27. Ukraine
Support to agricultural producers changed drastically in 2022 due to the large-scale military aggression of Russia against Ukraine. Ukraine entered a period of martial law on 24 February 2022, under which much state support for agriculture was diverted to security and defence. As a result, nearly all traditional support programmes were suspended in 2022, although some measures were introduced to sustain agricultural production during warfare. New measures included tax breaks, simplified regulatory procedures, and temporary financial support in the form of subsidies.
Support to agricultural producers since 2011, measured by the Producer Support Estimate (PSE), had hovered close to zero, with an average value of -0.4% of gross farm receipts during 2020-22. PSE is mostly driven by Market Price Support (MPS), which was negative for much of the past two decades with average producer prices below international reference levels. Due to tariff protection, domestic prices for sugar and meat products are above international reference levels, while oats, sunflower, and milk are implicitly taxed. Budgetary support to producers, mainly in the form of tax benefits and input support for short-term loans and fixed-capital formation, represents less than 1% of gross farm receipts. MPS and payments for the unconstrained use of variable inputs, which are Ukraine’s most production- and trade-distorting measures, account for 85.2% of producer transfers.
Support for general services (General Service Support Estimate, GSSE) averaged 0.6% of the value of agricultural production in 2020-22, which is low compared to other countries covered in this report and down from a 1.3% average in 2000-02. Most of this goes to inspection and control services, and agricultural schools. Total support to the sector as a percentage of Gross Domestic Product (GDP) fell from 0.4% in 2000-02 to 0.1% in 2020-22.
In accordance with the Presidential Decree in February 2022, Ukraine is under martial law due to the large-scale military aggression of Russia. Martial law has affected all aspects of life, including the functioning of the agricultural sector. The Cabinet of Ministers of Ukraine (CMU) approved measures to ensure the country’s food security by monitoring the state of food safety, ensuring uninterrupted production of agricultural and food products, providing food products for long-term storage to the population of territorial communities in active combat regions, forming a strategic storage network of raw materials and food resources, creating opportunities for food self-sufficiency, meeting needs for imported components, ensuring the fulfilment of domestic and export demand, and imposing export restrictions.
At the same time, CMU diverted UAH 4.4 billion (USD 136 million) of the state budget for 2022 from agricultural support to security and defence whilst introducing some temporary tax breaks for enterprises in the combat zone or in temporarily occupied territory that were exempted from paying environmental and land taxes. In addition, the value-added tax (VAT) for fuel was reduced from 20% to 7% for all uses; and agricultural producers were exempted from paying VAT on goods destroyed in the war and those used for the country’s defence.
Simplified regulatory requirements for producers and exporters were introduced to reduce the bureaucratic burden on business and state authorities, and support the uninterrupted production of agricultural products. Phytosanitary requirements for export and the state registration process for pesticides and agrochemicals were eased and the list of agrochemicals that can be imported, produced, traded, and used without registration was expanded.
The Ministry of Agrarian Policy and Food (MAPF) began exercising functions and powers for forming and implementing state policy for organic production, distribution, and labelling of organic products; safety and individual quality indicators of food products; quarantine and plant protection; and veterinary medicine. Under martial law, Ukrainian producers of organic products are permitted to switch from EU standards to Ukrainian production standards without an additional transition period.
As one of the world’s leading producers and exporters of agricultural commodities, sustaining and rebuilding Ukraine’s agricultural sector is essential for supporting the country’s economic recovery. The sector faces challenges on multiple fronts, including:
economic stressors as costs of production have risen and traditional support programmes have been suspended
disruptions in production and value chains due to temporary occupation of agricultural land, mining and contamination of land by explosives, and a decrease in farm labour
disturbances in trade from the closure of ports and the destruction of critical infrastructure
Temporary support measures and longer-term efforts toward recovery should address each of these to restore the sector and build the foundations for future growth.
Aid from international organisations, partner-country governments and the private sector has largely focused on direct damage to Ukraine’s agricultural sector and land resources, estimated at more than USD 8.7 billion as of April 2023, by demining farmlands, providing seeds, and investing in the construction and repair of production facilities. However, the indirect toll of the war on Ukrainian agriculture is estimated at nearly four times the direct costs, at USD 34.2 billion. Aid to offset both direct and indirect costs could ensure the continuity of production and position the sector for more-rapid recovery.
The suspension of nearly all producer-support programmes is likely to generate immediate and long-term consequences for the structure and sustainability of the sector. As funding to restore producer support becomes available, an opportunity exists to reform policy instruments for a more sustainable agricultural sector that is resilient and adaptable in the face of shocks, including those due to climate change.
There is evidence that efforts to protect international trade, such as the Black Sea Grain Initiative and the suspension of trade barriers by key trading partners, have been effective, though the volume of exports from Ukraine continues to fall. Effort should continue to reduce physical and institutional barriers to trade, not only as a temporary measure but also to ensure recovery over the medium to long term.
Overview of policy trends
Prior to the 1990s, central planning regulated all sectors of Ukraine’s economy, including agriculture, as part of the Soviet Union. The state administered prices and state enterprises controlled the production and marketing of agricultural inputs and outputs as well as the processing and distribution of food. The first reforms initiating a transition towards a market-based economy began at the end of the 1980s. A limited right to private production was established for land leased from collective farms or individuals, enabling the establishment of private family farms (von Cramon-Taubadel et al., 2008[1]).
An economic crisis in the early 1990s triggered a significant economic contraction and inflation that impacted the agricultural sector and resulted in substantial reductions in agricultural output and productivity. Consequently, several trade and price liberalisation policy reforms were reversed in the mid-1990s. Renewed reforms in agribusiness privatisation and collective farm restructuring intensified only after macroeconomic stabilisation in the 2000s (OECD/The World Bank, 2004[2]). While prior to the 1990s, the state owned all land,1 today about three-quarters of agricultural land is private property (StateGeoCadastre, 2017[3]).2
In 2005, the State Agrarian Fund was established as a state-owned public joint stock company (reorganised in 2013). Its initial mandate was to regulate grain prices through intervention purchases, to store grain in state-owned silos and sell it to bakeries to guarantee bread prices, and to provide loans to grain producers. The fund progressively became involved in other activities, such as state purchases and sales of a broad range of agricultural and food products; forward contracts; flour processing and wholesaling; and sales of fuel and mineral fertilisers to producers (OECD, 2015[4]). In 2020, a new law “On State Support of Agriculture of Ukraine”, did not mention the activities of the Agrarian Fund, implying that the Agrarian Fund may be liquidated in the future. The government budget has not allocated funds to the State Agrarian Fund since 2016, resulting in fewer state interventions in agricultural markets.
Two key events helped shape agricultural policies in Ukraine leading up to 2022. First, in 2008, Ukraine became a member of the WTO, setting its agricultural bound tariffs at an average of 10.8%, expanding its export opportunities, and contributing to changes in the system of state support for agriculture. Second, in 2014, the European Union and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) as part of their Association Agreement. The DCFTA entered into force in September 2017 and involves tariff reductions and duty-free import quotas to facilitate trade between Ukraine and the European Union, including in agricultural and food products.
From 1999 to 2016, the state provided significant support through VAT accumulation, based on an agriculture-specific VAT regime (AgVAT). Under this regime, farmers were able to retain the VAT received on their sales of primary and processed products, and to use those funds to cover the VAT on purchased inputs and for other production purposes, at their discretion. From 2014 to 2016, this mechanism provided 90% of total state support. In 2017, a development subsidy partially replaced this source of support, before the support was phased out altogether in 2018. Other notable domestic policy measures included input subsidies, tax concessions, price controls, import tariffs, non-tariff trade regulation, minimum purchase prices, direct state purchases, and preferential loans.
A moratorium banning the sale of agricultural land was put in place in 2002, although leasing for cultivation was permitted. The moratorium was extended annually through 2019 but was not formally extended into 2020. From July 2021, a new law came into force that lifts the ban on the sale of agricultural land and grants individual citizens the right to purchase up to 100 hectares of privately owned land, although a ban continues on the sale of state-owned land.3 From January 2024, larger purchases of up to 10 000 hectares will be permitted for Ukrainian citizens and Ukrainian legal entities.
Due to the negative MPS only partly offset by transfers to producers through tax concessions and other measures, support to agricultural producers was negative for most of the 1990s. The level fluctuated over the last decade but has generally been closer to zero (Figure 27.4). With little budgetary support to general services or consumers, total support to the sector remained small for most of the past 25 years.
Main policy instruments
The Ministry of Agrarian Policy and Food (MAPF) is the main executive body in Ukraine in charge of the development of agriculture. Between September 2019 and January 2021, MAPF was integrated into the Ministry of Economic Development, Trade and Agriculture (MEDTA). At the beginning of 2021, MAPF was restored. A resolution adopted by the Cabinet of Ministers of Ukraine (CMU) in February 2021 defines the functions of MAPF, including the formation and implementation of state policy in a range of areas, including agriculture, fisheries, food security, rural development, and land management.
The law, “On State Support of Agriculture in Ukraine”, adopted in 2004, defines key policy priorities and formulated agricultural support measures. This is complemented by the annual law, “On the State Budget of Ukraine”, which sets the budget for agricultural subsidies.
The law, “On Agricultural Cooperation”, entered into force in November 2020, regulating issues related to the creation, management, and dissolution of agricultural co-operatives. It eliminates a distinction between production and service co-operatives and defines co-operative education as a priority task of agricultural co-operatives.4
In 2020, the ratification of the law, “On Amendments to Certain Legislative Acts of Ukraine Concerning the Conditions of Turnover of Agricultural Lands”, created the legislative framework for the introduction of market turnover of agricultural land. The law:
Lifts a ban on the sale of agricultural land for private ownership.
Grants the right to purchase of land exclusively to Ukrainian citizens in the amount of no more than 100 hectares per person from 1 July 2021 to 1 January 2024.
Permits legal entities whose founders or final beneficiaries are Ukrainians to acquire the right of ownership, such entities cannot have businesses registered abroad or in offshore companies.
Bans the sale of land to foreigners, who can obtain the right to purchase land only after a national referendum.
Prohibits the sale of agricultural land of state and communal ownership.
Agricultural producers are eligible for a Single Tax5 set as a percentage of normative agricultural land values, which was established on 1 July 1995 and adjusted since then in line with the general consumer price index.6 The Single Tax originally replaced 12 taxes for which agricultural enterprises were liable as business entities. The scope of this tax has narrowed and at present the Single Tax replaces three taxes – the profit tax, the land tax for land used in agricultural production and a special water use fee. Agricultural producers are now liable for the other nine taxes that were previously included in the Single Tax. The Single Tax regime provides tax savings to agricultural producers of around UAH 4.3 billion (USD 133 million) annually.
In addition to the Single Tax regime, the general budget programme, “On Financial Support of Agricultural Producers”, provides measures targeted to specific activities, including partial compensation for the costs of agricultural machinery and equipment and interest rate subsidies on bank loans. For livestock producers, these also include interest rate support for loans funding livestock husbandry and breeding; partial reimbursement of costs related to the construction and reconstruction of animal farms and buildings; per-head payments for cows to agricultural enterprises and for young cattle to rural households; and partial compensation to agricultural producers purchasing breeding animals, semen and embryos. In turn, on the crop side, support is provided in the form of reimbursements for different types of on-farm investments and debt repayments.
Ukraine has been a member of the WTO since May 2008. The country charges import tariffs on most agricultural products, with applied most-favoured-nation (MFN) tariffs for agricultural products averaging 9.1%, well above the average for non-agricultural products of 3.7% (WTO, 2022[5]). While most imports face ad valorem tariffs, Ukraine maintains a global tariff-rate quota for raw cane sugar. This quota was only used in 2011 and 2021, as there was an excess sugar supply on the Ukrainian market in other years. Export duties are applied to some oilseeds, live animals, and raw hides, but have gradually decreased following Ukraine’s accession to the WTO.
The Association Agreement with the European Union, ratified by Ukraine in 2014, increasingly influences the country’s policies. On 27 June 2014, the European Union and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA), which applied provisionally from 1 January 2016 and entered into force on 1 September 2017. Under the agreement, trade liberalisation between the European Union and Ukraine is to be implemented over a transition period of seven to ten years. The European Union agreed to open tariff rate quotas (TRQs) for duty-free imports for Ukraine’s principal agro-food products, such as grain, meat and milk products, and sugar, and to grant free access for others. Ukraine, in turn, committed to reduce import duties for a number of goods from the European Union. About 40% of agriculture-related import duties were reduced to zero immediately after the agreement entered into force. During an ensuing transition period, the share of exports liberalised is schedule to increase to 96%. For some remaining agri-food tariff lines – covering selected products in product categories such as dairy and eggs, sugar, miscellaneous edible products, animal oils and fats, and feeding stuff for animals – Ukraine maintains TRQs with zero in-quota tariffs. Since 1 January 2016, Ukraine applies three TRQs with zero in-quota tariffs for imports from the European Union of pig meat, poultry meat and poultry meat preparations, and sugar. Both the European Union and Ukraine committed to eliminate export subsidies for mutually traded agricultural goods.
The DCFTA incorporates fundamental WTO rules on non-tariff barriers, such as prohibition of import and export restrictions, and disciplines on state trading. However, Ukraine’s difficulty complying with EU food safety, veterinary and phytosanitary requirements has created a barrier for trade integration. The DCFTA contains provisions for technical regulations, standards and conformity assessments to harmonise with those of the European Union, as well as for technical co-operation in the field of regulations, standards and related issues between Ukraine and the European Union. In line with these provisions, the “Comprehensive Strategy of Implementing Legislation on Sanitary and Phytosanitary Measures” was approved in 2016 and provides a process for harmonisation of Ukraine’s SPS legislation with EU requirements. As of 2021, 64% of Ukraine’s obligations under the Sanitary and Phytosanitary Measures section of the agreement have been fulfilled.7
Other free trade agreements (FTAs) in which Ukraine is engaged include the FTA with the European Free Trade Association (EFTA), in force since June 2012; the multilateral FTA with the Commonwealth of Independent States (CIS), in force since August 2012; bilateral agreements with all CIS members; and the Canada-Ukraine FTA, in force since August 2017.8 FTAs with Israel and the United Kingdom entered into force in January 2021. In February 2022, Ukraine and Türkiye signed a new FTA (see below).
In July 2019, the CMU approved the “Strategy for the Development of Exports of Agricultural and Food Products for the period up to 2026.” It focuses on product competitiveness, an expanded range of export products, Ukrainian food brands, and supporting information and analysis on agro-food exports.
Climate change adaptation policies in agriculture
Despite the challenges associated with operating under martial law, Ukraine enacted several measures in 2022 to support agricultural climate-change adaptation. A resolution to improve state support for agricultural water users directed funds to support a subsidy up to 25% of the cost of irrigation systems put into operation. The measure aims to enhance efficiency, increase the area of reclaimed land, and contribute to increased food security.
The Land Protection Programme was adopted in January 2022 to ensure the sustainability of land use and contribute to the creation of ecologically safe living conditions. In place through 2032, the programme seeks to optimise the structure of the agricultural landscape, reduce ploughed land area, increase the productivity of agricultural land, reduce the threat to land resources from degradation processes, and preserve natural wetlands.
Several adaptation actions were incorporated into Ukraine’s second Nationally Determined Contribution (NDC) submitted under the Paris Agreement. These include:
introduction of minimised tillage techniques and a ban on stubble burning in fields
support for land-protection activities and the restoration of windbreaks
harmonisation with EU legislation of domestic regulations on the distribution and use of pesticides and agrochemicals
introduction of best agricultural practices for zones vulnerable to nitrate pollution
support for returning and restoring degraded land, with purchase by the state or payments for decommissioning
support for the use of manure at all stages, including production, processing, storage, transportation, and application, and its utilisation in biogas production
support for the development of organic agriculture and the observance of crop rotations
An agreement on the participation of Ukraine in the EU LIFE environmental and climate action programme was ratified in September 2022, ensuring Ukraine’s participation as an associate member and its contribution to the implementation of joint projects.
Domestic policy developments in 2022-23
The year 2022 marked a significant departure from standard agricultural policies and support mechanisms due to the Russian war of aggression. Virtually all traditional support programmes were suspended, while new temporary measures were introduced during the period of martial law.
Changes in Agricultural Support Measures
The majority of subsidy and grant programmes that operated in 2021 were suspended starting in 2022. Among the suspended programmes were per-hectare payments for producers of buckwheat; per-hectare payments for crop losses due to emergencies and natural disasters; subsidies for cow herd expansion and for goats and sheep; financial support for horticulture, viticulture, and hop growing; state support for potato growers; a subsidy for beekeeping; and partial compensation for agricultural machinery and equipment.
New input subsidies were created to support small agricultural producers in wartime conditions, including a subsidy per unit of arable land for producers with up to 120 hectares in cultivation and a subsidy for keeping cows for producers with 3 to 100 animals. Grant programmes were introduced for the construction of greenhouses and horticultural gardens, both of which tie the receipt of aid to the creation of jobs. Although the MAPF approved grant spending of UAH 383 million (USD 11.8 million) in 2022, only UAH 54 million (USD 1.7 million) was transferred to recipients. The remainder of the promised funds will be transferred to recipients from the general fund of the state budget for 2023.
Some measures were introduced to allow farmers to carry out consistent field operations during wartime. Critical workers identified by agricultural and food enterprises as necessary to carry out spring and summer field work were granted a deferment of up to six months from being enlisted for military service; operating agricultural machinery without registration was allowed while under martial law; and the validity of permits to work with pesticides and agrochemicals was extended. Ukrainian farmers were not obligated to repay loans received under state support for livestock breeding or elevator construction if the assets were destroyed as a result of military aggression.
Several forms of financial support were developed or expanded in 2022. A fund to support the partial guarantee of loans was created to provide guarantees for credit obligations of farmers for up to 10 years covering 50% of the outstanding amount of their principal debt to the financial institutions with which the fund entered into a co-operative agreement. Another resolution established the provision of state support for agricultural products insurance covering up to 60% of the payments made for insurance of agricultural products. To support agricultural commodity producers during the sowing period, the existing programme “Affordable Loans 5-7-9%” was expanded to include medium and large-sized enterprises, the maximum loan amount was increased, and a 0% annual interest rate was established.
Changes to the legal framework
Several temporary changes in land markets under martial law were introduced, including a law simplifying the procedure to acquire rights to use agricultural land during wartime, a resolution on maintaining the State Land Cadastre, changes in tenant rights on leased land, and special rules for use and disposal of land plots of entities that are of importance to the national economy. A law was also introduced to restore the registration system of agricultural land plot lease rights that existed before the introduction of martial law.
Additional laws were adopted that influence land reform. These include a new law stipulating that land auctions be conducted in a state-owned electronic trading system, a resolution approving the procedure for notarisation of data on buyers of land, and a law strengthening the protection of property and corporate rights with anti-raiding measures to prevent illegal seizure.
In terms of agri-environmental measures, the new law, “On Organizations of Water Users and Stimulation of Hydrotechnical Land Reclamation” creates a legal basis for the formation and operation of water-user organisations, transfers to them infrastructure management functions, and establishes a legal mechanism for making investments in reclamation infrastructure.9 A resolution defines rules governing the development of land management projects, including the removal and transfer of fertile soils and the improvement of agricultural lands.
New laws were also introduced to simplify agricultural machinery registration; change the certification process for seeds, particularly those that are exported; and to improve phytosanitary measures.
The Ministry of Economy of Ukraine, along with MAPF, continues to translate European Union directives into national legislation as part of the implementation of the Association Agreement. This resulted in a number of changes in domestic agricultural policy, including legislation governing the production and sale of baby food; protection of the geographical indications for agricultural products; simplification of the procedure for registering plant varieties and for certifying seeds and planting materials; and state registration of livestock facilities according to European Union standards.
Consumer support measures
Under martial law, the CMU obligated state bodies to ensure price controls for a basket of goods including wheat flour, pasta, bread, buckwheat groats, pork, beef, poultry, milk, chicken eggs, sunflower oil, granulated sugar, white cabbage, onion, beetroot, carrot, and potatoes. From January 2022 to April 2022, state regulation established a maximum trade markup of 10%. This was a temporary measure that was partially lifted via a subsequent resolution, “Weakening of State Regulation of Product Prices”, which abolished state regulation of prices for some goods (namely buckwheat, granulated sugar, domestically produced pasta, and butter), although a requirement for sellers to declare any price increase exceeding 5% remained in place. The cost of natural gas was also limited for producers of flour and bread, milk, chicken, and sunflower oil through April 2022. The government set the maximum level of surcharge on the price of Ukrainian-produced natural gas (excluding rent payments) at no more than 24% for food producers.
The resolution of March 2022, “Some Issues of Providing the Citizens with Long-Term Food Products and Sanitary and Hygienic Products under Martial Law”, provided products to residents in regions with active hostilities free of charge. Products covered include flour; cereals; pasta; sunflower oil; canned meat, fish, and legumes; sugar; milk or its substitutes; bakery and confectionery products; tea; and coffee. The resolution established the rate of each product per person for one month.
In 2022, the government temporarily changed food labelling requirements under martial law. As a result of forced changes in recipes due to the limited availability of raw materials, a difference between the actual content of a food product and the mandatory information of the labelling of the product was allowed, with the caveat that the consumer be informed in any possible way about the presence of allergens. Imported food products and fodder could be sold with product information in a foreign language for a portion of the year, though any goods with foreign language labels that were imported from March to December 2022 may remain in circulation until the expiration date.
Domestic policy responses to the COVID-19 pandemic
Financial state support for agricultural entities is carried out via the Entrepreneurship Development Fund (EDF), a non-profit institution that directs loans to micro, small, and medium enterprises (MSMEs). In particular, state support is provided to prevent the outbreak of epidemics, including the COVID-19 pandemic, as well as to prevent and overcome their consequences. This programme features a reduction of loan interest rates for enterprises impacted by quarantine, with reduced loan interest rates of 5%, 7%, and 9% annually and partial loan guarantees for some businesses.10 In March 2022, the programme was modified to better support agricultural commodity producers while sowing during the period of martial law by providing investment loans for the purchase of agricultural machinery, seeds, fertilisers, fuels and lubricants.
Trade policy developments in 2022-23
At the outset of the war, the National Bank of Ukraine imposed restrictions on the purchase of foreign currency and cross-border transfers for the import of goods. However, a resolution by the CMU permitted the Bank to pay for goods on a list of critical imports. The list was updated 16 times as the restrictions were gradually phased out and eventually cancelled in July 2022. Another resolution simplified the clearance of certain goods through customs, allowing for a deferment of customs payments for meat and dairy products, fish, vegetables, oil, coffee, tea, sugar, and cocoa.
The law, “On the Customs Tariff of Ukraine”, entered into force on 1 January 2023. The law allows for a re-classification of import goods according to the Harmonized Commodity Description and Coding System of 2022 and the corresponding version of the European Union’s Combined Nomenclature. This does not affect the rates of import duties applied to specific HS codes.
At present, Ukraine places a tariff and quota on only one agricultural commodity, raw cane sugar. In 2021, the quota was set at 260 000 tonnes with a 2% tariff. In 2022, the Ministry of Economy began accepting applications for raw cane sugar importers for a volume of 267 800 tonnes.11 Export duties are applied to only a few products, including some oil seeds, live animals, and raw hides. The rates have been significantly reduced as part of the implementation of the WTO commitments framework.
On 3 February 2022, prior to the invasion by Russia, Ukraine and Türkiye signed an FTA, enabling an increase in trade with Türkiye from USD 7.5 billion to USD 10 billion in five years. Türkiye is a major trading partner with Ukraine, accounting for 4.49% of Ukraine’s total imports (7th largest partner) and 4.95% of its exports (4th largest partner) annually (World Bank, 2023[6]). The FTA specifies a tariff schedule with negotiated TRQs and duties for a number of important exports from Ukraine to Türkiye (e.g. live cattle, dried peas, soft wheat, corn, and crude sunflower oil) and imports to Ukraine from Türkiye (e.g. tomatoes, cucumbers, grapes, apricots, and other fruits and vegetables). At present, the ratification process of the FTA is continuing.
Ukraine ratified an agreement on the abolition of import duties and tariff quotas in bilateral trade with the United Kingdom, beginning 19 June 2022 and lasting for at least 12 months. The agreement is expected to increase exports of Ukrainian agricultural products, including flour, dairy products, poultry, and tomato paste, to the United Kingdom.
The government of Canada cancelled import duties and quantitative restrictions on Ukrainian products for the year as part of the FTA between Ukraine and Canada. In April 2023, Canada and the Ukraine agreed to expand the FTA to further liberalise trade, eliminating tariffs on exports from the Ukraine to Canada, even if components are obtained from other countries (The New Voice of Ukraine, 2023[7]).
Annually since 2011, MAPF signs a Memorandum of Understanding with grain market participants to ensure food security, avoid the application of export restrictions, ensure the projected grain export regime, and stabilise the grain market in Ukraine. The document is one of the key factors in maintaining a balance between domestic grain consumption and export opportunities, as well as stability and predictability in food markets. It typically sets a maximum volume of wheat exports, which was 25.3 million tonnes in the 2021-22 marketing year. In the 2022-23 marketing year, because of Russia’s war of aggression against Ukraine, the Memorandum was not signed.
The government of Ukraine prohibited the export of some goods and applied licensing to the export of others for all or part of the year. Export prohibitions applied to oats; millet; buckwheat; sugar; salt; rye; live cattle; and meat and offal from cattle, frozen in brine, dried, or smoked. Goods subject to licensing were those considered socially important, including wheat, corn, meat of domestic chickens, eggs of domestic chickens, and sunflower oil. Subsequent resolutions cancelled the ban on exports for beef, cancelled export licensing for wheat, and replaced the ban with export licensing for fertilisers, buckwheat and oats.
In 2022, the European Council adopted a regulation allowing for temporary trade liberalisation and other trade concessions with regard to certain Ukrainian products. The decision applies for a period of one year and suspends tariffs, anti-dumping duties on imports originating from Ukraine, and the application of common rules for imports originating in Ukraine. Ukrainian exporters do not use in full European Union import tariff rate quotas for animal products and for beef, pork, and lamb TRQs have never been used at all. At present, Ukraine is working to certifying domestic production capacity for exports to the European Union. As of early 2023, six poultry plants received permission from the European Union veterinary services for the trade of poultry products and 45 dairy processing enterprises were allowed to export milk products to the European Union.
A resolution introduced in 2015 to abolish zero import duty rates for imports of goods from Russia was extended through the end of 2023. A Ukrainian resolution bans completely the export of goods to Russia, until such time as the war of aggression ends.
During the period of martial law, new rules have been applied for state veterinary and sanitary control. State control over compliance with legislation on food products, feed, animal by-products, veterinary medicine, and animal welfare is carried out at all checkpoints on the state border of Ukraine and customs control zones. A comprehensive list sets out grounds for physical inspection and laboratory tests for imported goods and the procedure for import and transport of animals. Imported feed additives are permitted even if they are not registered in Ukraine if they are registered in the European Union and intended for livestock production.
Ukraine withdrew from the Agreement on the Common Agrarian Market with the Commonwealth of Independent States (CIS) effective 8 June 2022. The CIS facilitates free exchange and sharing of agricultural commodities, food processing technologies, and services for the agro-industrial sector, among a number of former members of the Soviet Union, including Russia.12
Ukraine has a large area of fertile arable land resulting in a widespread presence of agriculture in the economy and high production relative to the size of the population. Although agriculture’s relative importance in the economy has declined over time, the agricultural and food industry accounted for 20% of the country’s GDP, 18% of total employment, and more than 40% of the value of total exports prior to the war (Table 27.3).
The fall in Ukraine’s GDP in 2022 is estimated to be more than 30% according to the Ministry of Economy, reaching its lowest level since Ukraine gained independence. The direct damage from the war as of the beginning of December 2022 is estimated to be at least USD 135.7 billion. The labour market also suffered significantly in 2022: the National Bank of Ukraine estimates the unemployment rate at 30%, while 77% of working Ukrainians state a decrease in income compared to 2021. Nearly half are uncertain about whether they will receive income in the future. According to the Pension Fund, nominal wages in Ukraine decreased by 5% during the year and real income decreased by 21%. The rate of inflation in Ukraine was 20.2% in 2022, far outpacing the OECD average of 8.2%.
In 2022, Ukraine was able to sow and harvest only 75% of its agricultural land and total agricultural production fell by 28.3% compared to the level in 2021, with a 32.3% decrease in crop production and an 11.1% decrease in livestock production, as estimated by the State Statistics Service and the Ministry of Agrarian Policy and food of Ukraine. Production declines were particularly pronounced for wheat, maize, and sunflower seeds. Corporate agricultural enterprises suffered greater production losses than rural households. Rural households are often subsistence-oriented but accounted for 37% of Ukraine’s crop production and 53% of livestock production in 2018 (Nivievskyi, Iavorskyi and Donchenko, 2021[8]).
Ukraine has been, and remains even during wartime, among the world’s leading exporters of agricultural commodities, in particular grain products (wheat, barley, maize) and vegetable oils (rapeseed and sunflower oil). Exports of agro-food products have grown steadily since 2015, reaching a high of over USD 25 billion in 2021 (Figure 27.5). Most exports are primary and processed products used by industry, whereas two-thirds of imports are used for final consumption. Russia’s strategy against Ukraine involves blocking ports and disrupting Ukrainian food supply chains. However, international efforts, such as the Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian ports (also known as the Black Sea Grain Initiative), an agreement between Russia, Ukraine, Türkiye and the United Nations (UN), helped to sustain international trade. According to the State Customs Service of Ukraine, agricultural exports totalled USD 23.4 billion in 2022, which represents a 15.5% reduction relative to 2021, though this represents an increase relative to the level in 2020 and before. The volume of trade with the European Union saw a three-fold increase due to the establishment of safe export corridors.
Growth in total factor productivity in Ukraine has increased from negative levels in the decade from 1993-2002, to a positive level that exceeded the global average for the period 2011-20, at 3% for the (Figure 27.6). Intermediate inputs and the use of primary factors shrank over the same period. Although agriculture has declined in importance for Ukraine’s economy, the share of the sector in national GHG emissions has increased, from 8.7% in 1993-2002 to 13.1% in 2011-2020 (Table 27.4). The average nitrogen balance fell over the same period and remains below the OECD-wide average. The phosphorus balance is negative, which may pose challenges in terms of sustaining soil fertility in the long run.
References
[8] Nivievskyi, O., P. Iavorskyi and O. Donchenko (2021), Assessing the role of small farmers and households in agriculture and the rural economy and measures to support their sustainable development, Kyiv School of Economics (KSE).
[4] OECD (2015), Sector competitiveness strategy for Ukraine - Phase III. Review of Agricultural Investment Policies of Ukraine, OECD Eurasia Competitiveness Programme, https://www.oecd.org/eurasia/competitiveness-programme/eastern-partners/Agricultural_Investment_Policies_Ukraine_ENG.pdf (accessed on 20 March 2023).
[2] OECD/The World Bank (2004), Achieving Ukraine’s Agricultural Potential: Stimulating Agricultural Growth and Improving Rural Life, The World Bank, Washington, D.C., https://doi.org/10.1787/9789264055841-en.
[3] StateGeoCadastre (2017), Review of the State of Land Relations in Ukraine, https://land.gov.ua/wp-content/uploads/2017/03/Land-Review-Monthly_3_final-1.pdf (accessed on 20 March 2023).
[7] The New Voice of Ukraine (2023), Ukraine, Canada agree to expand bilateral free trade deal, https://english.nv.ua/business/ukraine-canada-agree-to-expand-bilateral-free-trade-deal-news-50317202.html (accessed on 31 May 2023).
[9] USAID (2023), LandLinks: Ukraine, https://www.land-links.org/country-profile/ukraine/ (accessed on 31 May 2023).
[1] von Cramon-Taubadel, S. et al. (2008), “Ukraine”, in Anderson, K. and J. Swinnen (eds.), Distortions to agricultural incentives in Europe’s transition economies, World Bank, Washington, D.C.
[6] World Bank (2023), WITS: World Integrated Trade Solution, https://wits.worldbank.org/CountryProfile/en/Country/UKR/Year/LTST/TradeFlow/EXPIMP/Partner/by-country (accessed on 24 April 2023).
[5] WTO (2022), World Tariff Profiles 2022, WTO ITC UNCTAD, https://www.wto.org/english/res_e/publications_e/world_tariff_profiles21_e.htm (accessed on 29 March 2023).
Notes
← 1. Article 3 of the Land Code of the Ukrainian SSR, https://zakon.rada.gov.ua/laws/show/2874%D0%B0-07/ed19920101#Text.
← 2. More recent estimates suggest that the share of private property in agricultural land is even higher, at 80%: Mykola Solsky (People’s Deputy, Chairman of the Verkhovna Rada Committee on Agrarian and Land Policy), “It’s all about the land”, 2 April 2020, https://www.epravda.com/ua/columns/2020/04/2/658911/.
← 3. Collective and state-owned farms were privatised starting in the late 1990s. At present, approximately 90% of land is privately owned (USAID, 2023[9]).
← 4. The activities of co-operatives are defined broadly such that the legal framework does not constrain their activities, except in the case of co-operatives operating for profit, which are limited in terms of the magnitude of transactions permitted with non-members.
← 5. Termed the “Fixed Agricultural Tax” before 2015.
← 6. The monetary valuation of land plots can take one of two types, normative and expert, both of which are defined by the Law of Ukraine, “On Land Valuation.” The normative land value is based on rent income for an area of one square meter, indexed to take into account the prior year’s inflation.
← 7. According to the “Report on implementation of the Association Agreement between Ukraine and the European Union 2021”. In 2021 and 2022, several regulations were adopted relevant to the use of feed additives, veterinary medicine, and the transit of goods between the European Union and Ukraine.
← 8. Other members and associate members of the CIS are Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, and Uzbekistan.
← 9. Law No. 2079-IX of 17 February 2022.
← 10. The offer of loans with interest rates of 5%, 7%, and 9% depends on the purpose of financing, annual income from business activities, and the number of jobs created. Lower rates are offered to MSMEs with annual income below UAH 50 million (USD 1.5 million) and for those that create at least two jobs during the reporting quarter.
← 11. The quota increased from 260 000 tonnes in 2021.
← 12. The CIS member states are Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, and Uzbekistan.