The cornerstone of Ukrainian economic development
Agriculture stands as the cornerstone of the Ukrainian economy, providing sustenance for a significant portion of the population. Ukraine's fertile lands, favorable climate, and investment climate have not only nourished its people but also fueled food exports to Asia, Africa, and the Middle East. Yet, the dynamics within Ukraine's agriculture sector are complex, with large-scale agribusiness and family farming sharing the landscape.
Before the war, agriculture was thriving, but the Russian invasion has brought disruption and challenges to the sector. The scramble for resources and government support between big business and family farmers continues, raising questions about the future of Ukrainian agriculture. As Ukraine navigates its path toward recovery, join us in exploring the intricate web of issues affecting this vital sector and the potential impacts on global food security.
Agriculture is the central pillar of the Ukrainian economy and a major source of livelihood for about one third of the Ukrainian population. The abundant fertile land, suitable climatic conditions, and a relatively favorable investment climate have made Ukraine able not only to feed itself, but also to provide food for millions of people in Asia, Africa, the Middle East, and other countries. Before the war, agriculture was one of the fastest growing sectors in Ukraine (with an annual growth of 5-6%), contributing 10,9% of GDP and providing 17% of domestic employment by 2021.
However, agriculture has also been an area of tension in Ukraine, where two different modes of production – namely, large-scale industrial agribusiness and family-based farming – have been co-existing over the years. Agribusiness controls 53.9% of arable land and contributes to 54.5% of Ukraine's gross domestic agricultural output, primarily specializing in the production of grain and oilseeds for export. The remaining share, 46.1% of total agricultural product, comes from a diverse set of small and medium-sized family farms and rural households that cultivate 45.5% of the land, producing potatoes, vegetables, fruits, grain, dairy and meat products for personal consumption and sale in domestic markets.
Despite the important role of family-based agriculture for domestic food security, the interests of family farmers and rural households are often overlooked by Ukrainian policy makers, who prioritize big business in their vision of economic development. Many agricultural and rural development programs are de jure aimed at supporting various food producers, but the de facto beneficiary is agribusiness, which receives about 60-70%1of state agricultural subsidies and monopolizes the industrial agri-food value chain.
Russia's full-scale invasion of Ukraine on 24 February 2022 has severely disrupted food production and trade in Ukraine, jeopardizing Ukrainian and global food security. Deliberate attacks by the Russian army on Ukrainian agriculture including the shelling of agricultural facilities and infrastructure across Ukraine, the use of landmines and burning of farmland near the zones of active hostilities, the five-month blockade of the Black Sea ports (and the reassertion of the blockade as of July 2023), and the explosion of the Kakhovka dam have all severely tested the Ukrainian agrarian sector. The export-oriented agribusiness suffered the greatest losses, especially at the beginning of the war. Meanwhile, family farms and rural households, despite extreme difficulties, were able to adapt to harsh conditions and provide food to the Ukrainian army and people.
Various measures have been undertaken by the Ukrainian government and its international allies to support food production and trade during the war. These, among others, include the reduction of certain taxes, tariffs and quotas, and developing new storage facilities and overland routes to export Ukrainian agricultural commodities. A continuous assessment of damage caused by the war to agriculture and the environment is carried out by Ukrainian government agencies, as well as independent national and international expert organizations. This assessment laid the foundation for the plan for the post-war recovery and development of Ukraine, which was presented in Lugano, Switzerland on 4-5 July 2022, and a year later, on 21-22 June 2023, was discussed by the world leaders at the Ukraine Recovery Conference in London, UK. However, Ukrainian civil society and academia are concerned that these measures are likely to benefit export-oriented agribusiness, leaving family farmers and rural households on the sidelines.
The war has not stopped the tensions between large and small agricultural producers in Ukraine. On the contrary, it has exacerbated them. Russia invaded Ukraine in the midst of a land reform aimed at lifting a moratorium on the sale of farmland that had been in place since 2001. Despite calls from concerned academics, NGOs and family farmers, the government has not halted the reform. Many policy makers hope that liberalization of the land market will boost investments in Ukrainian large-scale agriculture and generate budget revenues from agri-food export needed to rebuild the country after the war (before the war, the agricultural sector accounted for 45% of export earnings). At the same time, due to Ukraine’s commitment to join the EU, the Ukrainian government is now supposed to revise the rules and regulations with respect to agricultural and rural development to comply with the EU’s Common Agricultural Policy (which should in theory imply less support for large-scale export-oriented agribusiness and more investment in rural development programs and commercialization of family farming).
Bimodal agricultural structure: agroholdings and family farms
The co-existence of large industrial and small household farming in Ukraine has a long history. In early Soviet times, the land and property of peasants were expropriated in favor of collective and state farms (kolhospy and radhospy), where the rural population was employed as wage laborers. However, the planned economy was unable to provide the population with sufficient food, and subsidiary farming on household plots was permitted throughout the Soviet period.
This small-scale food production was seen by policy makers as having the potential to develop into the Western model of commercial family farming after the collapse of the Soviet Union in 1991. Then, a land reform was initiated which distributed agricultural land to former collective and state farm workers who received titles to specific plots of land (a so-called “pai” which means a (land) share in Ukrainian). However, all the necessary production inputs and enabling conditions for farming (capital and machinery, know-how, upstream and downstream markets, the rule of law) either disappeared with the breakdown of the collectives or were in the early stages of development in the chaotic market environment of the 1990s. Only a small number of landowners had the capacity and/or willingness to establish commercial family farms. Most of the population instead rented their land back to the former kolhospy and radhospy, the vast majority of which were reorganized into market oriented agricultural enterprises.
In the early 2000s, Ukrainian land became the object of financial interest of domestic and international investors, including Ukrainian oligarchs and transnational corporations, who invested heavily in large-scale industrial agriculture. Conceding to public opinion and also to prevent land concentration and land grabbing, the government of Ukraine introduced a temporary moratorium on land sales in 2001, which has been extended multiple times over the past 20 years (read here (external link) on the Land Question in Ukraine). The moratorium, however, did not halt the concentration of land: the reorganized collective and state farms were merged into larger agglomerates – so-called agroholdings – that extended their monopoly power over the entire value chain i.e. from production to storage, distribution and export.
Today, there are about 15,600 agricultural companies that control 53.9% (18 million hectares) of Ukrainian arable land by leasing land from the rural population. Approximately 40% of all agricultural companies are incorporated into agroholdings, which are the largest land holders in Ukraine. The top 10 largest agroholdings control 2.6 million hectares of agricultural land, which is 8% of all arable land in Ukraine. The landbank of the largest agroholdings are roughly 500,000 hectares (see Latifundinst report (external link) on the top 100 land holders in Ukraine). The source of financing for agroholdings is diverse. Some agroholdings developed mostly (at least initially) based on domestic sources of capital, while some are part of transnational corporations. A number of Ukrainian agroholdings have attracted financing through public offerings of their shares on international stock exchanges (external link)2, while additionally benefiting from funding provided by international financial institutions such as the European Bank for Reconstruction and Development and the International Finance Corporation. Although agroholdings have invested heavily in strategic and financial transparency, Corporate Social Responsibility and stakeholder engagement, rare but high-profile corruption scandals, such as in the case of UkrLandFarming (external link) and Mriya (external link), have left a stain on the reputation of these agricultural giants in Ukraine.
There is no clear definition and classification of family-based farming in Ukraine.3 Different agencies provide different information about their size, quantity, and agricultural output. According to the Institute for Economics and Forecasting of the National Academy of Sciences of Ukraine, there are 31,800 registered family farmers (fermerske hospodarstva) and 3.9 million rural households (osobyste selyanske hospodarstva), but the actual number may be higher.4 Family farms have an average size of 50 to 100 hectares, which is relatively large compared to the EU average farm size of 17.4 hectares. Family farmers cultivate about 15% of arable land in Ukraine and produce 8.7% of domestic agricultural output. Some rural households function as commercial family farmers (the so-called odnoosibnyky), others – as subsistence-oriented food producers. Rural households produce 37.4% of domestic agricultural output by cultivating 30% of farmland in the country (they are quite heterogeneous in terms of land use: 85% cultivate from 1 to 5 hectares, 9% - from 5 to 10 hectares, and 6% - more than 10 hectares). Family farmers and rural households together produce 95% of potatoes produced in Ukraine, 85% of vegetables, 80% of fruits and berries, about 75% of milk and more than 35% of meat. Their production methods are more socially and environmentally sustainable when compared to large agribusiness and are carried out in accordance with local traditions and practices.
Despite the important role of family farmers and rural households in ensuring domestic food security, their interests are often overlooked by the state that largely follows the idea of “big is beautiful” and aligns itself with big business (many state authorities have direct or indirect ties to large agribusiness). Over the years, various programs have been initiated to support different forms of agriculture in Ukraine, yet their implementation is often influenced by large business interests. Thus, Mykola Stryzhak, the honorary president of the Association of Farmers and Private Landowners of Ukraine, argued that it is not the law, but the so-called "telephone principle" that determines who benefits from state support for agriculture:
A law adopted by Verkhovna Rada [the Ukrainian Parliament] may not be implemented. But if someone “from above” called on the phone – God forbid not to fulfil! Compulsory! […] The banks were “advised” not to give credits to unreliable farmers. Unreliable farmers are those with less than 500 hectares.5
The cancellation of the moratorium on land sales is one of the most controversial and politically sensitive reforms. Proponents of an open land market argue that this will increase the transparency of land-based relations, allow for more efficient farming, and let landowners receive higher prices for their land. Opponents fear that the creation of an open land market without proper support programs for smallholders will lead to the further concentration of land in hands of large agribusiness, displacement of private farmers (as they cannot compete for land with big business), environmental degradation (due to industrial farming methods), as well as further depopulation of Ukrainian villages. A public opinion survey (external link) conducted in 2019 by the Democratic Initiatives Foundation, together with the Kiev International Institute of Sociology, showed that only 24% of respondents were positive about the opening of the land market, the majority - 58% - were negative.
Nevertheless, on 31 March 2020, the Verkhovna Rada adopted amendments to the Land Code, which determined the stages for the cancellation of the moratorium. At the first (transitional) stage, which started on 1 July 2021, one individual (not a legal entity) could buy up to 100 hectares of farmland. The transitional period was designed to allow family farmers and other smallholders to buy the land first and give access to the market for larger companies afterwards. After 2024, both individuals and legal entities will be allowed to purchase up to 10,000 hectares of land. For now, the law prohibits foreigners and foreign companies from buying farmland, something that can change only with a national referendum - however, there are several loopholes in the legislation, such as the possibility of dual citizenship, which allows foreigners to participate in the land market.
Before the war, agriculture was thriving, but the Russian invasion has brought disruption and challenges to the sector. The scramble for resources and government support between big business and family farmers continues, raising questions about the future of Ukrainian agriculture. As Ukraine navigates its path toward recovery, join us in exploring the intricate web of issues affecting this vital sector and the potential impacts on global food security.
Agriculture is the central pillar of the Ukrainian economy and a major source of livelihood for about one third of the Ukrainian population. The abundant fertile land, suitable climatic conditions, and a relatively favorable investment climate have made Ukraine able not only to feed itself, but also to provide food for millions of people in Asia, Africa, the Middle East, and other countries. Before the war, agriculture was one of the fastest growing sectors in Ukraine (with an annual growth of 5-6%), contributing 10,9% of GDP and providing 17% of domestic employment by 2021.
However, agriculture has also been an area of tension in Ukraine, where two different modes of production – namely, large-scale industrial agribusiness and family-based farming – have been co-existing over the years. Agribusiness controls 53.9% of arable land and contributes to 54.5% of Ukraine's gross domestic agricultural output, primarily specializing in the production of grain and oilseeds for export. The remaining share, 46.1% of total agricultural product, comes from a diverse set of small and medium-sized family farms and rural households that cultivate 45.5% of the land, producing potatoes, vegetables, fruits, grain, dairy and meat products for personal consumption and sale in domestic markets.
Despite the important role of family-based agriculture for domestic food security, the interests of family farmers and rural households are often overlooked by Ukrainian policy makers, who prioritize big business in their vision of economic development. Many agricultural and rural development programs are de jure aimed at supporting various food producers, but the de facto beneficiary is agribusiness, which receives about 60-70%1of state agricultural subsidies and monopolizes the industrial agri-food value chain.
Russia's full-scale invasion of Ukraine on 24 February 2022 has severely disrupted food production and trade in Ukraine, jeopardizing Ukrainian and global food security. Deliberate attacks by the Russian army on Ukrainian agriculture including the shelling of agricultural facilities and infrastructure across Ukraine, the use of landmines and burning of farmland near the zones of active hostilities, the five-month blockade of the Black Sea ports (and the reassertion of the blockade as of July 2023), and the explosion of the Kakhovka dam have all severely tested the Ukrainian agrarian sector. The export-oriented agribusiness suffered the greatest losses, especially at the beginning of the war. Meanwhile, family farms and rural households, despite extreme difficulties, were able to adapt to harsh conditions and provide food to the Ukrainian army and people.
Various measures have been undertaken by the Ukrainian government and its international allies to support food production and trade during the war. These, among others, include the reduction of certain taxes, tariffs and quotas, and developing new storage facilities and overland routes to export Ukrainian agricultural commodities. A continuous assessment of damage caused by the war to agriculture and the environment is carried out by Ukrainian government agencies, as well as independent national and international expert organizations. This assessment laid the foundation for the plan for the post-war recovery and development of Ukraine, which was presented in Lugano, Switzerland on 4-5 July 2022, and a year later, on 21-22 June 2023, was discussed by the world leaders at the Ukraine Recovery Conference in London, UK. However, Ukrainian civil society and academia are concerned that these measures are likely to benefit export-oriented agribusiness, leaving family farmers and rural households on the sidelines.
The war has not stopped the tensions between large and small agricultural producers in Ukraine. On the contrary, it has exacerbated them. Russia invaded Ukraine in the midst of a land reform aimed at lifting a moratorium on the sale of farmland that had been in place since 2001. Despite calls from concerned academics, NGOs and family farmers, the government has not halted the reform. Many policy makers hope that liberalization of the land market will boost investments in Ukrainian large-scale agriculture and generate budget revenues from agri-food export needed to rebuild the country after the war (before the war, the agricultural sector accounted for 45% of export earnings). At the same time, due to Ukraine’s commitment to join the EU, the Ukrainian government is now supposed to revise the rules and regulations with respect to agricultural and rural development to comply with the EU’s Common Agricultural Policy (which should in theory imply less support for large-scale export-oriented agribusiness and more investment in rural development programs and commercialization of family farming).
Bimodal agricultural structure: agroholdings and family farms
The co-existence of large industrial and small household farming in Ukraine has a long history. In early Soviet times, the land and property of peasants were expropriated in favor of collective and state farms (kolhospy and radhospy), where the rural population was employed as wage laborers. However, the planned economy was unable to provide the population with sufficient food, and subsidiary farming on household plots was permitted throughout the Soviet period.
This small-scale food production was seen by policy makers as having the potential to develop into the Western model of commercial family farming after the collapse of the Soviet Union in 1991. Then, a land reform was initiated which distributed agricultural land to former collective and state farm workers who received titles to specific plots of land (a so-called “pai” which means a (land) share in Ukrainian). However, all the necessary production inputs and enabling conditions for farming (capital and machinery, know-how, upstream and downstream markets, the rule of law) either disappeared with the breakdown of the collectives or were in the early stages of development in the chaotic market environment of the 1990s. Only a small number of landowners had the capacity and/or willingness to establish commercial family farms. Most of the population instead rented their land back to the former kolhospy and radhospy, the vast majority of which were reorganized into market oriented agricultural enterprises.
In the early 2000s, Ukrainian land became the object of financial interest of domestic and international investors, including Ukrainian oligarchs and transnational corporations, who invested heavily in large-scale industrial agriculture. Conceding to public opinion and also to prevent land concentration and land grabbing, the government of Ukraine introduced a temporary moratorium on land sales in 2001, which has been extended multiple times over the past 20 years (read here (external link) on the Land Question in Ukraine). The moratorium, however, did not halt the concentration of land: the reorganized collective and state farms were merged into larger agglomerates – so-called agroholdings – that extended their monopoly power over the entire value chain i.e. from production to storage, distribution and export.
Today, there are about 15,600 agricultural companies that control 53.9% (18 million hectares) of Ukrainian arable land by leasing land from the rural population. Approximately 40% of all agricultural companies are incorporated into agroholdings, which are the largest land holders in Ukraine. The top 10 largest agroholdings control 2.6 million hectares of agricultural land, which is 8% of all arable land in Ukraine. The landbank of the largest agroholdings are roughly 500,000 hectares (see Latifundinst report (external link) on the top 100 land holders in Ukraine). The source of financing for agroholdings is diverse. Some agroholdings developed mostly (at least initially) based on domestic sources of capital, while some are part of transnational corporations. A number of Ukrainian agroholdings have attracted financing through public offerings of their shares on international stock exchanges (external link)2, while additionally benefiting from funding provided by international financial institutions such as the European Bank for Reconstruction and Development and the International Finance Corporation. Although agroholdings have invested heavily in strategic and financial transparency, Corporate Social Responsibility and stakeholder engagement, rare but high-profile corruption scandals, such as in the case of UkrLandFarming (external link) and Mriya (external link), have left a stain on the reputation of these agricultural giants in Ukraine.
There is no clear definition and classification of family-based farming in Ukraine.3 Different agencies provide different information about their size, quantity, and agricultural output. According to the Institute for Economics and Forecasting of the National Academy of Sciences of Ukraine, there are 31,800 registered family farmers (fermerske hospodarstva) and 3.9 million rural households (osobyste selyanske hospodarstva), but the actual number may be higher.4 Family farms have an average size of 50 to 100 hectares, which is relatively large compared to the EU average farm size of 17.4 hectares. Family farmers cultivate about 15% of arable land in Ukraine and produce 8.7% of domestic agricultural output. Some rural households function as commercial family farmers (the so-called odnoosibnyky), others – as subsistence-oriented food producers. Rural households produce 37.4% of domestic agricultural output by cultivating 30% of farmland in the country (they are quite heterogeneous in terms of land use: 85% cultivate from 1 to 5 hectares, 9% - from 5 to 10 hectares, and 6% - more than 10 hectares). Family farmers and rural households together produce 95% of potatoes produced in Ukraine, 85% of vegetables, 80% of fruits and berries, about 75% of milk and more than 35% of meat. Their production methods are more socially and environmentally sustainable when compared to large agribusiness and are carried out in accordance with local traditions and practices.
Despite the important role of family farmers and rural households in ensuring domestic food security, their interests are often overlooked by the state that largely follows the idea of “big is beautiful” and aligns itself with big business (many state authorities have direct or indirect ties to large agribusiness). Over the years, various programs have been initiated to support different forms of agriculture in Ukraine, yet their implementation is often influenced by large business interests. Thus, Mykola Stryzhak, the honorary president of the Association of Farmers and Private Landowners of Ukraine, argued that it is not the law, but the so-called "telephone principle" that determines who benefits from state support for agriculture:
A law adopted by Verkhovna Rada [the Ukrainian Parliament] may not be implemented. But if someone “from above” called on the phone – God forbid not to fulfil! Compulsory! […] The banks were “advised” not to give credits to unreliable farmers. Unreliable farmers are those with less than 500 hectares.5
The cancellation of the moratorium on land sales is one of the most controversial and politically sensitive reforms. Proponents of an open land market argue that this will increase the transparency of land-based relations, allow for more efficient farming, and let landowners receive higher prices for their land. Opponents fear that the creation of an open land market without proper support programs for smallholders will lead to the further concentration of land in hands of large agribusiness, displacement of private farmers (as they cannot compete for land with big business), environmental degradation (due to industrial farming methods), as well as further depopulation of Ukrainian villages. A public opinion survey (external link) conducted in 2019 by the Democratic Initiatives Foundation, together with the Kiev International Institute of Sociology, showed that only 24% of respondents were positive about the opening of the land market, the majority - 58% - were negative.
Nevertheless, on 31 March 2020, the Verkhovna Rada adopted amendments to the Land Code, which determined the stages for the cancellation of the moratorium. At the first (transitional) stage, which started on 1 July 2021, one individual (not a legal entity) could buy up to 100 hectares of farmland. The transitional period was designed to allow family farmers and other smallholders to buy the land first and give access to the market for larger companies afterwards. After 2024, both individuals and legal entities will be allowed to purchase up to 10,000 hectares of land. For now, the law prohibits foreigners and foreign companies from buying farmland, something that can change only with a national referendum - however, there are several loopholes in the legislation, such as the possibility of dual citizenship, which allows foreigners to participate in the land market.
