Section 2.5: High-Value Agriculture
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National Strategy to Increase Foreign Direct Investment in Ukraine Section 2.5: High-Value Agriculture Reliance Restricted This National Strategy to Increase Foreign Direct Investment in Ukraine EY and USAID CEP owe no duty to the Recipient, whether in contract or became possible due to the support of the American People through the in tort or under statute or otherwise (including in negligence) in relation to United States Agency for International Development (USAID) under the the Strategy, and the Recipient will not bring any actions, proceedings or Competitive Economy Program in Ukraine. claims against EY and/or USAID CEP where such action, proceeding or claim in any way relates to or concerns the use of, or reliance on, the The National Strategy to Increase Foreign Direct Investment in Ukraine Strategy. and its results do not necessarily reflect the views of the United States Agency for International Development or the United States Government. 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No further amendments to quantitative The Strategy cannot in any way serve as a substitute for other enquiries data or recommendations therein were made after that date. and procedures that the Recipient would (or should) otherwise undertake for the purpose of satisfying itself. Disclaimer Section 2.5 High-Value Agriculture National Strategy to Increase Foreign Direct Investment in Ukraine | Section 2.5: High-Value Agriculture | Page 3 of 115 CONTENTS p. SECTION 2.5 - HIGH-VALUE AGRICULTURE 3 Executive Summary 5 2.5.1. Introduction 10 2.5.2. HVA sectors with high FDI potential 22 2.5.3. HVA sectors with medium FDI potential 38 2.5.4. HVA sectors with low FDI potential 48 2.5.5. Auxiliary sectors and supporting information 60 2.5.6. General regulation of HVA 100 National Strategy to Increase Foreign Direct Investment in Ukraine | Section 2.5: High-Value Agriculture | Page 4 of 115 Executive Summary National Strategy to Increase Foreign Direct Investment in Ukraine | Section 2.5: High-Value Agriculture | Page 5 of 115 Introduction No selection of high-potential industries in Ukraine is complete result of plant-based alternatives to meat and milk is gaining global without the one traditional and central to Ukrainian self- popularity. consciousness - agriculture. According to a popular theory, even the At that, Ukraine has a lot to offer in the high-value segment, subject Ukrainian flag represents ripe wheat under a blue sky. Ukrainians to systemic cross-border investments. Global food consumption is like to recall that at the beginning of the XX century, the country was transforming, with significant demand for a more complex and called “Breadbasket of Europe.” In recent past, agriculture was one diverse food mix and healthy lifestyle driven by rising disposable of the few industries that enjoyed almost uninterrupted growth, income. That demand is informed, however, by the mega-trends mainly by returning to the cultivation of arable lands abandoned present in all other factors – sustainability (and biodiversity after the collapse of the Soviet Union and by gradual modernization concerns in case of agriculture), digitalization and optimization, and of production processes by the large agricultural holdings. security of supply chains. Agriculture has long been the key income source for Ukraine, Ukraine is well-placed to make use of all these: through gradually keeping it afloat even through the worst of the crises of the past changing the existing crop mix to higher-value crops (and not just three decades – and still remains of utmost importance, with the edible crops – plant-based fuel potential is massive and might be sector reaching 9% of Ukrainian GDP in 2019. Unique soil, fully tapped through vast expanses of arable land available), ‘chernozem,’ coupled with favorable weather conditions and geo- concentrating on unique niches like honey and aquaculture, positioning, allowed Ukraine to establish high ground as a top world digitizing the regulatory infrastructure (phytosanitary regulations, exporter of several key commodities: corn, barley, rapeseed, monitoring and export processing) and using the high-tech affinity of sunflower oil, and more. Rapidly growing global demand for food the Ukrainian workforce to create and implement unique farming has helped immensely. solutions. Inevitable liberalization of the land market will drive the Yet, Ukrainian agriculture has been largely limited to low-value process and provide the incoming investors with proper investment production, owing to a great extent to the fact that the agricultural framework and operational incentives to enter the market long-term. land market has not been liberalized – another remnant of the The spectrum of niches ripe for mid-term FDI enhancement is Soviet past. Absence of ownership rights to land by producers significant – we concentrated on the ones with the least systemic limited any incentives to invest long-term into higher-value products. large corporate involvement and highest marginality. Ultimately, While the concentration on the low value-added niche is bad investment in those sub-sectors will provide necessary positive strategically, as it cements its inferior role in the international value signaling for cross-border investors into Ukrainian agriculture as a creation chains, even this role is under threat as there are whole – and being largely dependent on the local workforce. This indicators that in the middle-to-long-term the demand for commodity will drive Ukrainian economy forward as few other industries can. crops as an input for animal feed will decrease dramatically as a National Strategy to Increase Foreign Direct Investment in Ukraine | Section 2.5: High-Value Agriculture | Page 6 of 115 Global trends in high-value agriculture Based on our analysis, we identified the following Global trends Population growth & that shape HVA increase in personal disposable income Increase in demand Reconsidering of Growing concerns about Advances in Healthy lifestyle for more diverse and agriculture’s role sustainability, animal technologies movement complex food in climate change welfare and biodiversity Nutritional shift: Lower Broader use of organic Increase productivity of consumption of starchy, Stimulates demand for land cultivation and farms and decrease the low variety, low fat, and healthy food animal production cost of HVA products high fiber foods technologies Growth in demand for Growing demand for fish Growing demand for processed foods proteins fruits & vegetables Increased consumption Increased consumption of animal proteins of organic products Growing popularity of meat substitutes National Strategy to Increase Foreign Direct Investment in Ukraine | Section 2.5: High-Value Agriculture | Page 7 of 115 Key gaps and enablers for FDI attraction Based on our analysis, we identified the following KEY GAPS ► The model of agricultural land market to be limiting the potential ► Bad condition of the irrigation systems at launched in July 2021 discourages FDIs in HVA attractiveness of the HVA Southern Ukraine. Given the plentiful water (e.g., perennial plantings) by limiting ownership subsector for investors resources, the upgrade of the systems could turn the of agricultural land to Ukrainian citizens, State region