukraines largest
foreign-controlled bank, to make available up to 1 billion
hryvna for pre-harvest financing. A Raiffeisen spokesman said
this week that 79 million hryvna had been disbursed so far.
Artur Iliyav, chief executive of Raiffeisen Bank Aval, said
outstanding loans had been rolled over in such a way that
the proceeds of sales have been used for inputs in the new
season, with monitoring by the bank.
Gilles Mettetal, head of agribusiness at the EBRD, said:
Many farmers in Ukraine have never had access to finance;
they finance their own inputs through equity. The EBRD
has offered to share the risk with traders who offer
pre-harvest finance to farmers, but had seen no strong demand
for such financing.
Another mechanism designed to help farmers is forward
purchasing by the states Agrarian Fund, which plans to
spend 742 million hryvna on grain this year. Viktor Andrievsky
of the Agrarian Markets Development Institute in Kiev said:
The fund is a far from perfect mechanism, because it is
restricted to buying and selling at fixed prices. The industry
is talking to the government about altering the
Vipul Prakash, manager in IFCs global agribusiness
department, said that, internationally, last years food
crisis has given way to a potentially equally serious liquidity
crisis. Falling prices have hit traders and others who
built up inventory, and they had to sell at a loss, he
But at the beginning of the chain, the costs of
inputs, and especially of fertilisers, have not gone down as
quickly as one might have expected. We therefore do not expect
harvests to be at the level they have been in previous