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UKRAINAN SOYA SECTOR A VALUE CHAIN ANALYSIS

[ FINAL REPORT ]

FEBRUARY 2016

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Th is study is part of a n endeavour of the D anube Soya Association to promote cultivation and utilization of soya and soya products within Ukraine. The assessment of the Soya Sector in Ukraine serves as an important contribution to the Association ’s strateg y and measures aiming at better harvest ing Ukraine’s agricultural potential and at improv ing soya production and utilization in the country. With a view to enhance Ukraine’s position in Europe’s soya supply the present report helps to understand domestic and international soya value chains in particular.

Th i s study was commissioned by Danube Soya Association and developed by the Ukrainian Agribusiness Club between August 2015 and February 2016 with the financing of the Austrian Development Cooperation and the D anube Soya Association.

We hope that this report provides a valuable contribut ion to similar initiatives in the country and that it will fuel the discussion. We would be delighted if this report found wide use within the community and beyond. In order to publish or reproduce content of this study k indly ask the Donau Soja Association for permission since this study is the property of the Austrian Development Cooperation and the Donau Soja Association.

Matthias Krön Chairman Danube Soya Association February 2016

Association “Ukrainian Agribusiness Club” 3 floor, 146 Zhylianska Str. 1032 Kyiv Ukraine [email protected] www. ucab.ua

Austrian Development Agency Zelinkagasse 2 1010 Vienna Austria [email protected] www. ada.gv.at

Danube Soya Association Wiesingerstrasse 6/9 1010 Vienna Austria [email protected] www. donausoja.org

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Content

Abbreviations 2 Short review and key results 3 I. Key points of soybean production 5 II. Legislation background and proposals 64 III. Social impact 83 IV. Supply chain analysis 98 V. Danube Soya in Ukraine 120 Annex A. Basic data on the interviews 121 Annex B. Soya varieties included in the Register of Plant Species of Ukraine 122 Annex C. List of soybean distributors 127 Annex D. List of CPPs producers and their official distributors 128 Annex E. Strategy of Agriculture and Rural Development with respect to soya production 130

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Abbreviations

AUU – Agrarian Union of Ukraine

CPP – crop protection products

CSR – corporate social responsibility

DS – Danube Soya Assoc i a tion

GM or GMO – genetically modified or genetically modified organisms

MAPFU – Ministry of Agricult ural Policy and Food of Ukraine

NGO – non - governmental organization

UAA – Ukrainian Agrarian Association

UAC – U krainian Agrarian Conf ederation

UCA B – Ukrainian Agribusiness Club

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R eview and summary of key results This report is based on the interviews with the Ukrainian market entities that operate on the market of soybeans and its processed products. There were producers, processors, traders, g overnmental bodies, NGOs and investment funds among the respondents – totally 40 interviewees. The basic data about the interviews’ process, shares of the market entities are indicated at the Annex A. During the interviews all the market entities indicated that production of soybeans is a perspective vector of the Ukrainian agribusiness: 95% of respondents confirmed this. The other 5% did not answer this question due to lack of expertise.  85% expects t he increase of soybean production.  A verage value of market development is 3.49 1 (between mid - and well - developed). The detailed distribution of answers is illustrated below (figure 1).

3% 1% 5% 8%

45%

40%

no answer not developed poor-developed mid-developed well-developed highly developed Figure 1. Assessment of the soybean market development Source: interviews of UCAB Respondents of the interviews think tha t Ukrainian consumers mainly have negative attitudes towards GMO in Ukraine (50%), while only 8% of the interviewees answered “positive”.

3% 50% 15% 25% 8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

no answer negative uncertain neutral positive Figure 2 . Attitudes of the consumers towards the GMOs in Ukraine Source: interviews of UCAB

1 Respondents were asked to assess the soybean market development by the following scale: 1 – not developed, 2 – poor - developed, 3 – mid - developed, 4 – well - developed, 5 – highly developed.

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After preparation of this report we see big potential of further development of non - GM products promotion. All of the market entities, including key players, show positive attitude towards the non - GM and they should be supported. Large companies are mainly produce non - GM soya due to political pressure they had during previous years, while small and medium size enterprises produce GM soya. On this regard we should show the interest in production of non - GM crops to sma ll and medium sized enterprises and support the large ones in doing the non - GM. Legislation base in field of GM regulation is not working, so market entities together with the state bodies should develop the respective road map of changes that will b e aimed on the satisfaction of market entities ’ interests and correspond to European legislation. This road map should contain following steps:  identification and analysis of current state of GM crops production;  systematic monitoring of GM crops production;  development of “European” amendments to current legislation;  set the transition period in order to give some time to agricultural producers to transform their production to non - GM;  provide trainings and consultations for agricultural producers in order to highlight the interest of non - GM crops production;  agreements with traders in order to provide premiums for non - GM crops for small and medium size producers, etc. The detailed results, deficiencies, problems, reasons and possible solution s are presented in this report. We hope that it would help you to fulfill your vision of Ukrainian agriculture and particularly soybean market.

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I. Key points of soybean production and its competitiveness

1.1. Production of soya seeds

Soya varieties included in the Register of Plant Species in Ukraine Considering the fact that there is a lot of soya varieties included in the Register of Plant Species in the Ukraine, we included them in Annex B of this report. Sowing areas. In 1990 soybean was fully niche crop with the share of only 0.3% in total sowing areas of agricultural enterprises in Ukraine. Lack of knowledge on technologies of growing (losses during the growing were equal to 5 - 7% in terms of difference of sowing areas and harvested), limitation of sales market and econom ic crisis led to decrease of production during the period of (1990 - 2001). Agricultural producers concentrated mainly on well - known crops. Preferential taxation system, development of foreign markets, better economic situation and decrease of main commodit ies profitability led to orientation of producers on products that have demand on international market. In 2014 the sowing areas of this culture was equal to 9% in total sowing area of agricultural enterprises.

1990 2014

0.3% 9.0%

Other crops Soybean

Figure 3. Place of soybean on fields of Ukrainian agricultural enterprises Source: State Statistic Service of Ukraine, own calculations Talking about the place of soybeans among the other crops, we should also mention that in Khmelnytsky and Chernivtsi oblasts 1/5 of total sowing area of ag. enterprises was under soya in 2014, in Kyiv oblast – 17% (figure 4 ).

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Figure 4. Share of soybeans among the other crops in agricultural enterprises by area, % Source: State Statistic Service of Ukraine

In 2014 total area under soybeans was at the level of 1.8 million ha. The geography of production has changed for past 25 years significantly (figure 5 ). If in 1990 main oblasts by area under crop were: Kherson (10.4 tsd ha), Crimea (10.2 tsd ha), Poltava (9.8 tsd ha), Kharkiv (9.2 tsd ha) and Mykolayiv (8.7 tsd ha) that represents South and Central - Eastern part of Ukraine. In 2014 main production regions were located mainly on the Central part of Ukraine: Khmelnytsky (225.5 tsd ha), Poltava (206.3 tsd ha), Kyiv (189.2 tsd ha), Vinnytsya (164.9 tsd ha) and Kirovograd (150.2 tsd ha) oblasts. 1990 2014

Figure 5. Main areas of soybean production in Ukraine, 1000 ha Source: State Statistic Service of Ukraine

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Gross harvest. Strong increasing trend in gross harvest we can observe during t he period of 2009 - 2014 (figure 6 ). If in 1990 - 2014 compound annual growth rate 2 (hereinafter – CAGR) was equal to 16.5%, in 2009 - 2014 this value showed significant annual increase (30.1%).

4500 4000 3500 3000 2500 2000 1500 1000 500 0 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Agricultural enterprises Private households Figure 6. Gross harvest of soybean by group of market entities, 1000 t Source: State Statistic Service of Ukraine, own calculations

Talking about group of market entities mln t dt / ha 2.0 20.5 20.3 it is necessary to ment ion agroholdings . In 21 1.5 18.2 2013, agroholdings produced nearly 36% from 19 the total soybeans harvest (1 mln t), so they 1.0 are pretty big group of enterprises that should 0.5 17 1.62 0.99 0.17 be considered separately in some cases. 0.0 15 Yield. For the analyzed period, Independent Agroholdings Private enterprises households agricultural enterprises had doubled average production yield yield of soybean (CAGR 1990 - 2014 = 2.8% and CAGR 2009 - 2014 = 5.4%), but still Ukrainian Figure 7. Production and yield of soybeans in 2013 average yield is 27% less that in the European by groups of market entities Union. Comparing to the other counties in the world, in 2014 we were at the 16 th place by Source: Largest Agriholdings of Ukraine the yield (25 th in case of counting all the EU (2014, AgriSurvey) countries separately). The average yield in agroholdings in 2013 was little bit lower ( ≈1%) than in independent enterprises (figure 7 ).

№ 2 = − 1

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25

20

15

10

5

0 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Agricultural enterprises Private households Average

Figure 8. Dynamics of soybean yield, dt/ha Source: State Statistic Service of Ukraine As we can see from the figure above, significant increase of gross harvest in past few years were possible mainly due to extensification (increase of the sowing areas under this crop). Figure 9 illustrates the distribution of soybean yield by regions of Ukraine. TOP - 5 oblasts by this value were: Zakarpattya (39.8 dt/ha), Kherson (30.5 dt/ha), Chernivtsi (28.5 dt/ha), Khmelnytsky (27.8 dt/ha) and Zaporizhzhya (27 dt/ha). The average yield in Ukraine in 2014 was at the level of 21.6 dt/ha.

Figure 9. Dist ribution of soybean yield by regions of Ukraine in 2014, dt/ha Source: State Statistic Service of Ukraine, own calculations

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Soya Growth Calendar

The typical soybean growth calendar is presented below. Table 1. Soya growth calendar in Ukraine Stage Activity sep oct nov dec jan feb mar apr may jun jul aug sep oct № 1 Fall tillage Winter 2 pe riod Fertilize rs 3 application Spring 4 cu ltivation Herbicides 5 application 6 Seeding Crop 7 protection Foliar 8 feeding Plant 9 dry ing 10 Harvesti ng Source: bas ed on survey “Technological charts of successful farms” (2014, UCAB) Some description of growth calendar (the number of description corresponds with the stage number): 1. Milling of previous crop remnants, tillage, moisture saving cultivation. 2. No activities. 3. Fertilizers application. 4. Cultivation, moisture saving cultivation, preparation of the soil. 5. Burndown and pre - emergence herbicide application. 6. Preparation of seeds, seeding. 7. Post herbicides, foliar insecticides and fungicides application dependi ng on field conditions. 8. Micro - nutrients application. 9. Preparation for harvesting, desiccation. 10. Harvesting, transportation, filtration and drying of beans.

1.2. GMO vs non - GMO. Organic soya M arket entities estimate the share of GM soya at the Ukrainian market differently. There are only 3 enterprises a mong 28 interviewed soya producers that grow organic soya (two companies are growing totally organic and one have the share of 5% of organic soya production). The total areas under organic soya am ong interviewed companies are equal to 2.3 thousand hectares (1%). At the same time 21 companies produce non - GM soya and 11 – GM. Distribution of answers you can see at the figure below.

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5% 94% 1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% GM non-GM Organic

Figure 10 . Shares of GM, non - GM and organic soybeans production in interviewed companies 3 Source: interviews of UCAB During one of the interviews we g o t information about the illegal pressure on the companies that produced GM soya (especially large ones) from the state bodies’ side . On this regard we decided to check the distribution of answers concerning the GM and non - GM soya production from our interviews de pending on a land bank (figure 11 ).

100% 3% 5% 1% 90% 80% 70% 53% 64% 60% 95% 50% 100% 95% 40% 30% 20% 47% 34% 10% 0% 4% up to 100 ha 101-500 ha 1001-3000 ha more than 3001 holdings ha GM non-GM Organic Figure 11 . Distribution of the GM, non - GM and organic soya production shares depending on the size of the land bank Source: interviews of UCAB From this distribution we see the tendency: the larger company – the smaller share of GM soya it has. Only 14% of respondents decided that they will increase the production of GM soya (figure 12 ) . 43% are against this and 43% has not decided yet , so here could be a good potential to convince them to produc e non - GM soya. Respondents were sure r about the production of non - GM soybeans : 57% of respondents from whole sample will increase the production of non - GM soya , while 11% wo n’t do this . In our case we can interpret last share as very low, because 11% of interviewed producers won’t increase sowing areas under soybeans in closest future.

3 Percentage was calculated based on answers concerning the shares of GM, non - GM , organic soya production and areas under soya in the company

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The percentage of refusal from GM soya and plans of further increase of non - GM soya product ion among large enterprises is higher. There were a lot of uncertainties among interviewees while answering the question on organic production. Do you plan to increase production of GM soya?

100% 90% 30% 80% 50% 50% 43% 70% 67% 67% 10% 60% 50% 14% 40% 30% 11% 60% 50% 50% 43% 20% 33% 10% 22% 0% up to 100 ha 101-500 ha 1001-3000 ha more than holdings all sample 3001 ha no yes don't know

Do you plan to increase production of non - GM soya?

100% 10% 90% 25% 32% 80% 44% 70% 60% 50% 100% 100% 22% 90% 40% 75% 57% 30% 20% 33% 10% 11% 0% up to 100 ha 101-500 ha 1001-3000 ha more than holdings all sample 3001 ha no yes don't know

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Do you plan to increase production of organic soya?

100% 90% 30% 80% 50% 70% 61% 60% 75% 78% 50% 100% 40% 70% 7% 30% 50% 20% 11% 32% 10% 25% 11% 0% up to 100 ha 101-500 ha 1001-3000 ha more than holdings all sample 3001 ha no yes don't know

Figure 12 . Plans on further increase of soya production in context of GM, non - GM and organic Source: interviews of UCAB From these results we can make conclusion that large companies are more oriented on sustainable production according to the Ukrainian legislation. They are wor r ied about their reputation, while small and medium size enterprises are thinking mainly about costs reduction. We should also mention that some of the respondents did not want to answer the questions concerning the GM production. Thus we decided to fill the factsheets after the interviews. In this case market entities were fairer, but at the end of the interviews some of them did not want to share the contact details. M ainly this situation took place with small and medium size enterprises. Comments from interviews regarding this topic:  Kernel – “We moved to production of 100% non - GM soya, but 2 - 5 years ago 90% of our soya was GM”.  Arnika – “Large companies like agroholdi ngs were obliged to move to the production of non - GM soya during 2010 - 2014 because of the pressure from the side of state bodies”.  IMC – “We grow and sell only non - GM soya (approved by testing laboratories during exports sales), but received premium only o nce. We did not know exactly: was it premium for non - GM or for fast shipping of big volume”. Simple technology of production in sense of less technological operations, less spending on CPPs, resistance to weeds and pests is a main stimulus for agricultural producers to grow GM soya. Small producers complain that they did not receive premium for non - GM soya , because of realization of comparatively small volumes at the domestic market. In such case, they did not have a ny stimulus to produce non - GM. Another issue is connected to the limited access to third party ’s capital 4 , so enterprises often look fo r opportunities to reduce costs – thus neglect production technologies.

4 According to the survey of UCAB “Agriculture Business Climat e Index”, since August 2015 access to third party capital decreased a lot (62% of respondents are unsatisfied with an access to external funds).

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Among disadvantages entrepreneurs mainly see limited sales markets , prohibition of production from the side of legislation and lower yields 5 . According to comments of market entities, non - GM soya mainly has better yields, good demand, wide sales markets and it is economically attractive. See the detailed answers in the table below. Table 2 . Advantages and disadvantages of GM, non - GM and organic soya 6 Type of soya Advantages Disadvantages GM  Economically more attractive;  Lower price for soya seeds;  Simple technology;  Limited market;  Weeds resistant;  Higher production costs;  Herbicides resistant;  Illegal production;  Cheap to produce;  Low yields;  Low risks;  We do not know the i nfluence of GM  Higher yield; soya on organism.  Pests resistant;  Good price on soya. Non - GM  Higher price;  More affected by diseases;  Higher profitability;  Weeds;  Higher margin (+10 - 20 USD per  Higher costs per ha; ton);  Lower yield.  Better possibilities for crop rotation;  Higher yield;  Good demand;  Possibility to increase the supply;  Clean and healthy product. Organic  Higher margin t han in case of non -  Lower yield; GM soya;  Higher costs per ton;  Clean and healthy product.  Very limited demand on internal market . Source: interviews of UCAB According to the results of the interviews, market entities think that higher margin for non - GM soya i s the most effective way to stimulate its production (88% answered “yes”). Almost half of respondents (45%) also think that direct access to foreign markets and high demand on non - GM product in Ukraine can increase the production of “clean” soy a. At the same time only 23% of interviewees consider punishments for the production or use of GM soya as an effective stimulus. Such a low share of positive ans wers on the last question is related to the worries about the additional illegal pressure on the business and frequent inspections of the business activities.

5 There are two types of GM soya seeds in Ukraine: illegally imported or registered in State Register of Seeds and Seeding Materials. Registration of GM soya in Register was possible before 2000, because there was no obligation to do the GM test. Thus these GM varieties are “old” and have lower yield potential than non - GM seeds. Another factor: the majority of GM v arieties in Ukraine are late (long - season), but considering the changes of climate in Ukraine, such kind of soya does not fully fit to current climate conditions. 6 This table was made from answers of interviewees without any fundamental changes

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100% 90% 13% 80% 70% 55% 55% 60% 78% 50% 40% 88% 30% 20% 45% 45% 10% 23% 0% Higher margin Direct access to foreign High demand in Punishment for the markets Ukraine production or use of GM soya yes no Figure 13 . Stimulus for the increase of non - GM soya production Source: interviews of UCAB T he greatest obstacles on the opinion of the market entities are: higher production costs (55%), lack of regulation (40%), lack of proper technologies (38%) and lack of knowledge about the regulation among the producers (35%).

100% 90% 80% 45% 70% 60% 63% 65% 70% 73% 60% 85% 50% 40% 30% 55% 20% 40% 38% 35% 30% 28% 10% 15% 0% Higher Lack of Lack of Limited Limited Lack of Lack of proper production knowledge on regulation demand on demand on knowledge on technologies costs production non-GM and non-GM and non-GM and regulation organic soya organic soya organic soya on domestic on foreign demand on yes no market market foreign market Figure 14 . Obstacles for the increase of non - GM soya production Source: interviews of UCAB Some of the enterprises produce only non - GM or organic soya because of their personal believes. Among the other limiting factors were named:  Lack of micronutrients fertilizers;  Ineffective prohibition of GM crops production;  Imperfect herbicides for non - GM soya;  Low economic effect ;  Absent or low premium for non - GM soya because of sales through traders.

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Economy of soybean production in Ukraine in context of GM / non - GM and organic 46% of respondents think that their businesses are profitable, another 46% consider themselves be ing at the level of losses or profitability and only 8% think that they are usually unprofitable. These results are close to the official figures. According to the of ficial estimations of State Statistic Service of Ukraine, 84.8% of medium and large agricultural enterprises receive profit in 2014 and 86% - in crop production.

According to producers’ estimations, soya is rather profitable, comparing to other crops: 79% of respondents confirmed this. At the same time only 8% think profitability of other crops could be higher. The experts of UCAB calculated the profit per hectare for industrial crops 7 and confirmed that such increase of interest to soybeans was dictated by the econom ic interest of local producers. In 2014, for example, soya was the most profitable crop with the profit per hectare at the level of 2705 UAH. The closest opponent was corn (2547 UAH/ha), rapeseed (2393 UAH/ha) and sunflower (2149 UAH/ha).

100% 7% 90% 18% 80% 70% 39% 60% 50% 61% 40% 30% 46% 20% 14% 10% 4% 4% 0% 4% 4% Is your business profitable? Is soya profitable comparing to other crops?

without answer not profitable periodically have some losses neither profitable, nor meets losses periodically have some profit profitable Fig ure 15 . Business and soya profitability Source: interviews of UCAB Ukrainian producers estimates soya as quite competitive crop, especially non - GM. The average values for competitiveness was as following: GM - soya – 4.0 (competitive) , non - GM soya – 4.2 (between competitive and completely competitive) and organic – 2.9 ( moderate ) . These values were calculated as an average index from answers of producers: completely non - competitive (1), non - competitive (2), moderate (3), competitive (4) and completely co mpetitive (5). Zero values (without answer on this question) were eliminated from this calculation, but we should indicate that 32%, 21% and 75% of producers did not answer the questions on the competitiveness of GM, non - GM and organic soya respectively. D etailed distribution of answers is illustrated below.

7 Wheat, barley, corn, rapeseed, sunflower and soybean

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100% 90% 14% 32% 36% 80% 14% 70% 60% 50% 43% 47% 40% 50% 30% 20% 11% 29% 10% 11% 14% 0% GM non-GM Organic completely non-competitive non-competitive moderate competitive completely competitive

Figure 16 . Competitiveness of Ukrainian soya Source: interviews of UCAB Some of the producers’ comments:  This market is not developed too much, so competitiveness is not too high.  If you are selling to the domestic processor there is no difference between GM or non - GM. They usually do not check the GM content.  We cannot compare organic with other soya. Organic production is better for small farmers.  There is no difference between GM and non - GM. Protein content is the main factor. According to the average comparison of production costs for soya, GM is 24% cheaper to produce than non - GM and organic soya is 33% higher. One producer indicated that productions costs for GM and non - GM soya is almost similar and other – that non - GM soya is 5% cheaper to produce than GM. The distribution of answers was f ollowing:  GM soya is from 15% to 50% cheaper to produce;  Organic has from 20% to 50% higher production costs.

1.3. Infrastructure and logistics

The major part of infrastructure objects was created during the USSR times. If we are talking about the state owned infrastructure objects (e.g. roads, rivers navigation , electrification etc.), in most cases their condition has significantly deteriorated because of lack of investments . According to the data of Ministry of Infrastructure of Ukraine, 97% of ro ads are worn and 30% - totally destroyed in 2015. Necessary volume of investments is estimated at the level of 100 bln UAH per year, while in 2015 it was allocated only 9 bln UAH from the State Budget. Ukrainian producers think that infrastructure is not ideal, but developed. Average value of assessment is 2.3 8 (between “partly developed” and “developed”). The equal parts of the producers

8 1 – not developed, 2 – partly developed, 3 - developed

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(36%) estimate the development of the infrastructure as partly developed or developed. Detailed distribution of answers is illustrated below.

18% 11% 36% 36%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% without answer not developed partly developed developed

Figure 1 7 . Infrastructure development for production, sales, processing and exports of soya in Ukraine Source: interviews of UCAB The logistic costs for Ukrainian farmers are significantly higher 9 than similar costs for European and American companies. Since well - developed logistic system is a guarantee of successful activity of the enterprise, this significantly reduces the competitiveness of Ukrainian agricultural products in world markets. In in ternal logistic rail transport dominates, accounting in about 60% of the traffic. The trucking accounts for about 35%, and the use of water transport is only 1 - 2%. According to World Bank studies, Ukraine is at 102nd rank out from 155 countries of the worl d on the effectiveness of agricultural logistic. According to the experts, the reason for this is the multiplicity of the inhibiting factors:  Disadvantages in professional qualification and training of personnel;  The lack of an effective State agricultura l logistic development program;  Lack of funds for the purchase of equipment and necessary transport equipment;  Underdeveloped transport infrastructure in the country. According to Noble Resources Ukraine, in 2014 in Ukraine only shipping of agricultural products from field to silos, taking into account the additional cost, for Ukrainian producers is costing more than $30 per ton, which is almost 2 times higher the cost of logistics in the EU and the United States. The main obstacles of the logistics comp onent in Ukraine can be attributed to the following factors:  lack of port and silos capacities;  outdated railway park;  underdeveloped river logistics. In order to reduce logistics costs for transportation of agricultural products complex of actions is requ ired, in particular:  Attraction of investments for the development of railway infrastructure;  Development of the river logistics on the Dnipro river and South Bug river, in particular conducting the dredging;  Modernization of the trans s hipment capacities in Ukrainian ports.

9 If to compare average logistical costs in the structure of product total costs

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Thus, there is a need to implement a set of measures for the development of an effective agricultural products delivery system from the production place to the consumption market, in particular development of Ukraine's existing road, ra il and marine transportation. It comes to delivering the goods to ports, increase of the storage tanks for cargoes in ports, providing services to bring the goods’ quality to the European standards level, handling and customs clearance of commercial shipme nts, cargo insurance and so on. Despite the slightly higher development of road transportation, today the main logistics element for the delivery of agricultural products to the ports r emains “ Ukrzaliznytsya ” (state - owned railway company). Age of majority of rail cars is about 30 years. This means that in the future the state - owned park will shrink and up to the year 2020 its share would drop to a minimum. Thus the major share will be funded by investment of t he traders and logistics companies. At a distance of up to 200 km agricultural producers can use road transportation, in other cases they use rail. Optimal for domestic agricultural logistics would be river transportation, but today its share of total tra nsportation from the fields to the ports is insignificant. Maritime logistics. Ukraine possesses the most powerful port capacity among all the countries of the Black Sea region, while its grain and oilseed markets are characterized by a clear export orient ation. More than 90 percent of export flow from Ukraine is shipped through ports by sea. In Ukraine, transshipment and transit of cargoes is being carried out in 13 of 18 sea commercial ports: Renijskiy, Izmailskiy, Ust - Danube, Belgorod - Dnistrovsky, Ilyich ivsk, Odessa, Southern, Mykolayiv, Kherson, Skadovsk, Oktyabr'sk, Berdyansk and Mariupol. 11 of them are located on the coast of the Black Sea and 2 at the Azov Coast. From the logistic point of view Ukraine's Black Sea coast has a very advantageous locati on for shipments. However, despite this, competition in the Black Sea region has its influence: Ukraine gradually loses its leading position. It becomes apparent that the effective functioning of industry is hampered by depreciation of fixed assets, lack o f the depth of domestic ports, poor infrastructure. Another factor that has a negative impact on the competitive position of Ukraine in the Azov - Black Sea region is the lack of efficient transport systems on ports’ access roads. Often the roads at the entr ances to the ports are narrow and overloaded, which greatly reduces their throughput and adversely affect the conditions of delivery of cargoes. May 17, 2012 was adopted The Law of Ukraine “On seaports of Ukraine” aimed at the implementation of the strateg y of public - private partnership, which should dramatically change the status of the ports. At the same time, however, there have been identified the problems, the most severe of which is the lack of investment in the development of the maritime industry en terprises for funding of hydraulic structures, ground infrastructure, creation of artificial land. Negative influence on the competitiveness of Ukrainian seaports is also based on the following factors:  low integration of the whole transport system;  ineffi ciency of the customs legislation;  frequent changes in the legislative and legal framework regarding the implementation of the transport and border crossing procedures. In addition, foreign shipping companies have repeatedly said that port charges are amon g the highest in comparison with the neighbouring ports of the Black Sea, which is also not conducive to the competitiveness of the port industry.

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River logistics. In the context of contemporary realities Ukrainian agrarians faced considerable difficulties in transporting agricultural products caused by difficult cargo on Donetsk Railway, a significant rise in diesel fuel and other factors. Given this situation, it is possible to predict that the large transnational traders will increasingly pay their atten tion on River transportation as an alternative to transportation by railway and motor transport. It should be noted that river transportation in Ukraine has great potential though do not create proper demand. According to experts of the Ministry of I nfrast ructure, the cost of transporting goods by river transport is considerably lower than the cost of transportation by rail or by road, with the least impact on the environment. However, the development of river transport in Ukraine faces many problems that h inder its development. First of all, it is the lack of legal regulation of the activities of inland waterway transport, the unsatisfactory state of the river fleet, the presence of the dangerous places in reservoirs, which reduce the competitiveness of the water route and require dredging. Verkhovna Rada registered the draft law № 2475a concerning inland water transportation, which combines provisions from the other three earlier draft laws aimed to reform the industry. At the moment the draft law is still i n the respective committee in the Parliament . T he draft law is targeted on simplifying the business and administrative activities, the possibility to invest in the river objects, abolishment of some fees and charges as well as the possibility of opening th e internal waterways for vessels under foreign flags.

The main logistic model is as following: Internal logistics Field - Silo: road transport Grain elevator - exporting point: road transport (distance up to 200 km), railway transport (over 200km), river transport (used very rarely, mostly by large companies) Exporting logistics Distant countries: via port. Europe: railway has its difficulties, as Ukrainian ruts are wider than European; some companies (e.g. Ukrainian Agricultural Holding) have the ability to export through the use of the railway because it can be in their property. These companies are usually located in the western part of Ukraine, close to the State border with the Poland, Slovakia and Hungary.

1.4. Technologies

Nobody from r epresentatives of soya production enterprises assessed their technologies as old. In most cases (50%) they characterized their production technologies as “traditional with progressive elements”. The average estimation is equal to 3.6 10 (between the “traditi onal technologies” and “traditional technologies with progressive elements”).

10 1 – old technologies, 2 – partly old technologies, 3 – traditional tec hnologies, 4 – traditional technologies with progressive elements, 5 – progressive technologies

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11% 29% 50% 11%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% old technologies partly old technologies traditional technologies traditional technologies with progressive elements progressive technologies Figure 1 8 . Assessment of technologies progressiveness at the production enterprises Source: interviews of UCAB On our opinion this distribution is not applicable for whole Ukrainian agriculture, because domestic enterprises have a lot of old techniques and equipment, limited knowledge about the innovations and possible improvements. The chart above illustrates high assessment of production technologies due to: limited sample of producers, high share of “modern” enterprises and subjective evaluation according to personal imagination about progressive technologies. To confirm our opinion we can provide some numbers on the agricultural techniques and equipment average age. Acco rding to the paper “Analysis of Injury Reasons to Employees of Agriculture During the Mechanized and Transport Works” of scientists from the National University of Life and Environmental Sciences of Ukraine, published at the end of December 2014, average p eriod of tractors and combines exploitation already exceeded 20 years, while according to specifications, these techniques’ resource does not exceed 8 - 10 years. Table 3 . Distribution of tractors and combines average exploitation period in Ukraine 11 Tractors Combines Exploitation period Share, % Exploitation period Share, % Up to 5 years 9.9 Up to 5 years 10.4 From 5 to 10 years 5.7 From 5 to 10 years 7.5 From 10 to 15 years 6.8 From 10 to 15 years 11.5 From 15 to 20 years 27.5 From 15 to 20 years 25.8 More than 20 years 50.1 More than 20 years 44.8 Total 100 Total 100 Source: State Inspection of Agriculture of Ukraine, 2013 Most of the local producers require improvement of the production technology in terms of seeds (71%) . As we remember from the interview with MHP, representatives of this company said that they had problems with identification of high quality seeds. As of now they are testing 31 foreign varieties of soya (Prograin, Savita, Saatbau, Strube, Novi Sad etc.). According to the interviews data, the confidence in origin of soya seeds is important for 75% of producers, but giving the detailed answer on this question only 68% of producers estimated

11 This table was made from answers of interviewees without any fundamental changes

FINAL REPORT importance of origin as “important” or “very important” (see the fi gure below). At the same time 65% of producers are confident in origin of their soya seeds.

100% 90% 80% 70% 57% 54% 60% 50% 11% 40% 11% 30% 7% 11% 20% 7% 4% 18% 10% 18% 0% 4% Importance Confidence in origin

without answer 1 2 3 4 5 Figure 1 9 . Importance and confidence in origin of soya seeds Source: interviews of UCAB Note: in terms of importance of origin: 1 – not important, 5 – very important; in terms of confidence of origin: 1 – not confident, 5 – definitely confident. Ukrainian producers use domestic and foreign varieties of soya seeds almost equally. We provide two kinds of figures to this question, because major share of producers use different kinds of seeds. According to comments of market entities, Ukrainian varieties of soya usually are less competitive, because of lower protein content and yields. At the fi gure below we provide the shares of the seeds’ origin according to the answers from interviews and also we will provide the estimations of soya seeds market by the inputs suppliers in the respective chapter.

100% 100%

80% 80% 47%

60% 60%

40% 40% 26% 64% 20% 36% 36% 20% 26% 0% 0% own seeds domestic foreign own seeds domestic foreign a) as multiple answer question b) calculated to all answers Figure 20 . Origin of soya seeds Source: interviews of UCAB

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50% of soya producers also need better techniques and equipment, but high interest rates and undeveloped programs of cooperation between dealers and producers make this task not easy to implement. Also, 39% and 32% of producers need to improve their technologies in terms of fertilizers and irrigation respectively. Some of the producers also mentioned lack of qualit ative CPPs.

100% 90% 80% 70% 60% 50% 40% 71% 30% 50% 20% 39% 32% 10% 0% seeds technique and fertilizers irrigation equipment

Figure 21 . The production technology needs to be improved in terms of Source: interviews of UCAB 73% of market entities indicate that input suppliers do not provide any support in production. Some of the producers said that dealers offer some help, but not for free. 25% highlighted that dealers provide production consulting services for them and only 3% receive some help with financing or providing other inputs. The majority of interviewed people (85%) expect the increase of soybeans production in Ukraine, but only 43% of producers will increase the sowing areas under this crop. Thus, they will work on the intensification of production: 57% are planning to use new technologies to increase their yields and 50% - new varieties of soya. 100%

80% 50% 43% 57% 64% 60%

40% 50% 57% 20% 43% 36%

0% new varieties new technologies increase of sowing crop rotation areas yes no Figure 22 . Strategies of soya cultivation Source: interviews of UCAB

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In addition we can provide some good practices of soya production in Ukraine , using different technologies. Intensive soya production technology , 1 :  Forecrop – winter wheat;  Tillage on depth 25 - 30 cm with further application of 200 kg/ha of ammonium sulfate fertilizer in September  Sowing of inoculant - treated seed of Ukrainian variety with seeding rate 180 kg/ha and application of soil - applied herbicides Proponit 2 l/ha and Azart 2 l/ha on 20 - th of April – 10 - th of May;  Compacting of soil after the sowing;  Application of herbicides at the stage of two trifoliates: Harmony – 7 g/ha and Bazagran – 2.5 l/ha;  Application of: herbicide Fyuzilad forte – 1.5 l/ha, fungicide Akanto Plus – 1 l/ha and foliar fertilizer Wuxal microplant – 2/ha in June;  In case of necessity application of desiccant Rehlon Super – 2.5 l/ha in two weeks before harvesting;  Harvesting in the middle of September with potential yield of 3.8 t/ha. Intensive soya production technology , 2 :  Forecrop – winter wheat;  Tillage on depth 20 - 22 cm with further application of 150 kg/ha of ammonium phosphate with sulfur fertilizer in September;  Cultivation and application of herbicides Primextra – 2/ha and Gesagard 2 – 2/ha before sowing;  Sowing with application of 100 kg/ha NPK 1 6:16:16 at the end of April;  Application of herbicides Harmony – 6 g/ha, Bazagran – 2.5 l/ha and foliar fertilizer Plantfol – 600 g/ha;  Application of 50 kg/ha ammonium nitrate at the stage of full bloom;  In case of necessity application of desiccant Rehlon Super – 2 l/ha in two weeks before harvesting;  Harvesting in the middle of September with potential yield of 4 t/ha. Traditional soya production technology:  Forecrop – corn;  Tillage on depth 25 - 30 cm with further disk harrowing of soil in October;  C ultivation and application of 100 kg/ha of ammonium nitrate and 100 kg/ha NPK 16:16:16 in March;  Sowing disease - treated (Maxim XL – 1 l/t) seeds in rate 1 miln. seeds/ha in the middle of April;  Application of herbicides Prymekstra TZ Gold – 4.5 l/ha, Prop onit – 1.5 l/ha at the end of April;  Application of foliar fertilizer magnesium sulfate – 5 kg/ha and Borum 0.2 kg/ha at the middle of June;  Application of fungicide Abakus 1.5 l/ha at the beginning of August;  Harvesting at the beginning of October with po tential yield of 2.5 t/ha. GM soya production technology:  Forecrop – Corn;  Disk harrowing of soil in November;

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 Harrowing at the end of March;  Application of 100 kg/ha NPK 16:16:16 with further cultivation at the beginning of April;  Sowing with seeding rate 140 kg/ha at the end of April;  Application of 2 l/ha glyphosate after germination;  Application of 2 l/ha glyphosate in 2 weeks after first application;  Harvesting at the end of September with potential yield of 2.5 t/ha. The respondents of our survey were also asked to recommend some companies with regard to good practices of non - GM soya production. They named following enterprises:  Zakhid Agrobusiness;  Svarog;  ATK;  Vitagro;  Druzhba Nova 12 ;  Globynskyy Institute of Soya;  Agro LLC;  Agricultural farm “Gryga”;  Soyevyy Vik;  Kyiv Institute of Physiology;  Agricultural farm “Krynytsya”;  Astarta. The most frequent ly named were Svarog and ATK. 1.5. Cost of production In 2013 and 2014 soya was one of the most profitable crops with the profitability of 15.8 and 34.5% respect ively. Table 4 illustrates the key points on efficiency of its production in 2013. In general, agroholdings had lower efficiency and productivity compared to independent enterprises and also they were mainly oriented on scale effect. Table 4 . Efficiency o f soybean production in 2013 by group of enterprises Agroholdings Independent enterprises Ukraine TOP - 5 TOP - 5 average average producers producers Produced products: Yield, dt/ha 20,9 20,3 20,0 21,3 30,9 Production costs, UAH/dt 249,29 270,32 264,96 233,21 208,50 Production costs per 1 ha, tsd UAH 5,21 5,49 5,30 4,97 6,44 Products sold: Production costs, UAH/dt 256,71 286,27 287,60 234,44 224,66 Full costs 13 , UAH/dt 296,40 341,50 347,11 262,23 254,66 Price, UAH/dt 343,22 346,90 349,32 339,15 354,63 Profitability, % 15,8 1,6 0,6 29,3 39,3 Share of sold to produced goods, % 90,0% 89,2% 84,6% 90,6% 89,2% Source: Largest Agriholdings of Ukraine (2014, AgriSurvey)

12 It’s an enterprises that belongs to Kernel 13 Production costs + administrat ive and marketing costs

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Profitability of agroholdings was lower due to lower yields and higher production costs. Due to high intensity of production, they catch independent enterprises up during the years with good weather conditions and high prices. Agroholdings also have comparatively high administrative and marketing costs due to large central offices, high ly paid managers and transaction costs (e.g. thefts). The figure below shows dependence of production profit (profit excluding administrative and marketing costs) on yield and production costs per 1 ha divided by profitable and unprofitable holdings. There are also average holding and average value for TOP - 50 independent enterprises by the volumes of production.

area of a circle corresponds the production profit 50 yield , dt / ha

40

30

20

10 holdings (+) holdings (-) average holdings ТО P - 50 independent 0 0 1 2 3 4 5 6 7 8 9 10 production costs per 1 ha , tsd UAH

Figure 23 . Correlation field of production costs and yield of soybean in 2013 14 Source: Largest Agriholdings of Ukraine (2014, AgriSurvey) On average profitable and unprofitable agroholdings have the same production costs per 1 hectare 5509 and 5487 respectively, but significant deviation in yield. On average unprofitable holdings had 28% lower yield in 2013 that in profitable structures. The structure of production costs provided below on the figure 24 .

0 1000 2000 3000 4000 5000 6000 7000 Yield, dt/ha

holdings (-) 842 886 569 603 655 359 1573 14,9

holdings (+) 705 782 530 766 909 306 1511 20,7

ТО P - 50 665 570 616 1835 1018 293 1445 30,9 independent

Ukraine - average 639 695 576 768 795 304 1383 20,7

seeds mineral fertilizers petroleum external services

Figure 24 . Production costs of soybean per 1 hectare in 2013, UAH Source: Largest Agriholdings of Ukraine (2014, AgriSurvey) Technology of soybean production in Ukraine, depending on cost and the expected yield is conditionally can be divided into 3 main types of minimum, average and intensive technology. In

14 “holding (+)” means holdings that had profit in soybean production, “holding ( - )” - loses

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Ukraine clearly observed the dependence of the volume of the direct pro duction co sts and productivity of soybean. Production cost minimization approach is common for regions with high weather risk and for enterprises that have limited financial resources. The most common is the production approach focused on the average level of yield, since it does not require a high technological level of farm , requires less variable costs and reduces the financial risk s in the case of negative influence of weather conditions . This production method is typical for the majority of Ukrainian a griholdings. Intensive technology of soybean cultivation is commonly used in medium - sized farms from area of sufficient moistening regions (the North - Western regions). Also it is easier to provide and control intensive technology in such enterprises than i n large agriholdings. At the same time th is category of farms ha s sufficient financial resources and can provide a sufficient level of funding. Climatic conditions characterized by sufficient rainfall and improved weather risks Table 5. Average gross margin of soybean in Ukraine according to yield Minimum Medium Intensive Price (USD/t) 373,0 373,0 373,0 Yield (t/ha) 1,7 2,2 2,8 Revenue 634,1 820,6 1044,4 Variable costs 310,0 473,0 687,0 Seed 54,0 74,0 90,0 Fertilizer 47,0 65,0 111,0 Pesticides 45,0 78,0 117,0 Fuel 53,0 61,0 81,0 Paid services 35,0 63,0 115,0 Labour cost 15,0 20,0 28,0 Other variable costs 61,0 112,0 145,0 Gross margin 324,1 347,6 357,4 Variable cost share in revenue 49% 58% 66% This table shows the calculation of the variable cost of soybean production by the technologies Table 6. Gross margin of different production technologies Intensive soya Intensive soya Traditional soya GM soya production production production production technology, 1: technology, 2: technology: technology: Price (USD/t) 373 373 373 350 Yield (t/ha) 3,8 4 2,5 2,5 Revenue 1417,4 1492 932,5 875 Variable costs 702,5 675,0 590,5 398,5 Seed 136,5 133,5 121,3 106,2 Fertilizer 173,7 161,6 108,7 94,1 Pesticides 184,6 83,9 108,6 24,0 Fuel 36,0 67,8 56,8 41,5 Paid services 40,5 130,8 82,4 41,0 Labour cost 29,1 19,7 19,7 18,7 Other variable costs 102,0 77,7 93,0 73,0 Gross margin 714,9 817,0 342,0 476,5 Variable cost share in revenue 50% 45% 63% 46%

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Taking to account increasing volumes of production and relatively high fixed costs (up to 20% in full costs of production), Ukrainian agricultural market entities produce enough soya to cover expenses. 4000

3000

2000

1000

0 2008 2009 2010 2011 2012 2013 2014 Production by ag. enterprises Break-even point

Figure 25 . Break - even point analysis, 1000 t Source: State Statistic Service of Ukraine, own calculations On the figure 2 6 the volumes of sales at the internal market is provided. We can see that significantly larger volumes were traded during the harvesting and post - harvesting period that could be explained by several factors:  necessity to pay for short - term credits;  necessity to increase current assets;  lack of material resources to provide sowing campaign for winter crops;  lack of storage capacities etc.

700 700 Sales volumes (bars), Prices (lines), USD/t 600 1000 t 600

500 500

400 400

300 300

200 200

100 100

0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2014 2013

Figure 26 . Sales of soybeans at the internal market Source: State Statistic Service of Ukraine, own calculations On the figure above we provide dollar sales prices in order to avoid wrong understanding of price trends due to devaluation of hryvnya. Prices on the chart indicated without VAT (20%). Totally, the average sales price of soybeans (weighted) in 2014 reached 356.2 USD/t that was 18% lower than the year before.

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Good practices of production The leader by the volumes of soybean production was NCH Capital in 2013 (119 thousand tons). TOP - 15 producers harvested 0.77 mln tons of soybean in 2013 (78% from total production by agroholdings and 28% from total production in Ukraine). TOP - 15 producers in 2013 Soybean production, 1000 t Yield, dt/ha 0 20 40 60 80 100 120 140 40 30 20 10 0 NCH Capital Astarta Kernel Svarog TAKO UkrLandFarming А.Т.К. Glencore International MHP Freedom Farm Ukrainian Agricultural Holding Vitagro Ukrainian Agricultural Investments Cygnet Agroholding Panda

Figure 27 . TOP holdings by the volumes of soybean production in 2013

Taking to account TOP - producers by company we can provide following rating.

Table 7 . TOP - 15 producers of soybean by companies’ volumes, % № Company 2012 2013 1 A.T.K. LLC 1.5% 1.8% 2 Joint Technological Agricultural Company 0.7% 1.5% 3 Lotivka Elite 0.7% 1.2% 4 Volochysk - Agro 1.1% 1.0% 5 Agropromtehnika 0.8% 0.9% 6 Khmilnytske 0.7% 0.9% 7 Raise - Maksymko 0.6% 0.8% 8 Freedom Farm International 0.9% 0.8% 9 Dobrobut 0.4% 0.7% 10 Agricultural Company 2004 0.7% 0.6% 11 Zernoproduct MHP 0.5% 0.6% 12 Enselko Agro 0.4% 0.6% 13 Agrofirma im. Dovzhenka 0.2% 0.6% 14 Svarog - Dnister 0.1% 0.5% 15 Kakhovske 0.6% 0.5% - TOP - 15 total 9.7% 12.9%

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1.6. Strategies for soya cultivation Sectorial program "Soybean Ukraine 2008 - 2015" (Ministry of Agrarian Policy and Food of Ukraine) The Program was bringing soybean acreage in the period 2008 - 2015 to 1,1 - 1.3 mln. ha and soybean production at the level 3.0 mln.t. with the solution of a numb er of the following strategic objectives: 1. Increasing the productivity of livestock, poultry farming, fish farming through the use of soy in forage production. 2. Providing soil fertility. 3. Solving the problem of shortages of food protein. 4. Increase the use of s oy for technical purposes. 5. The increase in foreign exchange earnings in Ukraine. Program implementation steps were the following:  From 2008 launch a systematic increase in soybean crops with gradual approximation to the optimal mix of legume and cereal components in the crop rotation, given the recommendations of scientific institutions of Ukrainian Academy of Agrarian Sciences, as well as experience of soybean production in farms and foreign experience.  Annually allocate funds from the state budget unde r the program "Selection in crop" for partial compensation of premiums for high - quality soybean seeds purchased: Star super, elite, first reproduction;  Annually allocate funds from the state budget for the work of the selection of crops in levels of initia l seed production;  To allocate funds from the state budget for annual compensation to agricultural producers for high categories soybean seeds used for sown hectare, while mandatory agricultural practice should be inoculation of soybean seeds by microbiolo gical drugs (preparations) – Rizogumin type, based on the strains of nodule bacteria before sowing.  Annually include agricultural machinery necessary for the production and processing of soybeans, in the list of equipment to be purchased by agricultural pr oducers through the mechanism of price reduction of medium - term loans and through the mechanism of the purchase of equipment on leasing;  Regular conduction of scientific - methodical seminars, conferences, field days in different regions of Ukraine for imple mentation of new technologies of soybean production;  Amend the curricula of higher educational institutions agricultural profile for the study new technologies of soybean cultivation, equipment and technologies of its processing for feed and food purposes;  Explore the experience of countries that have received a nd performed government programs on the soybean production (Italy, Brazil, Argentina, USA, Canada, Japan);  Coordinate during the execution of the program work of the Ministry of Agrarian Policy and Food of Ukraine, Ukrainian Academy of Agrarian Sciences, t he main regional departments of

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agricultural development, farmers, processors, commercial and financial structures and the association "Ukrainian association of soybean producers and processors." It should be noted that the market for soy production recent ly has exceeded planned indicators in 2008. Thus, in 2015 the sown area under soybean amounted at 2.2 mln. ha and the total yield in 2014 was 3.88 million tons. These figures were achieved due to the economic situation which has developed for agrarians: it became more profitable to increase the sown areas under this culture and sell the products for export. Despite the program, there are also official documents: laws, resolutions and ordinances, which either directly or indirectly regulate the quality, stan dards and procedures of soybean production in Ukraine. Thus, the Decree of the Ministry of Health of Ukraine, November 9th, 2010, included soya into the List of foods to be the subject of control of the content of genetically modified organisms. Also, acco rding to the Decree of the Cabinet of Ministers of Ukraine, April 24th, 2013, soya was included in the list of the State Reserve Seed Fund for the period till 2020 and amounted to 5,2 thous.t. in the specified year. Unified Complex Strategy for the Develop ment of Agriculture and Rural Areas in Ukraine for 2015 - 2020 - developed by Ministry of Agricultural Policy and Food of Ukraine Key points:  Convergence of Ukraine’s and EU legislation;  Deregulation;  Production factors (land, assets, infrastructure, financ ing);  Agricultural politics and innovations;  Production and market management;  State support and taxation;  Development of rural areas;  Management of ecological resources. Concerning soya cultivation: The strategy covers all aspects of agricultural sector: crops, livestock, forestry and fisheries. It also covers the regulations relating to the relevant sectors. Therefore, some paragraphs of the strategy, as well as all other legislative documents, are directly or indirectly related to the soya production. F irst paragraph of the strategy covers issues of bringing Ukrainian legislation in accordance with the EU under the conditions of the Association Agreement as well as with the international standards, which are related to food safety, sanitary and phytosani tary controls and measures. Was decided to cancel existing state standards of Ukraine on grains (split into 6 classes) and oilseeds, which are based on the separation of grain in conventional classes and replace them with existing EU standards, based on qu ality indicators of grain (food and feed) to avoid costs and increase the efficiency of the storage, processing, transport and clearance for export of grain from which a single export batch is formed.

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Concerning phytosanitary inspection was decided to prov ide it with legal, regulatory, material and technical basis for organization of permanent and systematic phytosanitary control at the stage of growing grains and oilseeds willing to base a system of EU control over the process of production of grain. In ad dition, it was noted that “Ukraine's current system of phytosanitary control of grain and oilseeds focuses on controlling the movement of grain, while the EU focuses on the control of grain. The current system imposes de facto full responsibility for the p hytosanitary state of the grain on the granaries and exporters”. According to the plan on the reduction of the state regulation, were agreed the following points:  Simplification of quarantine and phytosanitary standards and regulations;  Reform or eliminati on of the Guarantee Fund;  Legislative prohibition of mandatory registration of grain contracts. Due to the fact that soya is top - 10 the most exported products in 2014, the question of its export is highly relevant. Thus, was set up the target to set the ef ficient and transparent management of the tariff quotas and review provisions concerning the management of the internal market on specific products with the purpose of cancellation all unnecessary and ineffective measures. Cancel export restrictions and fa cilitate exports by eliminating unnecessary and burdensome administrative measures and by providing advice and assistance to exporters, especially regarding research opportunities in new markets in order to increase the export potential. As for soybeans, as a way to achieve the target, was proposed implementation of export duties upon the seeds in order to provide its processing on domestic enterprises, export products with high added value (rapeseed and soybean oil), increasing the meal production to meet the needs of domestic poultry and livestock industries, and create new jobs and increase revenues to the state budget. Concerning questions on the promotion and increasing of production of organic goods, was agreed that for farmers to switch to organic pr oduction, is necessary to ensure the economic efficiency of the production of organic products at a level no lower than production of conventional one. Also, in order to protect the term “organic”, the distribution of products produced using GMOs technolog ies should be legally regulated. Nevertheless, should be highlighted the fact, that strategy on the development of the agricultural sector has not been publicly presented yet. Thus, information provided above is based on the synthesis of the written publi c consultations conducted by the Ministry of Agricultural Policy and Food of Ukraine. The presentation of the strategy is still in the preparation. Despite the strategy developed by the Ministry of Agricultural Policy and Food of Ukraine, there is alternat ive one developed by Ukrainian Agricultural Association. Soybean was highlighted only in matter of the use the GMO’s techniques and methods of the registration of soybeans in general. Thus, it was proposed to implement a simplified procedure for registrati on of varieties (without testing, analysis, etc.) that are included in the EU permanent list as safe.

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Also please find the Strategy of Agriculture and Rural Development with respect to soya production in Annex’ part (Annex E).

1.7. Consumption of soya The soybeans mainly aim on export in Ukraine: 45 - 60% from gross harvest had been exported for last five years. Due to increase of gross harvest, exports of this culture increased in 8.4 times for the analyzed periods, crush – in 2.7 times. 30% of soya from total production was crashed in 2014/15 MY and taking to account that processing capacities for oilseeds crush increase every year, we are forecasting further increase of soybean cake and oil production. 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15* 2015/16* Export Crush Other consumption Seeds Losses Figure 2 8. Structure of soybean consumption in Ukraine, 1000 t Source: UCAB, based on statistical data, own estimations and calculations * forecast Main tendencies of soybean market are expressed in supply and demand bala nce sheet (table 8 ). Table 8 . Supply and demand balance sheet, 1000 t 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15* 2015/16* Beginning stocks 55 22 123 62 144 254 295 232 Harvested area, tsd ha 538 623 1037 1110 1412 1351 1793 1950 Yield, dt/ha 15.1 16.8 16.2 20.4 17.1 20.5 21.7 20.1 Gross harvest 813 1044 1680 2264 2410 2774 3882 3920 Import 2 2 2 3 10 3 4 4 Total supply 869 1068 1806 2329 2564 3031 4181 4155 Export 277 263 990 1340 1348 1261 2320 2400 Crush 420 510 540 550 560 880 1150 1200 Other consumption 55 25 50 95 190 320 220 110 Seeds 75 124 133 169 162 215 234 280 Losses 20 22 30 31 50 60 25 100 Domestic consumption 570 681 753 845 962 1475 1629 1690 Ending stocks 22 123 62 144 254 295 232 65 Source: UCAB, based on statistical data, own estimations and calculations * forecast Consumption and sales: domestic and foreign markets Ukrainian producers of soya could possibly provide full range of soya and products of its processing. However due to the difficulties occurring in the process of registration of new sorts of

FINAL REPORT soya selected in Ukraine, producers have to import soybean seed from other countries. As far as soya becomes more popular with the researchers, who are interested in development of the seeds market it is expected that in the future Ukrainian producers will be provided and soybean seed material of domestic production. Due to changes in food preferences of ordinary Ukrainians, demand for Asian cuisine has significantly increased. Thus it is not surprising that soy sauce import has greatly increased in recent years. Hence the soy sauce ranks second after soybean seeds in total range of imported soya products. Nevertheless, Ukrainian producers are working on increasing the added value of the products and trying to build capacities suitable for that. Soya is not an exception, keeping in mind the fact that during the last 5 years the export of soya oil has increased by 158% or more than in 1.5 times. Devaluation of national currency could be an incentive for foreign investors (as Ukrainian are in way more diffic ult situation hardly finding extra financing with the local banks) to leave their funds in building Ukrainian soya processing plants. But the overall economic and political situations, unfortunately, partially or sometimes completely negate this possibilit y. The rest of the soya products, such as seeding material, oil and meal, Ukrainian producers supply to internal and partly to external markets. At the world market Ukraine holds steadily high positions in the production and supply of certain soy products. In 2014 Ukraine ranked 7th in the world export of soybeans and 13th in the world export of soybean oil. The overall export of soya and products of its processing in 2014 amounted at 854 million USD. The demand for soya at the Ukrainian market is high acco rding to the agricultural producers’ estimations. The average value of the demand is 4 points 15 . 50% of the respondents assessed it as “high” and 29% - as “very high”.

7% 14% 50% 29%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

very low low moderate high very high

Figure 29 . Demand on soybeans in Ukraine Source: interviews of UCAB Looking on the data on the realization structures, gathered during our interviews, we decided to divide producers on a few groups, because smaller producers usually sell their soya to traders or processors, while large companies usually export directly or have own proces sing facilities. In our case, due to the limited sample of the respondents, such representation of results will describe the market situation in more clear and actual way.

15 Scale: 1 – very low, 2 – low, 3 – moderate, 4 – high, 5 – very high

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a) average values (non - weighted)

100% 11% 90% 25% 80% 40% 20% 70% 23% 60% 50% 100% 100% 40% 59% 30% 60% 53% 20% 10% 10% 0% up to 100 ha 101-500 ha 1001-3000 ha more than 3001 holdings ha Internal market Exports Own processing Other own consumption

b) weighted on the land bank

100% 90% 16% 26% 80%

70% 31% 60% 80% 50% 100% 47% 100% 40% 30% 53% 20% 28% 10% 20% 0% 1% up to 100 ha 101-500 ha 1001-3000 ha more than 3001 holdings ha Internal market Exports Own processing Other own consumption

Figure 30 . Use of soya by Ukrainian companies depending on a land bank Source: interviews of UCAB

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Processing in Ukraine The main processors of soybeans are indicated in the table below.

Table 9 . TOP processors of soybeans Soya processing capacities, Company Location tsd.t/year Svarog Khmelnytskyy 350 MHP Cherkasy 300 Protein - production Kirovograd 250 ATK Zhytomyr 250 Oliyar Lviv 236 Kakhovka Protein Agro Kherson 220 Astarta Poltava 220 Pologovskiy OEZ Zaporizhzhya 120 All Seeds Odesa 120 Biopreparat Poltava 64 Source: open sources The r ole of soy a in feeding

Development of livestock industry increases the demand for soybean on the domestic market . However , some enterprises in Ukraine refused to use soybean meal as feeding for dairy cows. It is related to the belief that use of the soybean meal resulted in obesity of the liver and increased number of ketosis - deceased cows. After transfer to sunflower meal, t he animals’ health has improved. However, some experts do not confirm direct correlation between these facts . Table 10. SWOT - analysis: s oybean meal for cows’ feeding Strong points : Weak points: Source of bypass protein High price High concentration of protein and amino acids Some companies associate consumption of soybean Important product in feeding of high - yielding cows meal with rise of level of the cows’ ketosis disease. However, the main problem is the imbalance in feeding . Opportunities : Threats: Improve ment of feeding approaches Reduction of the number of cows in Ukraine Increasing of cows’ productivity (in the context of cows Cost savings in feeding due to low purchase prices productivity equal to 30 liters / day the soy protein is for milk essential) Use of alternative sources of slow - split protein (brewer's grains, distillery stillage)

Table 11. SWOT - analysis: s oybean meal for pigs’ feeding Strong points: Weak points: High concentration of protein and amino acids High price Irreplaceability in the feeding ration for pigs (in feed composition for pigs the soybean meal takes 10 - 20%) Opportunities: Threats: New technologies for production / processing (full - fat Reduction of pigs amount in Ukraine soybean, soybean extrudation) Expansion of Afr ican swine fever in Ukraine

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Table 12. SWOT - analysis: s oybean meal for broiler chickens’ feeding Strong points: Weak points: High concentration of protein and amino acids High price Irreplaceability in the feeding ration for poultry (in feed composition for poultry the soybean meal takes 10 - 20%) Opportunities: Threats: New technologies for production / processing (full - fat Reduction of poultry production soybean, soybean extrudation) Increase of poultry meat production output At lots of enterprises neglect animals’ feeding . The e mployees are often incompetent in this area, therefore, it is strategically important for Ukraine to improve personnel qualification in terms of livestock industry , apply new technol ogies and the latest achievements in the nutrition.

1.8. Quality standards The quality standard system in Ukraine includes documents regarding to soybean, its seeds, and products of its processing: meal and soybean oil. Requirements for the soybean seeds were outlined in more details in the other section of the report. However, the other quality standard indicators of soybeans and products of its processing are listed below.

Table 1 3 . Quality indicators of soybeans (DSTU 16 4964: 2008) Indicator Norma Humidity, % not more than 12,0 Mass portion of protein in terms of dry matter, %, not less than 35,0 Mass portion of oil in terms of dry matter, %, not less than 12,0 Waste and oil impurities (together), 10,0 % not more than In particular waste impurit ies 3,0 In oil impurities: Frosty damaged 17 soybean seed 5,0 Sunflower grains 2,0 Castor grains not allowed Not allowed except mite infestation not Contamination by pests above 1st grade Source: DSTU 4964: 2008 Table 14 . Quality indicators of soybean meal (DSTU 4593:2006) Indicator Norma Mass fraction of moisture and volatile substances,% 8,5 – 10,0 Mass fraction of ash insoluble in 10 per cent hydrochloric acid, in terms of absolutely 1,5 dry substance,%, not more Mass fraction of crude fat in terms of absolutely dry substance,%, 1,5 not more Fat Acid number, mg KOH / g, not more 2,0 The content of mycotoxins mg / kg, not more: Aflotoksyn B1 0,005

16 State Standard of Ukraine 17 Frosty damaged soybean seeds – immature seeds with wrinkled shell, clearly deformed, with a partially modified form and dull surface

FINAL REPORT

Indicator Norma Zearalenone 1,0 The content of toxic elements, mg / kg, not more: Lead 1,0 Cadmium 0,1 Arsenic 0,3 Mercury 0,02 Copper 10,0 Zinc 50,0 The content of organochlorine pesticides mg / kg meal, not more: HCH (sum of isomers) 0,2 DDT (sum of isomers and metaloboliv) 0,05 Heptachlor (heptachlor epoxide) Not allowed Mass fraction of solvent residues (Nephras),%, not more 0,08 The content of nitrate mg / kg, max 200,0 The content of nitrites, mg / kg, max 10,0 Toxicity Not allowed Mass fraction of impurities of metal, mg / kg: particle size up to 2 mm including, not more: 7,0 particles larger than 2 mm and with sharp edges Not allowed The content of impurities (stones, glass, earth, etc.) Not allowed Contamination by pests or presence of traces of infection Not allowed Mass fraction of crude protein in terms of absolutely dry substance,%, not less 50,0 The total mass fraction of soluble proteins in meal of total protein,%, not less 80,0 Mass fraction of water - soluble proteins in meal of total protein,%, not less 70,0 Mass fraction of crude fiber in terms of absolutely dry substance,%, not more 2,0 Mass fraction of total ash in terms of absolutely dry substance,%, not more 6,0 Pass through a sieve having orifice with diameter of 10 mm,%, not less 100,0 Source: DSTU 4593:2006 Note. The increase in fat content to 2.0% is not a factor, indicating the shortage. Quality of soybean oil produced in Ukraine is determined by the by the State Standard (DSTU 4534 - 2006), and has indicators given below . Table 15 . Quality indicators of soybean oil (DSTU 4534 - 2006) Indicator Norma smell and taste of typical soybean Smell and taste oil, without any special smell, flavor , bitterness Colour natural, brown with a greenish tint slightly hazy, a small sediment is Transparency allowed Mass fraction of not fatty impurity,%, no more 0,2 Moisture content,% 0,36 Acid number, mg KOH / g 4,0 Peroxide number, 1/2 mol of O / kg, not more 5,0 Mass fraction of phosphorus - containing compounds, based on 4,0 stearooleolecitin%

FINAL REPORT

Indicator Norma Mass fraction of phosphorus - containing compounds, calculated as 0,4 P2O5,%, not more than Color number (Iodine Number, mg), no more 100 Source: DSTU 4534 - 2006

1.9. Markets: Domestic and International

Soybeans. Trade analysis and balance of trade Intensive increase of soybeans production has led to increase of exports in more than 6.3 times for last 10 years. At the same time, the share of Ukraine in global production reached 1.2% in 2014/15 MY and also our country get 8th position in world among o thers by the volumes of soya production. According to USDA forecast, production of soya in Ukraine will increase up to 1.5% (4.7 mln tons) from world production in 2015/16 MY.

350 1.6% mln t % 300 1.4% 1.2% 250 1.0% 200 0.8% 150 0.6% 100 0.4%

50 0.2% 0.6 0.9 0.7 0.8 1.0 1.7 2.3 2.4 2.8 3.9 4.7 0 0.0%

World Ukraine Share of Ukraine

Figure 3 1. Global and Ukrainian production of soybeans, mln t * hereinafter - forecast Source: USDA, UCAB The exports of soybeans from Ukraine have increased in more than 10.2 times for last 10 years (CAGR 2005/06 - 2014/15 = 30%) and the share of Ukraine in global exports reached the level of 1.8% with a perspective of further incre ase to 2.5% in 2015/16 MY.

FINAL REPORT

140 2.5% mln t % 120 2.0% 100 80 1.5%

60 1.0% 40 0.5% 20 3.0 0.2 0.4 0.2 0.3 0.3 1.0 1.3 1.3 1.3 2.3 0 0.0%

World Ukraine Share of Ukraine Figure 3 2. Global and Ukrainian exports of soybeans, mln t Source: USDA, UCAB As we can see from the figure 3 3 , imported volumes of soybeans in Ukraine were very low compared to exported volumes. In general, soya import was re presented mainly by seeds for further their reproduction on the territory of the Ukraine by seeds producing enterprises. For example, in 2015 about 50 - 70 thousand tons of soybean seeds are to be produced out of 3 thousand tons of soybean seeds imported in 2014. This is equal to 22 - 31% of the current demand on soya seeds. 1800 1000 t 1600 1400 1200 1000 800 600 400 200 0 2 0 1 1 1 2 1 2 3 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Import Export Figure 3 3. Balance of Ukrainian soybeans foreign trade, 1000 t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine During the analysed period the structure of foreign trade had not changed too much in case of imported countries list. The share of TOP - 20 18 countries by volumes of Ukrainian soybeans import was at the level from 81 to 97% in total exports from Ukraine. The dynamics of export s by countries you can see on the figure 3 4.

18 Hereinafter: TOP - 20 is formed from the importing countries in 2014

FINAL REPORT

1800 100% 1000 t % 1600 1400 80% 1200 60% 1000 800 40% 600 400 20% 200 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Turkey Egypt Italy Greece Iran Spain Germany Hungary Saudi Arabia Israel Romania Lithuania Syrian Arab Republic Luxembourg Lebanon Share of TOP-20

Figure 3 4. The structure of Ukrainian soybeans exports by the destination countries, 1000 t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine

Price levels and competitiveness analys is of Ukrainian soybeans As far as major part of soybean seeds imports belongs to the companies that produce seeds for further sale to agricultural companies, prices of such soya were relatively higher than the prices of exported product. The average diffe rence was equal to 72% during the analyzed period in case of comparing the arithmetic mean of annual prices. 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ukrainian exports Ukrainian imports Figure 3 5. Prices of soybeans exports and imports in Ukraine, USD/t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine Taking to account that Ukraine is an important player at the international market of soybeans, both internal and export prices in Ukraine form under the influence of global supply and demand. Thus, the correlation between Ukrainian exports and world impo rts prices were pretty high during the analysed period (ρ = 0.94).

FINAL REPORT

700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ukrainian exports World imports Figure 3 6. Comparison of Ukrainian exported soybeans prices and world imported, USD/t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine, Trade Map Comparing t he exports prices from Uk raine and world import (figure 36 ), we can see that Ukrainian prices were on average 23% lower. Remembering from the previous report that this culture was one of the most profitable among others and it have high demand on local and foreign markets, we realize that the increase of production was essential. By country price comparison indicated that Ukrainian exporters have huge potential to increase their supply, because 89 out of 94 countries with net imports of soybeans ( without se eds for sowing and NI > 100 ton s ) have higher imports prices (table 1 6 ). Table 1 6 . Average by country import prices comparison with the Ukrainian exports price Country Average imports price Higher than Ukrainian exports price on,% Pakistan 2038 385% Democratic Republic of the Congo 2000 376% Guyana 1384 230% Luxembourg 1207 187% Swaziland 1197 185% New Zealand 1151 174% Jordan 1099 162% Sweden 1041 148% Bahrain 988 135% Brunei Darussalam 985 135% Mauritius 928 121% Kuwait 915 118% Switzerland 905 115% Singapore 837 99% Hong Kong, China 822 96% Denmark 815 94% Egypt 804 91% Jamaica 784 87% Qatar 784 87% Oman 739 76% Iraq 728 73% Lao People's Democratic Republic 726 73% Finland 680 62% Belarus 652 55% Japan 648 54% Korea 635 51%

FINAL REPORT

Country Average imports price Higher than Ukrainian exports price on,% Philippines 623 48% Lebanon 623 48% Korea, Democratic People's Republic 622 48% Norway 612 46% Slovenia 612 46% El Salvador 611 45% Austria 604 44% Indonesia 599 43% Estonia 597 42% Malaysia 595 42% Kenya 586 40% Botswana 586 40% Trinidad and Tobago 585 39% Morocco 574 37% Belgium 572 36% Taipei, Chinese 568 35% Thailand 567 35% Russian Federation 566 35% China 564 34% Dominican Republic 562 34% Macao, China 562 34% Turkey 558 33% Czech Republic 556 32% Nepal 555 32% Italy 551 31% Guatemala 551 31% Costa Rica 550 31% Greece 548 30% United Arab Emirates 544 30% Latvia 543 29% Chile 539 28% Panama 538 28% Germany 537 28% Netherlands 535 27% United Kingdom 533 27% Mexico 532 27% Colombia 531 26% Spain 530 26% Portugal 530 26% France 527 25% Uzbekistan 527 25% Bulgaria 527 25% Lithuania 524 25% Romania 522 24% Peru 521 24% Cuba 521 24% Tunisia 514 22% Venezuela 514 22% Hungary 514 22% Ireland 510 21% Zimbabwe 506 20% Viet Nam 505 20% Poland 503 20% Georgia 497 18% Serbia 496 18%

FINAL REPORT

Country Average imports price Higher than Ukrainian exports price on,% Macedonia 491 17% South Africa 490 17% Bangladesh 485 15% Sudan (North + South) 484 15% Saudi Arabia 479 14% Nigeria 465 11% Bosnia and Herzegovina 461 10% Iran, Islamic Republic 427 2% Turkmenistan 402 - 4% Syrian Arab Republic 385 - 8% Tajikistan 229 - 45% Kyrgyzstan 142 - 66% Source: Trade Map, UCAB In order to estimate the potential of Ukrainian soybean at the international market, we developed price comparison model with the following algorithm of actions: 1. Identification of the countries with a positive net import of soybeans (without seeds for sowing); 2. Calculation of average importing price for single importing country by countries that supplies goods ( = ); 3. Comparison of prices from previous step to the Ukrainian exports average price; 4. Summarizing by countries volumes for the cases where Ukraine had better price offer. As a result of abovementioned ste ps we receive the potential export increase volume and estimated revenue from that increase. We analysed TOP - 15 countries by imported volumes in 2014. Results are presented in table 17 . Table 17 . Estimation of Ukrainian soybeans export potential based on p rices comparison model Average Export Average Export Potential Import, import from Share of Ukrainian price Country potential, revenue, 1000 t prices, Ukraine, Ukraine, % of exports, 1000 t mln. USD USD/t 1000 t USD/t China 71194 564 0 0% 71194 29901 Mexico 3892 532 0 0% 3892 1634 Germany 3648 537 50 1% 3598 1511 Spain 3441 530 77 2% 3364 1413 Japan 2827 648 2 0% 2825 1186 Taipei, 2373 568 0 0% 2373 997 Chinese Russia 1946 566 21 1% 1925 809 420 Indonesia 1925 599 2 0% 1923 808 Thailand 1887 567 1 0% 1886 792 Netherlands 1850 535 3 0% 1847 776 Turkey 2005 558 479 24% 1526 641 Viet Nam 1412 505 0 0% 1412 593 Korea 1262 635 0 0% 1262 530 Italy 1361 551 178 13% 1183 497 Egypt 1315 804 236 18% 1079 453 Total 102337 - 1049 1% - 101288 42541 Source: UCAB

FINAL REPORT

We should also mention that this is only price comparison and this model does not taking to account some features or preferences of single country (e.g. limitations in access to market, relation to GMOs etc.). Besides that price comparison analysis shows huge potential for Ukraine, but in case of further rapid increase of the production (even with a constant production volumes in other countries), global balance of the supply and demand would be shifted and huge ending stocks woul d be formed. Of course, abovementioned situation would cause strong pressure on purchasing prices, so producers would be forced to produce other cultures with higher margin, so we are considering this analysis more like an indication of target markets to d evelop in future. Soybean meal. Trade analysis and balance of trade Increase of gross harvest has also stimulated soybeans processing. As we can see from the figure below, there is an increasing trend in the volumes of soybean meal production in Ukraine

(CAGR 2005/06 - 2014/15 = 9%), but the volume of Ukrainian production was still pretty low comparing to the volumes of world production (only 0.3% in 2014/15 MY).

250 0.35% % mln t 0.30% 200 0.25%

150 0.20%

100 0.15% 0.10% 50 0.05% 0.3 0.3 0.4 0.4 0.4 0.4 0.5 0.5 0.6 0.6 0.7 0 0.00%

World Ukraine Share of Ukraine

Figure 3 7. Global and Ukrainian production of soybean meal, mln t Source: USDA, UCAB Soybean meal had been oriented mainly on domestic market in order to substitute the imports, but during the last 3 years we have observed an increase of exports also due to simultaneous increase of soybean meal production and decrease of domestic consumption. In 2014/15 MY the share of exports to production was equal to 26%, while during 2005/06 – 2012/13 MY – from 0 to 3%.

FINAL REPORT

70 0.35% mln t % 60 0.30% 50 0.25% 40 0.20% 30 0.15% 20 0.10% 10 0.05% 0.0 0.0 0.0 0.0 0.1 0.2 0.2 0 0.00%

World Ukraine Share of Ukraine Figure 3 8. Global and Ukrainian exports of soybean meal, mln t Source: USDA, UCAB Confirmation of the imports substitution processes can be done also by the figure below. From the year wi th highest import (2006 – 160 thous. tons) till 2014 the rapid decrease of imports were observed (CAGR 2006 - 2014 = - 43%). At the same time during the last 3 years soybean meal exports had increased in 7.3 time s to 1 09 thous tons.

180 1000 t 160 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Import Export Figure 3 9. Balance of Ukrainian soybean meal foreign trade, 1000 t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine The exports increase led to its diversification. Thus, even 3 years ago soybean meal had been exported to 3 countries only, but in 2014 the number of counteragents by countries increased to 18. 73% from total exports was supplied to post - soviet countries, like Belarus, Russia and Azerbaijan, while only 11% - to the European Union (Poland, Mold ova, Romania, Slovakia, Croatia and Lithuania). On the figure below all the Ukrainian counteragents are illustrated for the past 10 years.

FINAL REPORT

110 100 90 80 70 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Belarus Russian Federation Azerbaijan Tunisia Poland Kazakhstan Republic of Moldova Romania Georgia Egypt Turkey Slovakia Israel Uzbekistan Croatia Lithuania Mauritius Armenia Hungary Iran Turkmenistan Figure 4 0. The structure of Ukrainian soybean meal exports by the destination countries, 1000 t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine

Price levels and competitiveness analysis of Ukrainian soybean meal The soybeans supply with affordable prices increase at the domestic market led to increase of the processing industry profit ability due to possibility to produce soybean meal with competitive prices. The average difference between prices of exports and imports for the analysed period was at the level of 15%. In addition, at the figure below we can see positive trend from the po int of further domestic market saturation and increase of exports. In 2014 the average exports price of soybean meal was already 44% lower than imports.

1000 900 800 700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ukrainian exports Ukrainian imports

Figure 4 1. Prices of soybean meal exports and imports in Ukraine, USD/t Source: State Statistic Servi ce of Ukraine, State Fiscal Service of Ukraine

FINAL REPORT

Ukrainian soybean meal prices at the international market were higher by 17% than average import prices, but already in 2014 Ukrainian exporters started to sell these goods with competitive prices that were b y 4% lower on average.

700 600 500 400 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ukrainian exports World imports

Figure 4 2. Comparison of Ukrainian exported soybean meal prices and world imported, USD/t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine, Trade Map High volumes of domestic production allow producing processed products with a price advantage. As we can see from the table 18 , 90 out of 106 countries with net imports of soybean meal have higher imports prices than the exports price from Ukraine. Table 18 . Average by country import prices comparison with the Ukrainian exports price Country Average imports price Higher than Ukrainian exports price on,% Azerbaijan 868 70% Rwanda 803 57% Switzerland 705 38% Sweden 702 37% Guyana 702 37% Fiji 702 37% Madagascar 692 35% Uzbekistan 674 32% Papua New Guinea 670 31% Serbia 654 28% Kyrgyzstan 652 28% Hong Kong, China 647 27% Zimbabwe 642 26% Albania 636 24% Macedonia 632 24% Sri Lanka 630 23% Kuwait 624 22% Belarus 608 19% Cyprus 608 19% Mozambique 608 19% Singapore 606 19% Japan 603 18%

FINAL REPORT

Country Average imports price Higher than Ukrainian exports price on,% Nigeria 603 18% Iraq 597 17% Lesotho 596 17% Republic of Moldova 593 16% Botswana 590 15% Finland 589 15% Jordan 587 15% Croatia 587 15% Greece 585 14% Bulgaria 583 14% Thailand 580 14% Georgia 580 14% Guatemala 578 13% Trinidad and Tobago 576 13% Lebanon 575 13% Nicaragua 575 13% Honduras 575 13% Indonesia 573 12% Romania 572 12% Kenya 572 12% Pakistan 570 12% Namibia 569 11% El Salvador 568 11% Swaziland 567 11% United Kingdom 564 10% Turkey 563 10% Bosnia and Herzegovina 563 10% Malaysia 562 10% Latvia 562 10% Qatar 561 10% Panama 561 10% Korea, Republic 558 9% Tanzania, United Republic 558 9% Slovakia 557 9% Mauritius 557 9% Colombia 556 9% Hungary 555 9% Morocco 554 8% Estonia 554 8% Poland 550 8% Chile 548 7% Belgium 543 6% Austria 542 6% Luxembourg 542 6% Denmark 541 6%

FINAL REPORT

Country Average imports price Higher than Ukrainian exports price on,% Ecuador 541 6% Dominican Republic 541 6% Korea, Democratic People's Republic 541 6% Netherlands 541 6% Costa Rica 539 5% Mexico 535 5% Germany 534 5% Italy 534 5% Oman 533 4% Slovenia 532 4% Taipei, Chinese 531 4% Ireland 529 4% Lithuania 529 4% Grenada 525 3% Spain 524 3% France 523 2% Jamaica 522 2% Czech Republic 521 2% Uruguay 521 2% Canada 519 2% Nepal 515 1% Ghana 515 1% Peru 513 0.4% Australia 510 - 0.2% Senegal 500 - 2% South Africa 498 - 3% Portugal 498 - 3% Iran, Islamic Republic 493 - 4% United Arab Emirates 492 - 4% Venezuela 491 - 4% Tunisia 490 - 4% Viet Nam 487 - 5% Philippines 487 - 5% Syrian Arab Republic 484 - 5% Côte d'Ivoire 480 - 6% New Zealand 458 - 10% Cameroon 452 - 12% Egypt 235 - 54% Mali 221 - 57% Source: Trade Map, UCAB Using the methodology, described in previous chapter, we calculated the export potential for Ukrainian soybean meal.

FINAL REPORT

Table 19 . Estimation of Ukrainian soybean meal export potential based on prices comparison model Average Export Average Export Potential Import, import from Share of Country Ukrainian price of potential, revenue, 1000 t prices, Ukraine, Ukraine, % exports, USD/t 1000 t mln. USD USD/t 1000 t Netherlands 4657 541 0 0% 4657 2380 Indonesia 3828 573 0 0% 3828 1956 France 2944 523 0 0% 2944 1505 Thailand 2889 580 0 0% 2889 1476 Italy 2067 534 0 0% 2067 1056 Poland 1872 550 5 0.3% 1872 957 United Kingdom 1842 564 0 0% 1842 941 Spain 1825 524 0 0% 511 1825 933 Korea, Republic 1780 558 0 0% 1780 909 Japan 1753 603 0 0% 1753 896 Germany 1651 534 0 0% 1651 844 Mexico 1535 535 0 0% 1535 785 Denmark 1501 541 0 0% 1501 767 Algeria 1432 580 0 0% 1432 732 Malaysia 1385 562 0 0% 1385 708 Total 32962 - 5 0% - 32962 16844 Source: UCAB Soybean oil. Trade analysis and balance of trade The production of soybean oil in Ukraine have weak tendency to increase (CAGR 2005/06 - 2014/15 = 10%), but the volumes of production were still low (147 t hous tons or 0.3% from the world production).

60 0.35% mln t % 50 0.30% 0.25% 40 0.20% 30 0.15% 20 0.10% 10 0.05% 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0 0.00%

World Ukraine Share of Ukraine Figure 4 3. Global and Ukrainian production of soybean oil, mln t Source: USDA, UCAB Ukrainian producers became aimed on exports of soybean oil. This thesis can be supported by the ratio of exported soybean oil to produced: in 2005/06 – 2007/08 MY this value was at the level of 9 - 13% and till the 2014/15 MY it increased up to 92%, so the share of Ukrainian exports in the global increas ed from 0.08 to 1.3%.

FINAL REPORT

12 1.6% mln t % 1.4% 10 1.2% 8 1.0% 6 0.8% 0.6% 4 0.4% 2 0.0 0.0 0.2% 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.2 0 0.0%

World Ukraine Share of Ukraine

Figure 4 4. Global and Ukrainian exports of soybean oil, mln t Source: USDA, UCAB Using the comparison of export volumes by calendar year, we can see on the figure below that CAGR of exports for the analysed period was equal to 36% that indicates on the steady upward exports trend.

140 1000 t 120 100 80 60 40 20 0.0 0.0 0.1 0.1 0.1 0.0 0.1 0.5 0.1 0.1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Import Export Figure 4 5. Balance of Ukrainian soybean oil foreign trade, 1000 t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine The share of TOP - 20 countries by volumes of Ukrainian soybea n oil imports was equal to 99.6% from total volumes of Ukrainian soybean oil exports from Ukraine. Totally this product was exported to 28 countries in 2014. As we can see from the figure below Poland was a major and stable consumer of this product. Overal l the EU was a major buyer of Ukrainian soybean oil with the share of 57 - 87% in the years of “weighty” exports (2009 - 2014).

FINAL REPORT

140 100% 1000 t % 90% 120 80% 100 70%

80 60% 50% 60 40% 40 30% 20% 20 10% 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Poland Spain India China Iran Algeria Morocco UAE Belarus Czech Republic Mauritius Oman Israel Lithuania Saudi Arabia Tunisia Armenia Seychelles Cyprus Jordan Share TOP-20

Figure 4 6. The structure of Ukrainian soybean oil exports by the destination countries, 1000 t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine Price levels and competitiveness analysis of Ukrainian soybean oil Despite the low volumes of soybean oil imports to Ukraine, its price was 52% higher. Increasing domestic production of soybeans make favourable conditions for Ukrainian producers to saturate the internal (domestic) market and work on the exports increase.

2250 2000 1750 1500 1250 1000 750 500 250 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ukrainian exports Ukrainian imports

Figure 4 7. Prices of soybean oil exports and imports in Ukraine, USD/t Source: State Statistic Service of Ukraine, State Fiscal Service of Uk raine Another one factor that indicates the possibility to increase the exports is the comparison of Ukrainian exports and world imports prices. On the international market Ukraine offered 8% lower

FINAL REPORT prices on average for the analyzed period. In 2014 this difference reached 18% in favor of Ukrainian prices.

1400

1200

1000

800

600

400

200

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ukrainian exports World imports

Figure 4 8. Comparison of Ukrainian exported soybean oil prices and world imported, USD/t Source: State Statistic Service of Ukraine, State Fiscal Service of Ukraine, Trade Map Table 20 indicates that Ukrainian soybean oil was also competitive on the foreign markets by price comparison. 140 out of 141 countries with net imports of soybean oil have higher imports prices than the exports price from Ukraine. Table 20 . Average by country import prices comparison with the Ukrainian exports price Country Average imports price Higher than Ukrainian exports price on,% Luxembourg 2443 211% Saint Lucia 2440 210% Gibraltar 2307 194% Saint Vincent and the Grenadines 2198 180% Belize 2095 167% Aruba 1931 146% United States Minor Outlying 1931 146% Islands Netherlands Antilles 1926 145% Saint Kitts and Nevis 1863 137% Botswana 1782 127% Qatar 1773 126% Bahrain 1707 117% Grenada 1678 113% Sudan (North + South) 1567 99% Japan 1559 98% Cambodia 1546 97% Cayman Islands 1544 96% Mali 1543 96%

FINAL REPORT

Country Average imports price Higher than Ukrainian exports price on,% Honduras 1501 91% French Polynesia 1460 86% New Caledonia 1458 85% Central African Republic 1451 85% Ethiopia 1450 84% Lao People's Democratic Republic 1447 84% Kenya 1429 82% Sao Tome and Principe 1428 82% Cameroon 1411 80% Antigua and Barbuda 1386 76% Bahamas 1383 76% Haiti 1378 75% Austria 1368 74% Fiji 1368 74% Guinea 1362 73% Congo 1360 73% Korea, Democratic People's 1356 73% Republic Eritrea 1354 72% Equatorial Guinea 1346 71% Maldives 1339 70% Ghana 1309 66% Cabo Verde 1304 66% Liberia 1301 66% Nigeria 1297 65% Sri Lanka 1283 63% Panama 1280 63% Mauritania 1280 63% Guinea - Bissau 1269 61% Malawi 1267 61% Turkey 1244 58% Democratic Republic of the Congo 1236 57% Gabon 1235 57% Bermuda 1232 57% New Zealand 1227 56% Malta 1227 56% Gambia 1224 56% Chile 1221 55% Dominica 1217 55% Angola 1211 54% Lesotho 1210 54% Kuwait 1209 54% Trinidad and Tobago 1205 53% Indonesia 1201 53% Iceland 1198 52%

FINAL REPORT

Country Average imports price Higher than Ukrainian exports price on,% Zimbabwe 1183 51% Côte d'Ivoire 1180 50% Singapore 1170 49% Niger 1159 47% Myanmar 1156 47% Switzerland 1146 46% Djibouti 1142 45% El Salvador 1128 44% Mongolia 1127 43% Zambia 1125 43% Macao, China 1124 43% Syrian Arab Republic 1124 43% Latvia 1118 42% Solomon Islands 1113 42% Ireland 1087 38% Suriname 1086 38% Egypt 1076 37% Cyprus 1069 36% Iraq 1069 36% Jordan 1069 36% Papua New Guinea 1063 35% Namibia 1059 35% Swaziland 1059 35% Libya 1057 34% Lebanon 1057 34% Madagascar 1043 33% Mauritius 1035 32% Australia 1030 31% Costa Rica 1026 31% Ecuador 1023 30% Nicaragua 1011 29% Uzbekistan 1007 28% Greece 1001 27% Hong Kong, China 1001 27% Estonia 1000 27% Sweden 1000 27% Belgium 995 27% Oman 986 25% Bulgaria 986 25% Croatia 983 25% Czech Republic 975 24% United Kingdom 971 23% Senegal 970 23% Lithuania 969 23% Korea, Republic 966 23%

FINAL REPORT

Country Average imports price Higher than Ukrainian exports price on,% Armenia 964 23% China 962 22% Cuba 961 22% Colombia 959 22% Slovenia 957 22% Pakistan 956 22% Venezuela 948 21% Peru 944 20% Denmark 943 20% India 943 20% Uruguay 940 20% Tanzania, United Republic 938 19% Guatemala 937 19% Mexico 937 19% Portugal 929 18% South Africa 928 18% Belarus 914 16% France 914 16% Tajikistan 907 15% Algeria 906 15% Jamaica 898 14% Morocco 897 14% Slovakia 895 14% Poland 882 12% Dominican Republic 877 12% Mozambique 865 10% Bosnia and Herzegovina 860 9% Tunisia 854 9% Palestine 852 8% Seychelles 839 7% Bangladesh 833 6% Guyana 820 4% Iran, Islamic Republic 799 2% Nepal 730 - 7% Source: Trade Map, UCAB Using the methodology, described in the chapter dedicated to soybeans, we calculated the export potential for Ukrainian soybean oil.

FINAL REPORT

Table 21 . Estimation of Ukrainian soybean oil export potential based on prices comparison model Average Export Average Share of Export Potential Import, import from Ukrainian Country Ukraine, potential, revenue, 1000 t prices, Ukraine, price of % 1000 t mln. USD USD/t 1000 t exports, USD/t India 2106 943 12 0.6% 2095 1646 China 1135 962 8 0.7% 1127 886 Algeria 625 906 6 1.0% 619 486 Bangladesh 508 833 - - 508 399 Venezuela 493 948 0 - 493 387 Morocco 438 897 4 1.0% 434 341 Peru 355 944 0 - 355 279 Colombia 299 959 0 - 299 235 Korea 266 966 0 - 786 266 209 Iran 248 799 8 3.1% 240 189 Mexico 203 937 0 - 203 160 Dominican 166 877 0 - 166 131 Republic United 157 971 0 0.0% 157 123 Kingdom Pakistan 125 956 0 - 125 98 Ecuador 117 1023 0 0.1% 116 91 Total 7240 - 38 1% - 7202 5661 Source: UCAB

Table 22. Soya price formation Estimated price on the field UAH / t 7500 Estimated price for terms EXW, UAH / t 7857 The final from the field to silo 357 Delivery to silo 100 Reception silo 20 Refinement, silo 24 Drying, silo 153 Storage silo 60

Estimated price for CPT port, UAH / t 8217 The final from silo to board ship 360 Downloads from silo 80 Weigh, operation of the railway Radio stations meetings Locking devices 230 Transport fare Services of customs broker Services Freight Forwarder Certification 40 Disinfection of wagons 10

FINAL REPORT

Estimated price for FOB Ukraine, USD 350 (8750) (UAH) / t VAT return, USD (UAH) / t 70 (1750) Estimated price for CPT port, USD (UAH) / t 328,7 (8217) Export duty, USD / t 0 Export duty, % 0% Disinfection on board 0.65 (16,2) Loading on board Services Freight Forwarder in Port Services State Agricultural Inspection Services State Quarantine Service 20 (500) ST - 1 Certificate Services State Veterinary Service Services of independent surveyors Profit of the exporter 71,3 (1782,5)

Barriers and obstacles for trade and export Demand for soybeans and processed products both in Ukraine and abroad, is quite high. However, it should be noted that the production of soybean in Ukraine is quite young, and therefore occurrence of certain problems in the sector are something expected and predictable. One of the main problems faced by Ukrainian producers is t he identification of the origin of soybeans, i.e. whether soybean is transgenic or not. Product sales markets depend on this information since the majority of European consumers demand the products to be GM - free. However, according to the results of the research, conducted by UCAB in 2015, ”Traders’ Attitude towards Genetically Modified Plants” 50% of traders expressed their positive attitude towards GM plants and noted the fact that they sold GM products not only to Asian countries but to Europe as well. At the same time, 40% of r espondents had difficulties related with the presence of GM impurities in the grain. Another problem of Ukrainian producers is underdeveloped capacities for further products’ processing. In general this applies not only to soybeans, but other crops as well . However in the absence of instability in the country, it is difficult for economic entities to invest in processing that could potentially increase production profitability and expand sales markets. Also one of the essential drawbacks is current not full y successful production technology directly influencing volume of soybean and its processed products that could be sold. This topic is correlating with the part of this report related to the legislation , so we will fully describe it in the respective chapt er.

Perspectives, outlook, potential, opportunities for export and increasing market share Considering the fertility of soils and favourable climatic conditions, Ukraine has fairly serious prospects for increasing production of soybeans. This is confirmed by the fact that acreage planted with soybeans on farms is constantly growing, and the technology, albeit slowly, but gradually improving. Thus, Ukraine step by step increases production and export not only of raw materials but also products of processing . During 14 years the export of soybeans and products of its processing increased in ten times: in 2001 export volume was only 0.9 mln USD, unlike in 2014 the amount of export has reached 854.5 mln. USD. For three quarters of this year, the amount of expor ts of soybean and its processed products is already 668.9 mln. USD. The largest increase was mainly due to

FINAL REPORT soybeans, with 0.4 mln. USD in 2001 to 701 mln USD in 2014 and already 517.8 mln. USD during January - September 2015.

While selling raw materials on the international market, exporters have studied the possibility of future supply and sale of processed products. Gradually implementing processing of soybeans into oil, Ukrainian producers realized that instead of exporting single product of processing, t hey can supply two: the demand for soybean meal in Europe remains more or less stable, and therefore competitive price for Ukrainian soybean meal opened the way to the European livestock farms. As a result, Ukrainian export of soybean oil increased from 0. 3 to 94.8 mln. USD and export of meal rose from 0.1 to 55.6 mln. USD.

The number of potential markets for Ukrainian soybeans gradually increases. In 2001, it was 4 countries, in 2014 already 27 imported Ukrainian products. In January - September 2015 17 countries imported Ukrainian soy, however it should be noted that the acti ve harvest just took place in September - October, so more detailed export geography will be known towards the end of the year. In 2001 Belarus was the only importer of Ukrainian meal. In 2014, already 10 countries imported Ukrainian meal worth more than 1 m ln. USD each.

Alternatives to soya 33% of Ukrainian agricultural producers do not see the alternatives to soya, while other 58% indicated that they can substitute this crop by other.

100% 40% 35% 35% 80% 33% 30% 30%

60% 25% 20% 40% 58% 15% 10% 10% 10% 8% 20% 5% 5% 3% 10% 0% 0% no rapeseed sunflower linseed corn pumpkins chickpeas peas yes

a) Is there any alternative b) By which crop you can substitute soya? to soya? Figure 49 . Alternatives to soya Source: interviews of UCAB The main competitors of soya at the Ukrainian fields are sunflower and corn. The majority of producers (35% and 30% respectively) indicated that in case if this would be economically reasonable, they are ready to substitute soybeans by sunflower or corn . Rapeseed (10%), chickpeas (10%), peas (8%), pumpkins (5%) and linseed (3%) were named as other substitute cultures.

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Analysis of markets and industry depend ent on soya The increase in production and sales of soybean and processed products within the country minimizes the volume of imports of th ese products. Agricultural producers started to increase volumes of soybean cultivation as forage, thus ensuring the needs of local a nimal facilities.

However, r ecently the livestock industry was declining ; keeping cattle in industrial scale becomes less profitable. A vivid example is the dairy farms where the cost of milk production is not covered by low purchase prices of processing e nterprises. As a result, dairy farmers have to partially cut the number of cows.

However there is somewhat better situation in the poultry industry. Highly competitive producers, who export products abroad and have sustainable demand for them in the count ry, are provided with a stable income. Reinvestment increases the volume of production and thus demand for soybean meal in poultry is increasing steadily. Many large Ukrainian agricultural companies have a mixed farming, independently cultivate soybeans, a nd then use it as feed in their animal areas, including poultry.

Analysing foreign trade and domestic consumption, worth noting huge potential for increasing volumes of production both soybean and processed products. The research, which was conducted as pa rt of this project, shows increase in demand for soybeans as a source of protein, not only as food but also as feed.

From 1 January 2016 Russia introduces embargo on trade with Ukraine. However, despite the cessation of trade with Russia, through the acti ons of producers and processors and supported by the Ministry of Agrarian Policy and Food of Ukraine, the process of gradual reorientation of Ukrainian producers on other markets occurs. Therefore, under the condition of improving product quality interest from the foreign customers will increase. Low production costs compared with developed countries gives producers an additional incentive for development and access to foreign markets.

Possibility for promoting domestic brands in Ukraine for non - GM soya and its products Domestic market entities think that Ukrainian brands of non - GM soya and its products have good chances to be promoted: 80% of the respondents confirmed this.

10% 10% 80%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

without answer no yes Figure 50 . Possibility for promoting domestic brands in Ukraine for non - GM soya and its products Source: interviews of UCAB

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Some of the producers’ comments:  We have considerably good domestic varieties of soya, but they are not popular because local companies and research institutes do not promote them.  LNZ (Lebedynskyy Seed Plant) is rather good in this area. I think that our government should support such companies.  I do not know about the Ukrainian varieties. I think there was not enough time for the research and lack of investments in this area. We sh ould consider the experience of USA and Canada.  I do not think that Ukrainian varieties could have quality like foreign ones.  Ukrainian varieties won’t be competitive.  Ukrainian varieties have and will have lower quality.  It depends on the variety: there a re only few varieties with a good quality.

Main drivers and trends for change of consumers’ behaviour Among the consumers of food produ cts we see negative tendencies. Due to unfavourable macroeconomic changes, people became more oriented on low price segments and so called “social” products. In this regard organic products, which belong to high price segments, became less popular, but still demanded on our market. Retailers indicate that earlier the main source of their revenue came from middle price segments of products, but nowadays – its “social” group of products. Our interview support s this point of view: 63% of the interviewees think that now people are and will mainly increase the consumption of the “cheapest” products. 15% think that consumers will produce more food by themselves.

13% 10% 63% 15%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

without answer Increase of GM-products consumption Increase of organic products consumption Increase of "cheapest" food consumption Increase of own-produced food consumption Figure 51 . Main drivers for change of consumers’ behavior Source: interviews of UCAB We can approve the decrease of consumers’ purchase power by following indicators that illustrated in the table below.

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Table 23 . Main indicators representing c onsumers’ purchase power Change, 2013 2013 Change, 2014 2014 Change, 2015 2015 Change, Indicator Oct.15/ (beg.) (end) % (beg.) (end) % (beg.) (October) % beg.13, % USD/UAH - 7.993 7.993 0% 7.993 15.616 95% 15.813 22.904 45% 187% official USD/UAH - "shadow" 8.095 8.298 3% 8.309 19.434 134% 19.525 24.382 25% 201% market Average salary, 3000 3619 21% 3167 4012 27% 3455 4532 31% 51% UAH Average salary, 370.6 436.1 18% 381.2 206.4 - 46% 177.0 185.9 5% - 50% USD 19 Inflation - - 0.3% 12.1% 49.5% - annual Source: National Bank of Ukraine, State Statistic Service of Ukraine, own monitoring and calculations

As you can see from the figure below, increase of welfare is a main driver for the change of the consumers’ behaviour – 65% of respondents indicated this. 50% think that there is lack of knowledge among the consumers about the benefits of organic products consumption, so promotion of such products can change the consumers’ behaviour . We should also note that interviewees mainly voted for “more knowledge about organic products” together with the “increase of welfare” of consumers. Nowadays people and companies have low purchasing power due to recent changes in our economy. At the same time only 30% indicated that the decre ase of organic soya prices can change consumers’ behaviour .

80% 65% 70% 60% 50% 50% 40% 30% 30% 20% 10% 0% Increase of welfare Decrease of soya prices More knowledge about organic products

Figure 5 2 . Main drivers for change of consumers’ behavior Source: interviews of UCAB Situation and potential for organic soya

19 Recalculated using “shadow” market exchange rates

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To date in Ukraine t here are some enterprises that attempt to grow organic soybeans. Besides officially certified organic producers, many others argue they are also engaged in organic production. However, the “organic standar d s” they use may partially differ from European ones. Overall producers focused on healthy eating deal with organic production. And given the fact that all chains crop and livestock production should be organic, in this context feed plays one of the key positions.

One of the main problems organic producers facing with is unfair price policy. Despite the fact that the process of organic growing is more complicated, it is paid basically equally with non - GM product. The percentage of organic soya is small due to the reason mentioned above. But at the same time organic production has its niche at the Ukra inian market. Supporting organic producers would be a great opportunity for the Ukrainian government in promoting the European standards of organic production and consumption. In this case, the options of assistance from the state could be the promotion of Ukrainian goods on international markets, changes in current legislation concerning organic production including organic soya and provide simplified tax system. Potentially Ukrainian producers can increase the sowing areas under organic production, if dem and for such type of products at the foreign markets keeps upcoming trend. Provided however organic products will be paid higher than non - GM products.

Other GM crops in Ukraine There are no doubts that production of GM products becomes more popular in th e world. But, according to the report of Oleksiy Pavlenko (Ministry of Agricultural Policy and Food of Ukraine), Ukraine has all necessary conditions for harvesting non - GM soya, and there is no perspective for GM soya in a short term perspective. Such sta tement has a great impact on the foreign investors and buyers, but if there are no changes in GM legislations in nearest time, situation will not change. According to the research majority of producers have no idea how and who controls the soya production in Ukraine. That is why changes in legislation should be made soon, which could benefit non - GM producers (who follow non - GM production rules). In fact, GM seeds are prohibited for the registration in Ukraine, so legally there are no GM products in our coun try. However it does present at the market and traders distinguish GM and non - GM products, but the difference is very small. Nowadays, at Ukrainian markets two cultures are presented both non - GM and GM: maize and rapeseed. Mostly such products are used in the production of alternative fuel and it does not confound the fuel producers.

Different Experts point out that in Ukraine the share of GM corn is 20 to 50%, and production of GM rapeseed - up to 50%. However, given that the full monitoring and analysis o f these issues are not conducted, we can regard these figures as guesses. In accordance with the current legislation GM crops in Ukraine are prohibited and not produced, which is also not true.

"In fact, the unlimited possibilities of lobbying, the lack of adequate state control, climatic conditions and the active development of the agricultural market opens up significant prospects for the production of GMO crops".

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II. Legis lation background and proposals

2.1. Legislative and policy framework

L aws, normative regulation of the production and processing of soybean There are no specialized normative acts that regulate production and processing of soybeans in Ukraine, but at the same time market entities should work in framework of general legislation base on agri cultural production. To this category we can include:  Law of Ukraine “On seeds and planting materials” №411 - IV as of 26.12.2002; This law defines the basic principles of production and turnover of seeds and planting material, as well as procedures for stat e control over them. It does not apply to the circulation of seeds and planting materials that are genetically modified and which governed by special legislation.  Law of Ukraine “On state system of biosafety during creation, testing, transportation and use of genetically modified organisms” №1103 as of 31.05.2007 - main legislation on GMOs; This law regulates the relations between the executive power, producers, sellers (suppliers), developers, researchers, academics and consumers of genetically modified or ganisms and products produced by techniques involving their development, creation, testing, research, transport, import, export, placing on the market, release into the environment and use in Ukraine with the provision of biological and genetic safety.  Law of Ukraine “On production and circulation of organic agricultural products and raw materials” №425 - VII as of 03.09.2013; This law defines the legal and economic framework for the production and circulation of organic agricultural products and raw material s. It is aimed on ensuring the proper functioning of the market of organic products and raw materials, as well as to guarantee consumer confidence in products and raw materials labelled as organic.  Law of Ukraine “On grain and grain market in Ukraine” №37 - IV as of 04.07.2002; This law defines state policy on the development of the grain market (cereals, legumes and oilseeds used for food, seed, feed and industrial purposes) as a priority sector of the Ukrainian agriculture. The law aims on creation legal, e conomic and organizational conditions for competitive production and market development of grain for domestic needs of the state in food, seed and fodder grain, increasing its export potential.  Law of Ukraine “On plant quarantine” №3348 - XII as of 30.06.199 3; This Law determines the legal, organizational, financial and economic bases of plant quarantine, authority of state bodies, their officials, rights and obligations of businesses and individuals in order to prevent epidemics of pests that absent at the territory of Ukraine. It is also a part of Ukraine legislation to protect the life and health of plants.  Law of Ukraine “On state support of agriculture in Ukraine” № 1877 - IV as of 24.06.2004;

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This law defines the principles of state budget, credit, pricin g, regulatory and other policies in order to stimulate agricultural production, provide agrarian market development and food security.  Taxation Code of Ukraine as of 02.12.2010; Regulates relations arising in the sphere of collection of taxes and duties, i n particular ,it sets out an exhaustive list of taxes and fees imposed in Ukraine and the procedure for their administration, taxpayers, their rights and responsibilities, competence of the regulatory authorities, its powers and responsibilities during the tax control and liability for violation of tax laws. Legislation background and proposals In general Ukrainian market entities find current legislation as ineffective: average value of “effectiveness” is 2.2 20 . At the same time 43% of the interviewees cannot assess current legislation on GMOs or did not give any answer on this question. Other 38% of the respondents assessed it as “very ineffective” or “ineffective”.

43% 18% 20% 13% 8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

can not assess or no answer very ineffective ineffective

moderate effective very effective Figure 53 . Assessment of legislation on GMOs effectiveness by market entities Source: interviews of UCAB During the interviews we heard different thoughts on the legislation that regulate s GMOs. Main of them are:

 Legislation is good enough, but there is no application of its norms;  Legislation need s to be changed completely. Our state bodies should write new laws on a base of European legislation.

“Backroom” sources argue that current legislation on GMOs was needed to be written and accepted in a very tight term. These le d to an adoption of the Laws that do not meet market expectations and need to be revised.

20 Scale: 1 – very ineffective, 2 – ineffective, 3 – moderate, 4 – effective, 5 – very effective.

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5 4 2.6 3 2.5 1.7 2

1 0 Taxation Licensing Certification

Figure 54 . Average values of s atisfaction level with the taxation system, licensing and certification Source: interviews of UCAB The average assessments of taxation and certification systems in Ukraine by market entities are close to “moderate satisfaction”, while they are not satisfied by licensing completely. Concerning the taxation system, key reasons for low marks w ere :

 High lev el of corruption in fiscal bodies 21 ;  Upcoming negative taxation changes;  Frequent change of legislation and taxes.

a) taxation system

32% 16% 8% 34% 11%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

no answer very unsatisfied not satisfied moderate satisfaction satisfied very satisfied b ) licensing system

74% 16% 3% 8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

no answer very unsatisfied not satisfied moderate satisfaction satisfied very satisfied

21 During the other survey of the UCAB concerning the corruption in state bodies, Ukrainian agricultural producers estimated State Fiscal Service as the most corrupted body in Ukraine. 62% of the respondents assessed them as “very corrupt” or “corrupt” service.

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c) certification system

55% 18% 13% 11% 3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

no answer very unsatisfied not satisfied

moderate satisfaction satisfied very satisfied Figure 55 . Detailed distribution of answers concerning the satisfaction with the taxation system, licensing and certification Source: interviews of UCAB Licensing system w as assessed so due to bureaucratic procedures and presence of corruption.

Concerning the s oya production, producers said that they almost did not feel legislation, administrative or bureaucratic deficiencies - only those that concern agricultural production as a whole.

Possible deficiencies in the national legislation It should be noted that in Ukraine there is no single government body, which would have dealt with the issues of GMOs. According to the law, the authority for the control and regulation are spread between five major executive bodies: Cabinet of Ministers, the Ministry of Education a nd Science, Ministry of Ecology and Natural Resources, Ministry of Health and the Ministry of Agrarian Policy and Food.

Normative - legal base for the state registration of genetically modified organisms for food sources, as well as food products, cosmetics and medicines that contain such organisms or derived from their use:

 Law of Ukraine “On the State biosafety system when producing, testing, transporting and using genetically modified organisms”, which provides a state registration system.  Decree as of Fe bruary 18, 2009 № 114 “O n approving the procedure for State registration of genetically modified organisms for food sources, as well as food products, cosmetics and medicines that contain such organisms or derived from their use .  Order as of July 2 , 2009 № 475 on the approving of the Regist e r of genetically modified organisms for food sources, as well as food products, cosmetics and medicines that contain such organisms or derived from their use .  Order as of July 20, 2009 № 525 on approval of changes to the o rder of the state sanitary and epidemiological expertise .

Currently in Ukraine, industrial production and putting into circulation of GMO, as well as products produced with the use of GMOs is prohibited until its placing into the State registration system. However, according to the parliamentarians, this registration system does not work in

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Ukraine because of the lack of relevant by - laws. Ukrainian registers of GMOs and GMO products are not filled and control over the circulation of the GMO is missing. Howe ver, at the same time, empty registers of GMOs does not guarantee the safety of the food.

Since Ukraine has signed and ratified the Association Agreement with the European Union, the European Atomic Energy Community and is working at the moment on harmoniz ation of own legislation with the EU legislation, it is proposed to apply the simplified registration of GMO s and products produced with their application on the territory of Ukraine, provided they registration in the European Union. In this case the Cabin et of Ministers of Ukraine determines the simplified procedure of the registration.

For the purpose of implementing the simplified registration procedure on the territory of Ukraine of GMO s and products produced with their application registered in the Eur opean Union, has been developed The draft law on amendments to the law of Ukraine “ On the State system of biosafety when producing, testi ng, transporting and using GMOs” (on the introduction of the simplified registration procedure on the territory of Ukra ine of GMO s and products produced with their application registered in the European Union). However the decision was not supported.

Speaking about general legislation, recently were adopted very important agricultural Laws:

In the basis:

 2028 "On Amendment s to Certain Legislative Acts of Ukraine regarding the settlement of certain issues of the legal status of land farm" (will boost farming);  2150 "On the animal by - products not intended for human consumption" (harmonization with EU legislation on the handli ng of certain animal by - products);  2920 "On Amendments to Certain Legislative Acts of Ukraine regarding the minimum term of the lease of agricultural land, which is carried hydro technical reclamation" (clear rules in the area of reclaimed land lease);  3006 "On Amendments to the Land Code of Ukraine and other legislative acts on legal acts of land whose owners died" (improvement in the procedure of heritage recognition and increase in the material base of local budgets);

In general:

 1270 "On Amendments t o the Land Code of Ukraine (on improvement of the mechanism of transfer of land plots, alienated for public needs or for reasons of social necessary)” (launch an effective mechanism for the purchase of land plots of land needs);  1280 "On Amendments to Arti cle 50 of the Law of Ukraine" On Land Management "to simplify the procedure of production of land management projects for land allocation" (simplifying the procedure of preparation of land management projects);  1460 - 1 "On Amendments to Certain Legislative Acts of Ukraine (regarding bringing the legislation on seed and seedling in line with European and international requirements)" ( euro integration law in seed and seedling);

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 1509 "On Amendments to Article 9 of the Law of Ukraine" On humanitarian assistance "(to prevent delaying the timing of sanitary, veterinary, phytosanitary, radiological and ecological control of humanitarian aid)" (prevent delays in carrying out various types of state control of humanitarian aid);  3168 "On Amendments to the Decree of the Cabinet of Ministers of Ukraine" On standardization and certification" (allows certifying food products exported to other countries, in the state certification system of Ukraine).

Separately about draft law "On Amendments to Certain Legislative Acts of Uk raine regarding deregulation in agriculture (second reading of the reduction in the term of preparation)" 2558a: cancels or restricts action of 22 licensing procedures and requirements in carrying out economic activities of agricultural enterprises and lim its the powers of certain public authorities on functions of state control. Amendments will reduce the administrative burden on agricultural producers by substantial reduction of certain procedures and permits in agriculture, where regulatory mechanisms ar e out dated , overlapping or do not meet the international obligations of Ukraine.

After Act 2558a comes into force farmers can expect:

1. S ignificant reduction in administrative costs; 2. Reduc tion in the price of fertilizers and improve ment of crop profitability. 3. Simplifying the release of new economic entities on the market. 4. Reduc tion of corruption risks in the agricultural sector related to the issuance of permits. 5. Increas e of the investment attractiveness of agriculture and Ukraine's posi tion in international rankings of economic freedom.

Question on the possible deficiencies in legislation was asked as “open”. We transformed it into the quantitative estimation. After this we get the results, illustrated in the figure below. 35% of respon dents even did not provide any suggestion on the legislation, because they think that state bodies do not follow it. We also took into account answers concerning the increase and discarding of the control on production and sale of GM crops: 15% vs. 5%. Onl y 5% think that legislation has no disadvantages and other 3% think that it should be changed completely.

38% 35% 15% 5% 5% 3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

no answer infolowing the legislation increase the control on the GMO discard the control on GMO no disadvantages change in completely Figure 56 . Deficiencies in legislation from the point of agricultural producers Source: interviews of UCAB

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For any changes in field of legislation we need to have political willing for that. Local producers mainly think that unfortunately these changes would not be supported due to lack of such willing. 68% of the respondents think that there is no political wi lling for that and other 32% that we have it. Such a low estimation of political willing can be explained by low level of trust to current political authorities and lack of promised reforms.

We also asked respondents to indicate who is more interested in t he legislation changes 22 . According to the results of the answers, market entities think that producers of soya are the more interested party (43%) , answer “all of the market entities” is on a second place with the value of 33%.

50% 43% 45% 40% 35% 33% 30% 25% 20% 18% 15% 15% 15% 10% 5% 0% Producers Processors Exporters Consumers All

Figure 57 . Who is more interested in the legislation changes? Source: interviews of UCAB Relevant trade policies and export promotion Government export promoting programs are not fully developed in Ukraine. However, there is assistance from the authorities’ side. For example, there are already created Protocols that contain phytosanitary requirements for exporting soybeans from Ukraine to China (e.g.) and other phytosanitary requirement of different countries.

Export promotion councils. Recently, on the base of the Ministry of Foreign Affairs and ministry of economic development and trade were established export promotion councils. UCAB is the member of both councils and provides closer cooperation between UCAB members with the councils’ heads in order to support th e intentions of the UCAB members either to start exporting products or to diversify the international sales markets. Besides establishment of such councils, government is also planning to open 8 new Ukrainian Chambers of Commerce abroad, which will be in s ubordination of the abovementioned Ministry. These new Chambers of Commerce will be situated in Europe, China, USA and Africa. Still, this is the only information available at this moment as it is at the draft stage and none concrete actions have not been done.

22 Multiple answers question

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Ukrainian Chamber of Commerce and Industry. According to the law it is non - government non - profit self - governing organization incorporating on a voluntary basis legal entities and Ukrainian citizens registered as entrepreneurs as well as their associa tions. Nearly 10,000 enterprises and companies of different forms of property are now members of the Ukrainian Chamber of Commerce and Industry. The main chamber objective is primarily creating favourable conditions for the entrepreneurial activity, assist ing all - round development of scientific, technological and trade relations between Ukrainian economic operators and their foreign partners, representing economic concerns of the chamber members in Ukraine and overseas.

In addition, UCAB supported by the Em bassy of Great Britain in Ukraine, conducted a research “Integration of the agricultural sector of Ukraine and EU in the framework of the Association Agreement”, and also held a series of field seminars together with the initiative “Stronger together”, in which Ukrainian and international experts answered questions regarding the entry of Ukrainian products to European markets.

The other experience of promoting the export of goods with added value was in the try by the members of Parliament: it was planned t o introduce a 15 % duty on exports of soybeans in order to export not just raw materials , but processed soybean products: «The introduction of the export duty for the rapeseed and soybeans would create favourable conditions for maximum attraction to processing at domestic enterprises of oilseeds, load capacities and increase the export of finished products (meal, rapeseed and soybean oil) instead of exporting agricultural raw materials. Customs restrictions on the export of soybeans and rapeseed will allow a more rational structure of the production and processing of oilseeds, form raw areas and develop capacity”. However, this project was not supported.

2.2. Quality and (bio - ) safety, GM control, registration of GM crops

In Ukraine today under the auspices of the Ministry of Agricultural Policy and Food of Ukraine is establishing a single authority for the products quality control – State Service of Ukraine on Food Safety and Consumer Protection formed through the re organization of the State Veterinary and Phytosanitary Service and joined of the State Inspection on Protection of Consumer Rights and State Sanitary - Epidemiological Service to the new - created service. The new - created State service will have generated func tions to implement a State policy that previously was implemented by various services, which are already reorganized (except functions of state policy in tribal matters in livestock, epidemiological surveillance, in the field of occupational health and fea tures of realization of radiation monitoring of workplaces and workers doses), and the function of the exercise of State control (supervision) for compliance with the requirements regarding the formation, establishment and application of State - regulated pr ices; the exercise of State supervision (control) in the field of tourism and resorts.

The newly created service is engaged in the certification and registration of imported seeds and issuing quarantine certificates on the required principle for the transp ortation of goods both inside the country and abroad.

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At the regional (local) level in the new service will operate its own representative office – laboratories, which will conduct examination and deliver quarantine certificates on the required principle. However, today part of these laboratories had not yet passed in direct subordination to the newly created service, so the formation of the structure is still in process.

In Ukraine the inspection of any food product by experts of health surveillance is obl iged in order to get the hygienic certificate. Local environmental organizations and non - profit organizations develop their own eco - labels so the consumer could purchase safe products.

According to our interviews data, only 54% of the producers know about the possibility to control the GMOs content by analysis in laboratories. Only few interviewees tried to guess the number of laboratories in Ukraine that provide the analysis on GMOs content , but nobody was right . Thought about “is it enough for Ukraine?” d ivided uniformly: 44% said that it’s not enough, 44% - enough and 13% did not answer this question.

From our point of view, we could name near 20 certified laboratories that could perform needed tests and say that it’s enough as of now. Besides that, trade rs started to use the equipment for express testing of products on the GMOs content. 61% of the producers said that they have already passed the tests on the GMOs content. The same amount is going to pass such tests in future.

2.3. Institutional framework: institutions involved and responsible

The Legislature in Ukraine is represented by legislative body – Verkhovna Rada of Ukraine.

The main functions of the Verkhovna Rada are following:

1. legislature; 2. representative; 3. organizational ; 4. the function of parliamentary oversight; 5. fiscal function; 6. foreign policy function.

The priority function of the Verkhovna Rada is considered to be legislative. The part of this function is also drafting work, introduction of the draft laws and conducting discussions. Members of Parliament belong to the various specialized committees which deal with relevant draft laws.

Committees, which can deal with issues of soybeans:

 Committee on agrarian policy and land relations;  The Committee on European i ntegration;  Committee on health;  Committee on tax and customs policy.

The system of State executive bodies of Ukraine consists of different levels:

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1. The Cabinet of Ministers is the highest body in the system of executive bodies; 2. Central executive bodies - m inistries, State committees, the central bodies of the Executive power with a special status; 3. Regional administration; 4. Kyiv and Sevastopol City State administrations; 5. District State administration; 6. District State administration in the cities of Kyiv an d Sevastopol; 7. Territorial bodies of the ministries, State committees, central bodies of the Executive power with a special status (management units).

The State executive bodies compared to other branches of power differ to a considerable diversity.

Execu tive bodies, whose activities are related with the processes of production and sale of soybeans:

 The Ministry of Agriculture and Food;  The Ministry of Economic Development and Trade;  The Ministry of Finance;  The State Fiscal Service.

2.4. Subsidy system in Ukraine

State aid Despite significant decrease in the agricultural budget in 2015, the Ministry of Agrarian Policy and Food has provided financial support to the agricultural sector through cheaper loans with funding of 300 mln. UAH, which in the full amount were sent to th e regions. At the end of 2015 290.6 mln. UAH were used. Budgetary allocations reduced the cost of loans totaling 7.8 bln. UAH, including 3.2 bln. UAH - loans raised in 2014, and 4.6 bln UAH - rose already in 2015. Totally 630 businesses benefited from the program.

In 2016 the continuation of this program is expected, which is certainly considered to be a positive thing. But, unfortunately, in the same amounts as in the 2015 year – 300 mln. UAH.

Single tax 4th group (former Fixed agricultural tax) Single tax 4 th group — tax charged per unit of land area in percentage from its standard evaluation and payment of which replaces the payment of such taxes and charges:

 Income tax, including advance fee in the payment of dividends;  Land tax on land used for agricultural production;  Rental payments for the special use of water.

All other taxes and duties are paid on general basis, including single social contribution to social insurance.

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Fundamentals for obtaining the rights to pa y the single tax 4 th group:

 Production of agricultural products and/or breeding and fishing in lakes, ponds, or reservoirs, processing of these products on their own or rented facilities, including production of raw materials on tolling schemes;  Usage of own or leased farmland;

The share of production of agricultural goods for the previous year is not less than 75% in the total amount of the income, while the share of agricultural production is equal to the specific weight of income of agricultural produ cer, obtained from the sale of agricultural products of own production and products of its processing.

Changes to the Tax code of Ukraine for 2016 abolished the requirement of registration of ownership or use of land for the tax purposes of the single tax 4 th group, which operated in 2015.

The object of taxation for the single tax 4 th group is farmland, which is in use for agricultural producers, thus distinguish the following types of grounds:

 Arable land;  Hayfields;  Pasture;  Perennial plantations;  The land of water fund (internal reservoirs, lakes, ponds, reservoirs).

The tax base of the single tax 4 th group is the normative monetary value per hectare of farmland. In 2016 the regulatory monetary evaluation is a subject to indexation by the rules es tablished for land tax by a coefficient determined as of January 1, 2015. This norm of the tax code allows avoiding considerable growth of the coefficient for indexing normative monetary value of land in 2016, as the consumer price index for 2015, which af fects the ratio, according to s tate statistics is equal 1,433. Rates for the Single tax 4 th groups in 2016 were increased in 1.8 times.

Rates for the Single tax 4 th group

Arable land, hayfields, pastures 0.81 0.49 5.4

Perennial planting 0.49 0.16

The land of water fund 2.43

Basic reporting period for the purposes of the single tax 4th group is the calendar year. Charging tax is conducted independently as of January 1 of this year.

Accumulated tax amount is divided quarterly as follows:

I and II quarter — 10%;

III quarter — 50%;

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IV quarter is 30%.

Quarterly tax amount is paid within 30 calendar days after the end of the relevant quarter, to the corresponding account of the local budget at the location of land.

Special regime for the VA T taxation (valid until 01/01/2017). Since the beginning of 2016 amendments to the Tax Code of Ukraine came into force and are related to special VAT regime for agricultural producers. Preferential VAT treatment for farmers was not completely abolished; it s action was temporarily extended until January 1, 2017, but with some modifications.

The company, which operates in the field of agriculture, forestry or fishing, can choose special VAT taxation regime provided compliance with the following criteria:

 The main activity of the company is supplying produced (provided) agricultural goods (services) on their own or leased production facilities and on tolling schemes;  The share of agricultural goods / services is at least 75% of all goods / services supplied during the previous 12 consecutive tax reporting periods cumulatively.

In the previous years, farmers that have chosen a special tax regime, did not pay the difference between the tax liabilities and the tax credit of VAT to the budget, and transferred the following amounts on their special bank accounts. Agricultural producers could use these funds only for the development of the farming, pay with the cost of goods or services intended for the use in agricultural production.

In accordance with the changes from the 1/1/2016 agricultural company does not leave for itself all the accumulated sum of VAT, but only a part of it, which can be used in the production of agricultural products; the remaining amount of VAT - transfers to the budget. The share of VAT, w hich remains at the disposal of the taxpayer, depends on the type of its agricultural activities, namely, the production of:

 Grain and other crops - 15%;  Animal products - 80%;  Other agricultural products / services - 50%.

The rule is not changed and still is in force: when exporting soya producers are entitled to reimbursement of 20% VAT from the state.

2.5. Import and export procedures

Soybeans, meal and oil import and export procedures In order to make customs clearance of any goods, company that performs foreign economic activity must apply to the customs authority at the place of its state registration and receive accreditation. A document confirming accreditation is a registration car d with the stamp of the customs authority. The procedure of accreditation is to present to the customs office specified

FINAL REPORT package of the documents. For customs clearance of goods, it is necessary to provide to State customs service foreign economic contract, fulfilled customs declaration and the invoice. Also, in case of import certificate of origin is necessary.

When exporting - importing soybeans and soybean seeds radiological control is performed and samples for laboratory tests are taken by authorized Custo ms officers. Sanitary and epidemiological control is conducted by authorized persons of the State Sanitary and Epidemiological Service of Ukraine in the areas of customs control, phytosanitary control is required and carried out by state inspectors on plan t quarantine of Ukraine, the check of goods on GMO content is held by officials of the State Veterinary and Phytosanitary Service of Ukraine.

Seeds and planting material are permitted for import into Ukraine only if the sample belongs to varieties listed in the Register of Plant Varieties of Ukraine. Customs clearance of seeds and planting material is carried out in the presence of the certificates of exporting country. Seeds and / or planting material can be exported outside the customs territory of Ukra ine with the permission of the owner of the sample and is accompanied by international certificates.

When exporting - importing soybean meal radiological control is performed and samples for laboratory tests are taken by authorized Customs officers. Sanitary and epidemiological control is conducted by authorized persons of the State Sanitary and Epidemiological Service of Ukraine in the areas of customs control, phytosanitary control is required and carried out by state inspectors on plant quarantine of Ukrai ne, check of the goods on GMOs is held by officials of the State Veterinary and Phytosanitary Service of Ukraine. Goods must be accompanied by a veterinary certificate and quality certificate. Goods must be accompanied by quality certificate and phytosanit ary certificate.

When exporting soybeans, soybean seeds and soybean meal export duties are not applicable, and the exporter is entitled to a VAT refund.

When importing soybeans, soybean seeds and soybean meal importer pays the VAT in size of 20% of the customs value of goods. Additionally, a special import duty, which equals to 10% of the customs value of goods should have be en paid till the end of 2015.

2.6. Phytosanitary regulations

Phytosanitary quarantine control upon export Quarantine regulation in Ukraine regulates by the Law of Ukraine “On Plant Quarantine” №3348 - XII as of 30.06.1993. Article 46 of this Law regulated the quarantine control upon export a nd provides following statements:  import, export, re - export of regulation objects shall be carried out together with the original phytosanitary certificate and/or other documentation on the request of destination country;  phytosanitary certificate shall be issued by state phytosanitary inspector not less than 14 days before the date when regulation objects will be transported;

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 state phytosanitary inspector shall issue to the applicant a phytosanitary certificate or refuse to issue it within 24 hours after c ompletion of the vehicle loading. The decision regarding refusal of issuing a phytosanitary certificate shall be provided in written form. The grounds for the decision not to issue a phytosanitary certificate or phytosanitary certificate for re - export are as follows:  inconsistency of regulation objects with phytosanitary requirements;  identification of infection of regulation objects by regulated pests considering requirements of the importing country;  lack of registration referred to the Article 27 of this Law;  inconsistency of existing regulation objects with specified for transfer;  failure to comply with orders of the state phytosanitary inspector regarding the application of phytosanitary measures;  lack of payment for issuing a phytosanitary certificate. The grounds for annulment of phytosanitary certificate are as follows:  notification of person about loss of phytosanitary certificate;  change of transport mode or vehicle;  forgery of phytosanitary certificate;  damage of phytosanitary certificate that make s it impossible to determine the phytosanitary state of the regulation objects. The decision regarding refusal of issuing a phytosanitary certificate may be appealed. The person who provided, according to established procedure, the state phytosanitary insp ector with all necessary documents, made payment and in due time did not receive the decision regarding issuing or refusal of issuing a phytosanitary certificate, is entitled to perform declared transfer of objects as well as receive compensation for loss caused by failure to obtain such a decision. Phytosanitary certificate shall have the serial number and comply with the type certificates of international organizations and, if necessary, contain additional declaration specified by destination country. Re levant costs of issuance of the phytosanitary certificate for export of soya seeds According to Article 27 of the Law of Ukraine “On Plant Quarantine” in order to obtain phytosanitary certificate the persons carrying on business activity related to the pro duction and circulation of regulation objects shall be registered in central executive authority. Persons shall be registered on the bases of checking of regulation objects by the state phytosanitary inspector. Registered persons shall be provided with reg istration number. No registration fee shall be charged. The following documents are necessary for registration: 1. application for inspection and person registration; 2. extract from the Unified State Register of Legal Entities and Individual Entrepreneurs (orig inal or notarized copy);

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3. letter of information about organization’s activities related to the production and circulation of regulation objects; availability of storage facilities, production facilities, greenhouses, land plots of agricultural designation i ndicating the responsible person and contact telephone number (in no particular form). 4. copy of the leasing agreement or ownership of warehouses, industrial areas, greenhouses, land plots. After registration in order to obtain phytosanitary certificate the following documents shall be submitted (Decree of Cabinet of Ministers of Ukraine №705 as of 12.05.2007): 1. application according to the form stipulated by the Ministry of Agricultural Policy and Food of Ukraine (to be filled in Ukrainian and Russian (for e xport in CIS countries) / Ukrainian and English (in other countries)) - in printed form; 2. document confirming payment for issuing a phytosanitary certificate (certificate price is UAH 45.3); 3. in accordance with Clause 20 of the Decree of CMU №705 phytosanita ry certificate shall be issued following the results of phytosanitary procedures to be certified by: A. Phytosanitary Control Act; B. Phytosanitary Examination Opinion; C. Heat Treatment Act (for wood packaging material). 4. A copy of registration letter (Article 27, 46 of the Law of Ukraine “On Plant Quarantine”); 5. Quarantine certificate for regulation object from the place of origin, copy of the invoice. 6. Copies: phytosanitary certificate of origin country, phytosanitary control act issued for import of the regulatio n object (only for re - export certificates) . The validity period of phytosanitary certificate is 14 days. Decontamination of goods According to Article 38 of the Law of Ukraine “On Plant Quarantine”, border point for plant quarantine shall be arranged at the state border crossing point of Ukraine and equipped using proceeds of the State Budget of Ukraine: means and facilities for the inspection of vehicles and regulati on objects, sampling, phytosanitary and fumigation examination (decontamination). The cost of fumigation to be provided by the State Veterinary and Phytosanitary Service of Ukraine is UAH 103 per set (wagon, container, etc.) and UAH 0.15 per tonne in stow down of the ship and UAH 0.15 per cubic meter indoors.

Relevant costs of issuance of the phytosanitary certificate for import of soya seeds According to Article 29 of the Law of Ukraine “On Plant Quarantine” regulation objects included in the list of regu lation objects for the purposes of controlling their movement through the territory of Ukraine, shall be transferred through the territory of Ukraine with availability of quarantine certificate in the following cases:  E xport of regulation objects from the quarantine zone;  Transportation of imported regulation objects that was stored , repacked, divided into parts mixed with other goods.

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Documents required for issuing import quarantine permission: 1. application in the prescribed form, specified in section of p hytosanitary documents; 2. copy of the registration letter; 3. copy of the foreign economic contract; 4. specification or invoice for the weight specified in a statement (for three or six months); 5. payment order for the specified weight. Price of quarantine permission starts from UAH 58.32 for freight up to 50 tons, from 50 to 100 tons - UAH 116.64, from 100 to 200 tons - UAH 173.79, from 200 to 1000 tons – UAH 233.28, more than 1000 tons for each additional thousand tons - UAH 174.96.

2.7. Quality standards for soya seeds According to the State Standard of Ukraine, which applies for seeds for sowing (DSTU 2240 - 93 “Seeds of crops. Varietal and crop quality. Technical requirements”), soybean seeds must comply with the requirements in table 2 4. Table 2 4. Requirements for soybean seeds quality in Ukraine Content in seeds Seeds category Germination,% Humidity,% Basic crop,% Other crops,% Weeds, units/kg Original seeds 99,7 0 3 90 14

Source: DSTU 2240 - 93 “Seeds of crops. Varietal and crop quality. Technical requirements” Also, germination energy and the weight of 1000 seeds are used as a qualitative indicator.

Costs of soya seeds quality tests According to the Decree of Ministry of Agricultural Policy and Food of Ukraine № 96 as of 13.06.2013, pri ces for services provided by the Research Laboratory of the Department of Qualifying and Examination of Plant Varieties for soybeans are as follows: 1. molecular and genetic analysis of plant varieties and plant material for GMO content - 542,31 UAH; 2. analysis of biochemical and processing parameters of crop (determination of falling number, vitreousness, baking properties, content of crude protein and fat, moisture, etc.) - 257,76 UAH; 3. analysis of seeds planting qualities: a) determination of the weight of 1000 seeds - 30,56 UAH; b) determination of similarity, energy, seed germination - 35,7 UAH; c) determination of seed moisture sample - 32,92 UAH; d) determination of varietal purity of seed sample – 38,82 UAH;

Certification process According to the Law of Ukraine “On seeds and planting material” № 411 - IV as of 26.12.2002, seeds and planting material are allowed to commercialization and use only after the certification of

FINAL REPORT each batch of seeds. Seeds that would be exported from Ukraine must be accompanied by international certificates. Seeds and seeding material can be certified if it:  comply with regulations for varietal purity and sowing qualities;  belong to varieties listed in the Register of Plant Varieties of Ukraine or the Register of Plant Varieties of the Organiz ation for Economic Cooperation and Development. Certification process of seeds and seeding material of plants is carried out in accordance with the procedure determined by the Decree of the Cabinet of Ministers of Ukraine № 299 as of 22.04.2013. Informatio n about these certificates is listed in the Register of Certificates for Seeds and/or Seeding Material.

Production and commercialization of soya seeds In order to have a right to produce pre - basic, basic and certified seed, first generation hybrids, orig inal and other seeding material producer must be certificated and listed in the Register of Producers of Seeds and Seeding Material. The certification process is determined by Decree of the Ministry of Agricultural Policy and Food of Ukraine № 115 as of 20 .02.2013. Producers of seeds and seeding material have the right to propagate, procure and use seeds and planting material of plant varieties (clones, lines, hybrids), if they have a license agreement with the owner of intellectual property rights for a va riety. Their production facilities meet the requirements set by the Decree of the Ministry of Agricultural Policy and Food of Ukraine № 115 as of 20.02.2013. Every batch of seeds for sale must have a specific marking according to requirements of the Decree of the Cabinet of Ministers of Ukraine № 447 as of 22.05.2013.

Transportation and storage of seeds There are no specific governmental regulation for storage and transportation of soya seeds. According to the Law of Ukraine “On seeds and planting material” producer must provide quality of seed according to corresponding standards and norms. This also means that producer of seeds should organize storage and transportation in way to keep quality level of its products. On practice, agricultural compan ies take the samples of seeds to check its quality and variety before its purchase and sowing.

2.8. Taxes and fees

In conditions of inability to provide direct support of agricultural produces and in order to stimulate them to produce more the preferential tax ation system was introduced in Ukraine. It included fixed agricultural tax and VAT accumulation 23 . After election to the Parliament (Verkhovna

23 VAT accumulation on accounts of enterprises in State Treasury Service with further refund of this money for purchasing the material resources for agricultural production

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Rada) in 2014, major political parties formed coalition and signed Coalition Agreement that includes main vectors of policy formation. According to it, preferential taxation system should be saved till 2018, but from the beginning of 2015 fixed agricultura l tax has already been converted to a uniform tax and increased in 22 times, so it stopped carrying preferential character and aims mainly at simplifying accountancy and financial management. In addition to abovementioned, in 2015 the exporters of grains a nd oilseeds (sunflower and rapeseed) did not receive the VAT refund (45% from all agricultural exports), minimal land rent rate increased from 1% to 3% from normative monetary value of land with its simultaneous indexation by 25%, additional import taxes w ere implemented (10% for agricultural food products (CN 1 - 24) and 5% for other goods), etc. Totally, additional taxation pressure on Ukrainian agribusiness increased by USD 0.9 bln (USD 1.4 bln including additional import duties), according to calculations of the Ministry of Agricultural Policy and Food of Ukraine (hereinafter – MAPFU). In first quarter of 2015 we can see first results of taxation pressure: gross production decreased by 4.7% (e.g. eggs – 10.1%, milk – 3.1%), quantity of an animal heads dec reased (cattle heads – 9.9%, cow heads - 6.6%, poultry - 8.6%), 168 enterprises were closed, money deficit for sowing campaign was estimated at the level of USD 0.6 bln. As we can see from the figure 58 , state support of agriculture decreased in 2.5 times for last 4 years and total sum of this support is two times less than taxes paid by agricultural enterprises as of now.

4,000 USD mln Direct support Indirect support Ag. taxes 3,500

3,000

2,500

2,000

1,500

1,000

500

0 2010 2011 2012 2013 2014 2015*

Figure 58 . State support of agriculture in Ukraine versus taxes paid by agricultural enterprises 24 , USD mln * forecast Moreover, agricultural producers generated nearly 7.5% of State Budget income from taxation as a result of direct (USD 0.4 bln) and indirect payments (USD 1.3 bln – not refunded VAT on export,

24 Direct and indirect

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VAT imposed on import and import duties for production resource s and techniques, excise duty for fuel, etc.) in 2014. Taking to account latest taxation changes, agricultural branch will have the share in total State Budget income at the level of 17.1%. Figure 58 also indicates that indirect support is the only kind of agriculture support and cancellation of VAT accumulation, according to the last propositions of Cabinet of ministers of Ukraine, will mean the decrease of state support by 93%. Nowadays, the average level of support in Ukraine is 33 USD per hectare that is 17.5 times less than in the European Union. In case of cancelation of VAT accumulation agricultural enterprises would receive only 2.3 USD per hectare that will decrease their competitiveness positions on international market. Comparing state support t o the value of gross production, we see that it equals only to 2.2%, while in Russia – 17.5%, Kazakhstan – 18.8%, EU – 26.3% and OECD countries – 27%. Current proposition of the Ukrainian Government is to change the current system of VAT accumulation and to return VAT imposed on export. Agricultural producers are against this step, because current system supports all enterprises, while returning VAT imposed on exports will support mainly large Ukrainian and transnational companies that export goods. TOP - 10 companies export 45% from total exports of grains, so these companies will receive main benefits. In addition, VAT accumulation is fully transparent support, while returning VAT imposed on exports depends on the authority decision, so exporting companies are forced to pay 25% from the sum of compensation unofficially. Ministry of Agricultural Policy and Food of Ukraine, leading associations and experts did not support this proposal, because real budget effect would not be achieved in conditions of further production decrease and business shadowing (according to the survey of Ukrainian Agribusiness Club, 50% of respondents are going to produce their goods illegally if taxation system changes). In general these changes will cause the decrease of production, exports and profitability ( by 7 - 12% (depending on a product), so a lot of subbranches will balance on the profit/losses line, other will be unprofitable (e.g. production of pork, milk, groats crops, etc) , strengthening of the national currency devaluation, growth of unemployment (10% of employed people (60 thousand people) would lose their job, in this regard Government would spend additional USD 32 mln for social security), closure of enterprises, deterioration of quality of life in rural areas and weakeni ng of financial standing of the company together with decrease of investment attractiveness.

2.9. Licensing There is no any licensing for production and commercialization of soya seeds now. There was a wholesale trade license for seeds, which was in force sin ce 26.11.2003, but as of 05.11.2013 it was canceled.

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III. Social Impact

3.1. Economic, socio - economic situation of the sector par ticipants

Agricultural enterprisers In 2010 - 2012 the profitability level of agricultural production was ranging from 20,7% to 27% that was normal for agricultural sector and provided the conditions for its development. In 2013 the situation has changed. Due to significant decrease of prices for crops the profitability level of agricultural production decreased from 21% in 2012 to 12% in 2013. At the same time the profitability of crop production was even less and amounted 2,2%. In 2014 devaluation of national currency had a positive influence for profitability of agriculture producers in hryvnya equivalent. The prices for crops in nat ional currency had increasing during the year according to exchange rate, at the same time most of inputs were purchased before the devaluation. This resulted high increase of total revenue in hryvnya, but in USD these values were not so high. In 2015 deva luation factor will have lower influence on profitability of agricultural production.

General state of agricultural enterprises is rather difficult now. Because of economic and political crisis agricultural companies partly lost access to loans for financi ng of working assets and purchase of new machinery and equipment. The devaluation of the national currency led to significant increase of inputs costs in terms of hryvnya. Also, it should be mentioned that now world prices for agricultural commodities are the lowest for last 5 year that has a direct impact on profitability of agriculture.

40 30% Total revenue Profitability 35 25% 30 20% 25 20 15% 15 10% 10 5% 5 0 0% 2010 2011 2012 2013 2014 Total revenue, mln. UAH Total revenue, mln. USD Profitability of agricultural enterprises, %

Figure 59 . Agricultural enterprises revenues and profitability levels Source: State Statistic Service of Ukraine, own calculations Rural population

The rural population in Ukraine decrease every year. Mainly it caused by low level of social infrastructure in rural areas and lower income level that result significant migration and urbanization. Another reason for the reduction of rural population is low birth rate and the aging of the nation.

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Annexation of Crimea and occupation of the eastern territories of the country led to decrease of rural population by 0,8 mln. people during last year.

13.7

13.6

13.5

13.4

13.3

13.2

13.1

13.0 2010 2011 2012 2013 2014 2015 Figure 60 . Population in rural areas, mln people 25 Source: State Statistic Service of Ukraine Agriculture is a main sphere of economic activity, where Ukrainian rural population can find some job opportunities. There has been a clear tendency towards an increase of the workload of agricultural workers in Ukraine over the past yea rs. This tendency led to slowly decrease of permanently employed workers in agricultural enterprisers. Intensification of labour progresses most of all in the livestock production sector, in swine breeding in particular. Increasing workload of agricultural workers is usually caused by modernization of agricultural technologies, which reduces exploitation of human labour . However, in Ukraine it is also related to such factors as decline of prestige of technical agricultural professions and insufficient quali fications of young specialists. Also, a significant reduction of agricultural employment in 2014 was caused by the war in the East of Ukraine and the annexation of the Crimea.

600

500

400

300

200

100

0 2010 2011 2012 2013 2014 Figure 61 . Permanetly employed workers in agriculture, tsd. people Source: State Statistic Service of Ukraine

25 Without Crimea

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It should be noted that as of now agricultural enterprises are mainly the only donor who funds social infrastructure in rural areas. Thus, according to UCAB calculations, agricultural enterprises pays about 200 UAH per he ctare for social infrastructure (4,2 billion UAH totally).

A characteristic feature of the rural population is a significant dependence on own production. Income from own produced products take a share about 21% of total rural household’s income. At the sa me time total monetary income for one household in rural areas is on 15% less than in urban areas and amounts 3788 UAH per month. Also, rural population has higher property income, as a land rent payments. Total income of rural and urban inhabitants is pre sented below.

5000 Other 4500 Self-produced products 4000 3500 Pension 3000 2500 Property income 2000 1500 Revenues from sales of agricultural products 1000 Income from self-employment 500

0 Salaries Rural areas Urban areas Figure 62 . Comparison of rural and urban inhabitants’ income, UAH Source: State Statistic Service of Ukraine 3.2. Salaries and land rent

Salary and income Average salary (according to the official data) has an increasing trend during the last 5 years. However, average salary in agriculture for a regular employee in 2010 was at the level of UAH 1422 that was by 37% less than Ukrainian average. In 2015 the situation has been slightly changed, and average salary in agriculture increased to UAH 2978 (23% less than the average salary in Ukraine in 2015) due to high inflation. UAH USD 4500 50 500 4000 40 3500 400 3000 30 2500 20 300 2000 1500 10 200 1000 0 500 100 0 -10 2010 2011 2012 2013 2014 2015* 0 Avarage Agriculture 2010 2011 2012 2013 2014 2015* Industry Annual inflation rate,% Avarage Agriculture Industry Figure 63 . Comparison of rural and urban inhabitants’ income, UAH * forecast Source: State Statistic Service of Ukraine, own calculations

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As we could see, the average USD salary in Ukraine had changed too fast. Salary has felt down less than it was at 2010 (178 to 127 usd). Unfortunately it makes some negative influence at agriculture as economy branch in general and labour market there as w ell.

In addition, we should mention high level of “shadow” salaries that in addition to specified earlier facts brings some difficulties in estimation of agriculture development and life quality standards of rural inhabitants.

Land rent Agricultural land rent had some scope in Ukraine: it shall not be less than 3% and more than 12% of the normative money assessment (hereinafter – NMA) of land plots. Considering that the average NMA for arable land in Ukraine in 2014 was at the level of UAH 20 635 (UAH 25 7 79 – in 2015), the value of land rent by regions of Ukraine varied from UAH 529 (Odessa region) to 1144 (Poltava region) per ha of arable land. Payments for land of the state and municipal ownership shall be made exclusively in cash, while for private land – in cash or partly in cash and goods.

Figure 6 4 . Average land rent by regions, UAH per ha Source: State Statistic Service of Ukraine, own calculations

NMA of agricultural lands has not been adjusted including the data of the last four years, while this year it has been increased by 24.9% (inflation index) resulting in land cost increase by 5,138.1 UAH/ha to 25,773 UAH/ha. Hence, in 2015, the NMA increase d by more than 7 times as compared with 1995.

Agricultural producers consider this value to be overpriced and the methodology to be inefficient. The NMA methodology is being currently improved by working groups of the Ministry of Agrarian Policy and Food of Ukraine. The draft Decree of the Cabinet of Ministers of Ukraine “On

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Approval of Methodology for Normative Monetary Assessment of Agricultural Lands” was published on the website of the State Agency of Land Resources of Ukraine on May 26, 2014. It envis ages the reduction of average NMA by approximately 30% and implementation of a more reasonable approach to soil evaluation on the basis of its fertility. Based on the document, the NMA shall increase by 1.3% only in Zhytomyr region while in other regions i t shall decrease within the range from 6.8% in Vinnytsia region to 47.8% in Rivne region.

3.3. Social and economic assessment of the rural population as well as SME Total income of rural population consists of the several major sources. The present structure of income is caused by high percentage of elderly people and hi gh unemployment in rural areas. The size of the average monthly income per one household in monetary terms is estimated at 4623 UAH.

Value of consumed products derived from personal Other production 9% Wages 13% 34% Subsidies and social payments 3% Pensions 24%

Income from entrepreneurship and self - Property income Revenues from employment (dividends, selling agricultural 6% reinette) products 2% 9% Figure 65 . S t ructure of rural hous e holds ’ income Source: State Statistics Service of Ukraine, UCAB, based on statistical data, own calculations

Wages are the major source of income, but its share is only 34% in the total amount of other sources of revenue. The next are pension payments, which hold 24% of the total rural households ’ income (due to the high level of the elderly people). Important role in the income of rural population belongs to the own agricultural production. Revenues from the sale of agricultural products estimated at 9% while revenue from th e employment holds only 6%. At the same time the cost of products consumption obtained from personal farming is estimated at 13% from the average monthly income of households. In general the agricultural production and self - employment provide 28% of the ru ral population income.

The rural population receives a number of payments and subsidies in the form of spending on unemployment insurance, subsidies for housing and communal services etc. The size of the state

FINAL REPORT support for the rural population does not exce ed 3% of the total revenue. The existing State support for the rural population is not connected with doing agricultural work.

Peasant economy has extremely low level of supply of material and technical resources. Only 17.4% of total number of households h as any agricultural machinery. Out of the number of households that have agricultural machinery 26% have tractors, 23.8% - soil machinery and only 3% - harvesters. This technique has been mostly retired and was received as a share in the property of collec tive soviet farms.

In General, the level of production can be characterized as extensive. Personal peasant farms have low production efficiency. Only 57.9% of them actually use fertilizers and 58.3% - the crop rotation. In 2014 yield of grain crops in pri vate farms was by 40% lower than in the agricultural enterprises, productivity of soybean lower by 21%, sunflower – by 40%.

The average size of land that is handled by the households is 1.23 ha. The total number of agricultural land in household is 8,4 mln . ha.

Perennial Hayfields and plantations pastures 1% 10% Fallow land 1%

Arable land 88%

Figure 66 . Structure of private hous e holds agricultural land Source: State Statistics Service of Ukraine, UCAB, based on statistical data, own calculations

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Other 5% Wheat Vegetables 15% 22% Barley 19%

Foder crops 14% Corn Sunflower 12% 12%

Soybean 1%

Figure 67 . St r ucture of sowing areas in households Source: State Statistics Service of Ukraine, UCAB, based on statistical data, own calculations

Products produced in household mainly is used for own needs. Households sell 36.2% of produced grain, 47.5% berries and 47.8% of milk. Other manufactured products predominantly consumed by the m self for food and feed for animals. The households purchase their products to processing companies or intermediaries, and less independently on retail markets.

3.4. Social impact

In our interviews we also asked market entities on the corporate social respo nsibility programs (CSR). 61% of interviewed producers provide them.

7% 61% 32%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

without answer yes no

Figure 68 . Does your company provide CSR programs? Source: interviews of UCAB Among the most common spending with regard to CSR were named:

 Repair of roads, buildings of social infrastructure (kindergartens, schools etc.) and street lightning;  Landscaping of rural areas in general;  Support of local church;

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 Direct support to Village Councils (local government), which provide further allocation of the funds according to the needs o f villages;  Direct support to retired people.

Some of the companies have own charitable foundations (e.g. Grain Alliance with their organization “Village Development” 26 ).

We also asked the companies, belonging to those 32% of the respondents that did not p rovide CSR programs, why don’t they do this. Mainly they answered “we do not see the reason in providing of such programs” (44%) or “our company is not too big to do this” (33%).

11% 33% 11% 44%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

without answer small enterprise in a process of program creation no reason Figure 69 . Why don’t you provide CSR programs? Source: interviews of UCAB There is no unique mechanism of support provision for rural areas from the side of agricultural companies. We can divide their activity in rural areas development on three main groups:

 Provision of the support depending on their financial results, profi tability in current year or available funds;  Support based on requirements of local authorities;  Strict rules of CSR programs.

Mainly we observed first and second ways of cooperation, but some of the companies have quite good rules of rural areas support:

 Grain Alliance – annual support is equal to 1% of the revenues;  Mriya – 100 UAH/ha (300 km of roads is already repaired).

3.5. Access to financing

The economic situation in Ukraine deteriorated significantly after the tragic events during the Revolution of Dignity, the occupation of the Crimea and the beginning of the military conflict in the east of the country. The reaction of the population to the fall of the national currency, the rise of dollar exchange rate and a complete economic chaos was immediate: within 2 months of 2014 the number of deposits declined by 24.3 billion UAH. As a consequence, many banks were closed. National Bank of Ukraine (h ereinafter - NBU) conducted stress tests of the remaining banks at the

26 http://www.rozvitoksela.org/en/

FINAL REPORT market, and as it turned out, many of them were not able to withstand the realities of the current economic situation. Currently in Ukraine there are 129 banks (as of 01.01.2014 – 180 b anks, 01.01.2015 – 163).

Due to the excessive outflow of deposits from banks, as well as a significant increase in the NBU discount rate, banks' credit activity significantly reduced. NBU had to resort to refinancing of certain banks to support the livelihoods of the entire banking system. Still the most stable banks are those with the part of the foreign capital in the general capital structure.

General description of the financial market of Ukraine is presented below.

NBU discount rate In March, 20 15 was marked a significant acceleration of consumer inflation – 36.3% comparing to respective period of 2014. The main factor of the acceleration of inflation price adjustment was due to the devaluation of the hryvnya. In general, the currency market of U kraine was in a stressful condition, which was primarily due to negative expectations on the background of continuing military operations in the east. From the beginning of 2015, the depreciation of the hryvnya exchange rate against the US dollar was about 80%. Considering these factors on March 4, 2015 the discount rate was set at the level of 30%.

Tight monetary policy pursued by the National Bank for the past six months has significantly contributed to reduce inflation and devaluation, stabilize the curr ency market and, consequently, the formation of a sustainable trend in slowing inflation. Growth of the consumer price index in annual terms is decreasing for the third month in a row, and in monthly terms in July was deflation. The improvements at the for eign exchange market and stabilization of inflation expectations support the return of deposits in the banking system. NBU expects the preservation of trend of inflation level decrease due to the retention of relative stability in the foreign exchange mark et, the completion of the main wave of increasing utility rates and rather slow recovery in consumer demand. Another factor will be high rates of grain crops, fruits and vegetables, which will contribute restrained dynamics of food prices.

Due to decreasin g inflation risks, the National Bank considers it possible to start easing monetary policy, consistent with the projected decline in annual inflation. However, despite the reduction in the discount rate from the current high level, monetary policy will rem ain relatively tight to support the downward trend in inflation and prevent economic impact of external shocks that currently observed in global commodity and financial markets. Thus, on August 28, 2015 the National Bank reduced the discount rate from 30% to 27%.

Exchange rate In February 2015 there was a rapid decline of the official and market exchange rate of the hryvnya against the US dollar. The official hryvnya exchange rate against the euro during the month also decreased. In the end of February, UAH on the black market reached its minimum - 40 UAH per 1 US dollar 27 . However, stringent steps of the National Bank, including currency restrictions within a

27 Average exchange rate during 2013 – 7.993 UAH per 1 USD

FINAL REPORT month stabilized in the corridor of 20 - 25 UAH for 1 USD. From the chart below you can observe the re gulation of NBU by the decreased volumes of trade at the interbank currency exchange.

Deposits Dynamics of deposits in February was formed under the influence of panic in the society against the background of political events and the UAH devaluation and re duce the propensity of population to save. Reducing residues was observed primarily on the accounts of the population both in national and foreign currencies.

In February continued outflow of deposits from the banking sector, mainly caused by the negative expectations of the population through escalating conflict in eastern Ukraine early in the year and against a background of devaluation of the hryvnya. Deposit operations in February amounted to - 24.3 billion UAH.

From April to June there was the growth of deposits in national currency - by 3.7% per month. The increase in account balances entities and individuals was at the level of 6.0% and 1.4% respectively. However, excluding funds in banks, which are recognized as insolvent and in liquidation, the growt h of deposits of individuals in the national currency in June 2015 was more significant - 3.2%.

Financial flows of the agricultural sector formed under the influence of spring field work that began in mid - March this year. The sowing campaign demanded from agricultural enterprises accumulation of substantial funds (for sowing materials, fuel, fertilizers, etc.) therefore their balances of demand deposits in hryvnya were increasing for the third month in a row. In March 2015 these funds increased by 1.1 bln. UAH (15.3%) - to 8.4 bln., whereas other types of deposits in national and foreign currency continued to decline. Overall, of the agricultural sector deposits in March decreased by 8.9% - to 40.9 bln. UAH.

Banks' credit activity and interest rates Since th e NBU has increased the discount rate, commercial banks had to increase their interest rates. The table shows the average monthly changes of the interest rates for both national and foreign currencies.

Table 25 . The average cost of loans according to the s tatistical reporting of banks Ukraine, % National currency Foreign currency Month Total Individual Entities Total Individual Entities March 24,1 28,6 23,9 7,9 9,4 7,9 April 23,9 29,6 23,7 8,3 10,1 8,3 May 23,6 30,4 23,3 8,3 13,2 8,3 June 22,3 29,9 21,9 8,4 7,8 8,4 July 21,5 29,6 21,1 8,0 4,9 8,0 August 21,0 30,5 20,5 8,3 7,1 8,3 Source: National Bank of Ukraine

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However the credit activity of banks in recent months, despite the banks' refinancing by the central bank and the inflow of deposits has not changed significantly. This is due to low creditworthiness of borrowers and the high share of adversely classified loans in their portfolios and the presence of other market risks. However, at the end of June 2015 reducing balances in national currency slowed to 11.6% yoy and the foreign currency (in dollar equivalent) - to 27.3%.

Nevertheless, comparing the amount of loans granted in July 2015 with July 2014, it increased by 42868 mln UAH, which is a good signal of the recovery of the economic situation of the country.

Based on the statistics provided by the Ministry of Agricultural Policy and Food of Ukraine, for the end of June 2015 Ukrainian agricultural companies received loans for 7,6 bln UAH, which is 1,3 times more than for the respective period in 2014, with the average interest rates 27 - 36% in Ukrainian currency and 8,4 - 18% in foreign currency.

A significant i ncrease in the cost of credit for farmers on the background of a decrease of their creditworthiness restrained credit activity of agricultural companies. Their indebtedness decreased in March by 13.1%, including in the national currency - by 9.3%. This dec rease in the outstanding debt in hryvnya was at 19.9%, in foreign currency - 14.3%.

Specific credit tools for agricultural producers The crisis led to a significant rise in the cost of financial resources and the reduction of credit lines for farmers. Farm ers began to actively use resource - free loans: bills of exchange, guarantees and guaranteed payments. As a result of frequent requests of potential buyers on the possibility of supply of goods with delayed payment, more loyal scheme of providing crop prote ction products and seed material with payment after the implementation of the crop appeared on the market.

Financing of the sowing can be carried out under the guarantee of the future harvest, corporate rights of a legal entity, the owner / lessee of land or under the fixed assets of the company - silos and equipment. Financing of the storage of grain at the elevator can be carried out against collateral of the grain itself, when it is confirmed by the double warehouse certificates.

Financing of the commerc ial contracts for the sale of grain are also available by providing grain to the pledge and confirm this by double warehouse certificates or commercial contracts for the sale of grain, concluded with customers with a good reputation.

At the same time, farm ers continue to use documentary products - analyzed guarantees and promissory notes, which are becoming more popular in settlements with large suppliers of inputs. In the absence of exchange rate risk and low cost such financial instruments in most cases h ave already proved their benefit for agricultural producers in 2015, so they will hold a significant part in the structure of the new funding.

Agricultural receipts The project, launched in Ukraine with the help of IFC, is based on the experience of using this tool by Brazilian farmers since 1994. In Ukraine, since 2014, a project for the implementation of agricultural receipts was in the status of "pilot" and acted only in Poltava region. According to the

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Ministry of Agrarian Policy and Food of Ukraine, du ring 2014/2015 M Y 10 agricultural receipts totaling about 40 mln. UAH (approximately 1.4 mln. USD) were signed.

For small and medium agricultural business, Poltava region, this tool has become a real alternative to raise additional funds. Further – more. A lready in the new 2015/2016 M Y project of agricultural receipts has expanded its geography into 3 regions: Kharkiv, Vinnytsia and Cherkasy.

Agricultural receipt - simply and quickly executed (without procedure of verification of the financial condition) an d well protected by law (the debt can be collected without trial) debt security. It describes an agreement against collateral of the future crop - according to which the lender provides the borrower goods / works / services or funds. In return, the lender after the harvesting receives what was stated in the receipt - crop or funds.

Any financial institution and any legal entity as well as physical person in this case can act as a lender. But the main advantage and the main purposefulness of this system is t he ability to use governmentally secured direct agreements of manufacturers and distributors of seeds and crop protection products on the supply of these products to farmers in debt.

Interest on such debts can be very small, since there is no need in labor ious work of loan officers and in the financial institutions in general. Moreover, theoretically, with the use of receipts suppliers may just sell products to farmers with the deferred payment without interest.

Agricultural receipts are issued by notary in two copies: one - for the lender, the second - for the notary. The issuer of the receipt can get a certified copy of its receipt.

Accounting of agricultural receipts is carried out by the state enterprise "Agricultural Registers’', controlled by the Minis try of Agrarian Policy.

Commodity loans. Bills of exchange In Ukraine, traditionally resource companies provide commodity credits to agro companies. In the current economic situation, farmers try to save funds on purchasing expensive equipment, but at the last turn are trying to make savings from the purchase of the seeds, plant protection products and fertilizers.

In order to maintain a stable level of sales, resource companies are offering new variations of programs for farmers: with more favourable inter est payment, simplified methods of repayment or additional discounts on goods. This type of lending is profitable for farmers, since the interest rate on the remaining debt is much lower than that offered by banking institutions, agrarian immediately recei ves the necessary material for the planting season, and can pay off with the harvest.

As for the bill of exchange funding, the scheme is that in addition to the agricultural enterprise and resource producer in the credit relationship the distributor of pro ducts is also involved. Agricultural enterprises have the right to pay off with the creditor - distributor via avalized bills. Then the distributor can pay off the resource producer with this bill.

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According to bankers, in 2015, the bill of exchange type of crediting took about 40% of the agricultural loan portfolio of financial institutions.

State aid As it was mentioned before, government provides additional funding for the agricultural companies in order to help the last ones to pay - off the interest on the attracted loans. Thus, under the following of specific rules.

For conducting the competition for carrying out partial compensation of the interest for the attracted bank loans regional state administrations form Competition Commission, composed of representatives of the agro industrial development departments, state statistics bodies, financial bodie s, territorial bodies of phyto - sanitarian inspection as well as State Fiscal Service, professional organizations and Director of Agricultural Development Department of the regional state administrations. Under the program the compensation granted on a comp etitive basis, provided that the amount of interest on loans does not exceed 30 per cent per annum in the national currency and without restrictions in foreign currency. In this case the compensation granted in national currency and in the amount of accrue d and actually paid by the borrower in the current year interest rate on loans decreased by 16 percentage points for loans in the national currency and in the amount of 6 per cent per annum for foreign currency loans.

The program provides a c ertain priorit y order. First of all, funding will be provided to those borrowers who have a net income (revenues) from sales of goods (works, services) in the amount of 10 mln. UAH during the last year. In the absence of the first, the compensation will be granted to en terprises that are engaged in cultivation and breeding of dairy cattle breeds or the other cattle.

In the scheme of the program is also provided a control point: the accrual of compensation will only be carried out in the presence of the documents confirmi ng the obtaining by the borrower of goods, works and / or services financed by credit funds.

Credit unions Credit unions hold important place in lending to agricultural companies, aim ing to provide credit and savings services to its members, but not for pr ofit. A simpler procedure for obtaining credit, maximum proximity to direct recipients, lower interest rates, lending to small borrowers, incentives for early repayment, the opportunity to receive credit for a simplified scheme – all these points of the cr edit unions are attractive for farmers that encourage them to work with this type of lender.

Note that in this case the investor is the population living in rural areas and works in one of the enterprises. Taking into account the amount of assets of these institutions, of course, no financial and credit institution will not be competitor for commercial bank.

Credit co - operation in agriculture has several features that allow relatively cheap loans to small producers of regional agrarian and industrial comple x: close location; flexibility in interest rates; joint responsibility; profitless price for the services; reliable assessment of creditworthiness; opportunity to operate the small size loans.

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The assets of the credit union are formed by mandatory contribu tions made by the members of the credit union; fees for providing loans and other services to its members; income from other types of statutory activities; income from government securities purchased by credit union; funds and other property donations, gra nts, free technical assistance from both legal and physical persons, including foreign ones.

Obstacles in accessing crediting funds by SME The lack of liquid collateral. Banking institutions when lending want to get some property as collateral, which in th e case of debt recovery could be sold in order to cover banks’ losses. In this issue agricultural producers, especially small and medium, face certain problems with the implementation of the requirements of banks . First of all this is due to the moratorium on sale of the agricultural land. All agricultural land cultivated is leased by producers from the rural population or state and cannot serve as collateral. Other property of agricultural manufacturers mainly does not satisfy bank requirements and cannot be used as collateral. Buildings owned by farmers in the vast majority are inherited from the Soviet collective farms, are outdated and situated in remote villages. Machinery is usually excessively “worn out” and also cannot serve as collateral for the loa ns of significant amounts. As alternative kind of lending there is a loan secured by the grain kept in the storage. However, when using this mechanism many conflicts arise because unscrupulous borrowers use the complexity of control over the actual availab ility of the grain and sell it illegally. Bank after claiming simply does not find the pledged grain.

High risks . Recent high - profile bankruptcies of large agricultural companies and general country risks forced banks - lenders to agribusiness to review the risks and strengthen requirements for borrowers. This led to the increase of the interest rates, which made it even more complicated to attract loans from the banks.

Problems with the transparency of financial reporting . Many obstacles in obtaining credit arise when checking financial statements and actual activity of agricultural enterprises by the bank. Small and medium farmers mostly have low quality of financial reporting and accounting. At the same time the producers themselves often use the complexity of control over the actual amounts of capital expenditure and production, to hide the real state of the company. The motives for this may be: tax avoidance, withdrawal of funds from the enterprise or distrust of the state controlling bodies.

High interest rates. In 2015, the average interest rate on credits in the national currency for the agricultural enterprises was 23%. Because of the high interest rate farmers are not willing to attract large volumes of credit funds. Interest rates on loans in foreign currency are twice lower (10.3% in 2015). However devaluation of the national currency and general economic instability makes it even more risky to attract such type of credit. Unless the agricultural producer is export - oriented and receives revenue in the foreign currency.

Crediting terms and conditions . Because of the tense economic situation, banks impose strict conditions for customers in terms of maturity dates, penalties for late payments and strict requirements for the collateral or guarantor.

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Specif ic features of agricultural production. Seasonality of production, dependence on weather conditions, geographical remoteness of farmers and other specific features of agricultural production also make it complicated to obtain the credit funds from the bank s. Specificity requires the use of special credit products designed specifically for the agricultural sector that not all banks have to offer.

The solution to problems in raising additional finance for the agricultural producers in the current economic cir cumstances may be the alternative financial instruments. Among the most popular are commodity loans, bills of exchange, agricultural receipts, funding secured by the future crop or available grain. At this stage it is important to work out and improve mech anisms of financing, providing information and popularization of them among the market participants.

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IV. Supply chain analysis

4.1. Input providers

Ukrainian market of agricultural inputs is formed by two main categories of players: producers and large number of distributors. Resource producers usually sell their products through defined list of distributor companies which supply their inputs directly to farmers. In some cases, large agricultural holdings may purchase inputs directly from manufacturers or even import it. Distributors usually supply full range of inputs from different producers, including seeds, CPPs, fertilizers and others. For example, Eridon – the biggest distributor in Ukraine – supply wide range of fertilizers, agricultural machinery, seeds and CPPs of almost all brands presented on the Ukrainian market.

Top distributors on the Ukrainian market of agricultural inputs are :

1. Eridon; 2. Trade house “Seeds” 3. Bizon Tech 4. Spectr - Agro 5. Agroscop

The suppliers offer different ways of inputs delivery and purc hasing. The most common is commodity credit for agricultural producers. In this case farm can get seeds, CPPs, fertilizers and etc. at the beginning of the season and pay for them after harvest. The prices of inputs with delay of payment usually higher on 10 - 15% than in case of prepay. But at the same time it is cheaper than short - term bank loans, which interest rate can amount from 24% and higher.

After worsening of the economic situation in country suppliers reduced commodity credit programs and increase d its prices because of economic instability and high currency risks. Due to currency instability most of suppliers offer fixed exchange rate for their products during the realization of last season stocks, own production in Ukraine (seeds suppliers) and o thers. The purpose of “fixed exchange rate” is to reduce currency risks and to offer more affordable prices.

According to our estimations, near half (46%) of the producers have difficulties with an access to external funds. In such economic conditions it is very important to develop different ways of direct cooperation between the producers and dealers/producers of inputs. Ukrainian banks became very scrupulous during the agribusiness solvency assessment in order to eliminate possible risks.

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100% 90% 80% 70% 54% 68% 60% 82% 50% 40% 30% 20% 46% 32% 10% 18% 0% access to funds storage capacities know-how yes no

Figure 70 . Producers have difficulties with an access to Source: input suppliers One third of interviewees (32%) also have the problems with an access to know - how. Despite the fact that suppliers declare they provide comprehensive information and advisory support ab out their products and technology of soybean production for partners, agribusiness feels lack of information about know - how in agriculture.

Among the possible models of cooperation between the market entities the highest support got an answer “loans secure d by future harvest” – 18% 28 . Among others: forward contracts and own storage capacities (13% each), cooperation with processing companies and own processing capacities (10% each).

Comments of market entities:

 There is a good program of “Pan Kurchak” compan y for future harvest of soya. It’s the first program for the last 10 years that really fits us;  There are some programs, but they do not fit to producers.

Soybean seeds suppliers

Input suppliers explain that Ukrainian market of soybean seeds is divided o n “shadow” seeds market (45 - 50%) and “transparent” seeds market (50 - 55%), because of high share of shadow GM - soybean production and low level of intellectual property rights protection. Ukrainian transparent market of soybean seeds is formed by a large num ber of domestic producers of seeds and several international companies. Domestic producers mostly produce soybean seeds by the license

28 That was an open question.

FINAL REPORT agreement with governmental institutes of plant breeding and reproduce their varieties. Foreign companies import to Ukrai ne high quality mother seeds, reproduce it via distributors or partners and sell “elite” seeds or first reproduction. Also companies that own soybean varieties try to work with agroholdings using the intellectual property agreements if they reproduce seeds for own needs, but this practice is not widely spread.

Domestic producers 29%

Prograin 55% NS seme Saatbau 1% 11%

Euralis 4%

Figure 7 1 . The shares of companies on soybean seeds market Source: input suppliers Main soybean seeds producers and their official distributors:

 Prograin: Agroresurs; Agroskop; Agrosem; Zahid Agrobusiness; Sun Trade; Eridon;  Saatbay: Agrosem; TD Nasinnia;  NS seme: Bison - Tech; TD Nasinnia; Sady Ukrainy;  Euralis: Eridon; Trade house “Nasinnia”; Agrimatko; Service - Agrocentr.

The list of soybean distributors and their contact details are provided in the Annex C .

Table 26 . Geography of soybean seeds import Country Quantity, tsd.t Total price, $ mln.

Austria 0.2 0.41 Serbia 0.05 0.22 Hungary 0.01 0.02 France 0.01 0.02 Czech 0.22 0.52 Canada 1.54 2.63 USA 0.06 0.11 Total 2.09 3.94 Source: State Statistic Service of Ukraine

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Fertilizers Among agricultural inputs markets, the Ukrainian market of fertilizers is the most complicated and unpredictable. Domestic market is characterized by imbalance of major types of fertilizers. On the one hand, Ukraine is a net exporter of fertilizers through the production of nitrogen fertilizers. On the other, Ukraine is not self - sufficient in necessary volumes phosphorus, potassium and complex fertilizers. However, domestic manufacturers depend on imported raw materials, making fertilizer market almost comp letely import - dependent.

Due to the high level of monopolization in the fertilizer segment there is much smaller number of players. Ukrainian market is formed by several major distributors and domestic manufacturers. Farmers buy fertilizers from distribut ors, suppliers or other resourcing companies. Big agricultural companies practice purchase of big volumes of fertilizer directly from the manufacturers or importers.

In Ukraine in the management of one company is concentrated 100% of the production capacit ies of ammonium nitrate and 50% of the production capacities of urea. The political factor also has a significant influence on the market. The most critical now is the war on the East, through the shutdown of two major fertilizers producing factories. In f act, it reduced the supply of fertilizers on the market: ammonium nitrate - 1.2 mln.t, and urea - 1.4 mln. t. In addition, from the late May to mid - September 2015 two other plants - "Rivneazot" and "Azot" were stopped. This decision was explained by politi cal pressure on a company.

Domestic producers of fertilizers:

 Cherkasy Azot;  Rivneazot;  Odessa Portside Plant;  DniproAzot;  Sumykhimprom;  Dniprovskyy Plant of Mineral Fertilizers;  UkrTechnoPhos;  Stebnytskiy Potassium Plant.

Main distributors of fertilizers:

 Eurochem;  UkrAgroCom;  Fosagro Ukraine;  Agroimport;  UkrAgro NPK;  UkrTechnoPhos.

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Table 27 . TOP - 10 importers of fertilizers Company Share of import in 2014 Agrocenter EuroChem - Ukraine 30.6% Trade House “Agroimport” 20.8% NF Trading Ukraine 11.8% FosAgro - Ukraine 7.6% SumyKhimProm 4.0% Ukragro NPK 2.7% Trade house “Polihim” 2.2% Ukragrocom 1.6% Technological Agricultural Company 1.3% United Binfild Agro Technologies 1.2% TOP - 10 - total 83.9% Source: AgroSpectrum, 2015, AgriSurvey

4.2. Soybean seeds producers

The main soybean sown areas in Ukraine are concentrated in the north - western regions. Those regions have favorable climate condition for soybean cultivation. Central and south regions have high weather risks and lack of rainfall. The exception is Kherson region were soybean cultivates with irrigation system that is a reason of big sowing areas in the region.

We can divide the area of soybean production in Ukraine on 6 micro - zones, taking to account climate conditions and volumes of the production:

1. Khmelnitsky, Vinnitsa, Ternopil, Zhytomyr; 2. Cherkasy, Poltava, Kyiv, Kirovograd; 3. Lviv, Ivano - Frankivsk, Rivne, Volyn; 4. Dnipropetrovsk, Kharkiv; 5. Kherson, Odesa, Mykolayiv, Zaporizhzhya; 6. Chernihiv, Sumy;

Soybean production in Ukraine is concentrated in two main categories of producers: agroholdings and independent enterprises. Agroholdings produce near 36% of soybeans in Ukraine. At the same time TOP - 10 companies produce 25% of total soybean. For agroholdi ngs the most common is cluster model, when company is divided on clusters from 10 to 50 tsd. ha, depending on location and concentration of companies’ land in respective region. The total number of soybean producers in Ukraine is about 9000.

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Table 28 . T OP - 10 holdings by volumes of soybean production in Ukraine Company Sowing areas, tsd.ha Production, tsd.t Yield, t/ha NCH Capital 88 181 2.1 ТАКО 50 139 2.8 Svarog 34 130 3.8 Astarta 59 126 2.1 Kernel 65 121 1.9 ATK 17 60 3.5 MHP 25 54 2.2 UkrlandFarming 19 50 2.6 Glencore International 23 49 2.1 Freedom Farm 14 45 3.2 TOP - 10 - total 395 954 2.4 Total production in 1806 3882 2.1 Ukraine Share of TOP - 10 22% 25% - Source: The largest agroholdings in Ukraine, 2015, AgriSurvey Most of soybean production in Ukraine (58%) is provided on private agricultural enterprises. The average size of enterprise that produce soybean is about 2680 ha (total acreage). For this category the most common is private ownership (Limited Liability Com pany).

The last two years agricultural producers faced a shortage of financial resources for production purposes, which was caused by the reduction of bank financing because of the economic crisis and increasing risks. The main sources of financing produc tion activities for private farms are mainly their own funds. The main source of financing for agriholdings is external funds. Last ones have better access to external financing and long term bank loans.

The main difficulties in soybean production are weat her risks. For example in 2015, the major soybean growing regions observed abnormal drought during the season. This led to decrease in quality parameters (protein content) and significant reduction of soybean yield. In 2015, despite the increase in acreage by 18%, production decreased comparing to the last year by 3% and amounted to 3,766 mln. t.

To the list of challenges in production also can be included lack of experience and low technological level among small and medium producers. Cultivation of not ge netically modified soya requires correct application of complexed chemicals and strict observance of cultivation technology according to agro - climatic conditions during the season that requires appropriate technical support and high qualification of employ ees.

Challenges with logistics of soybean are similar to all the logistics of agricultural products. These are destroyed roads in rural areas, lack of free transport during active harvesting and realization of harvest, high cost of logistics due to the geo graphical remoteness of producers from processing plants and ports, increasing costs of railway transport.

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The main problem with the quality of soybeans is low content of protein, oil and GMO content. Low protein and oil content in soybeans are usually cau sed by unfavourable weather conditions, use of low - quality seeds and insufficient fertilizer supply.

Agricultural cooperatives Agricultural cooperatives are not widespread in Ukraine and do not play a substantial role in the agricultural production. The reasons of this are imperfect legislation in the field of taxation, which makes their activity low profitable due to excessive tax pressure and rejection of the cooperative movement for rural population after the negative experiences of their implementatio n in Soviet times. Also, the factor that hinders development of cooperatives is the poverty of the rural population, which limits their ability to invest in the creation of such cooperatives. The average size of share in the cooperative in 2014 was 1312 UA H (according to the currency exchange rate as of 2014 81.9 euro).

According to the Law of Ukraine “On agricultural cooperation” there are two forms of agricultural cooperatives – production cooperatives and service cooperatives.

Agricultural production coo perative - agricultural cooperative, which is formed by union of persons, who are the producers of agricultural products, to the proceedings of joint production or other economic activities on the basis of their mandatory labour participation for the purpo se of profit;

Agricultural service cooperative - agricultural cooperative, formed union of individuals and/or legal entities – agricultural producers to provide services aimed at reducing costs and/or increase income of the cooperative members during the p roceedings of their agricultural activities and to protect their economic interests;

Now there are almost no active agricultural production cooperatives due to the absence of tax preferences and the complexity of its organization. According to the data of the uniform State Register of legal entities, the vast majority of legal entities registered as agricultural production cooperatives have stopped their activities or are in the process of closing.

Agricultural service cooperatives are more common, but do not play significant role in the economy of the agricultural sector.

In 2014 in Ukraine officially were registered 1017 agricultural service cooperatives and only 618 of them carried out economic activity. The total number of workers involved in these coop eratives in Ukraine amounted to 2150 or 0.07% of the total number of employees in agriculture. On average 4 employees work in one cooperative. In 2014 sales volume of all cooperative in Ukraine was 176 million UAH. State support from local budgets to servi ce cooperatives in 2014 amounted to 1.8 mln. UAH (2.9 thous. UAH per one cooperative), while at the same time, cooperatives paid taxes in the amount of 20.8 mln. UAH that is 11.5 times bigger than a volume of support. The main activity of cooperatives is t he realization of products of their members to the processors. The most common they are in the segment of dairy production and berry production.

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Farmers associations Association “Ukrainian Agribusiness Club” (UCAB) is a business association, which represe nts interests of leading companies of the Ukrainian agro - food sector. In 2015, the authority and importance of UCAB for domestic agriculture - oriented business were confirmed by affiliation of several resource companies with UCAB, aimed at further agricultu ral business development in Ukraine.

The aim of our work is to promote efficient agribusiness in Ukraine and refers to all of its processes, from recruitment and search of investment opportunities, up to practical tasks such as the increase of agricultural companies’ efficiency, and the development of proposals on improvement of agricultural policy in Ukraine.

Ukrainian Association of Producers and Processors of Soybeans. It was founded in 2003 with the aim of organizing practical interaction between scient ists, agricultural, commercial and financial structures, and promoting the dissemination and practical implementation of scientific developments of agricultural science at the enterprises of seed industries, production and processing of soybeans, forage pr oduction and feeding of farm animals.

The Association, together with the research institutions of the National Academy of Agrarian Sciences develops and provides modern and advanced technologies on the production and processing of soy, provides advice and practical assistance agricultural producers, represents and promotes the interests of its members in the Verkhovna Rada of Ukraine, the Cabinet of Ministers of Ukraine, the Ministry of Food and Agricultural Policy of Ukraine, other public authorities, as w ell as in international and foreign organizations.

Association of Farmers and Private Landowners. The purpose of the Association is to promote the development of massive farm movement in Ukraine. Association consolidate efforts of its fixed membership, as well as the progressive sectors of the society to promote the creation and development of competitive, high - value agricultural sector of Ukraine's economy based on private ownership of land, a means of production, produced products and revenue, protection of its member’s social, economic, legal and other interests. The Association defines the following directions of activity:

 Making suggestions to the Government on land reform, takes part in the drafting of new laws, by - laws, projects, additions and changes to the current regulations;  Promoting agrarian reforms in Ukraine;  Promoting the organization of farms, whose activities are based on the private ownership of land, inputs, produced products, income and the free cooperating between the producers and enterprises of industry and Commerce;  Promoting the development and reconstruction of abandoned villages, economic use of fer tile lands that are not used or used poorly.

Ukrainian Agrarian Confederation (UAC). It was established as a “product” of consolidated efforts of the leading national agrarian experts guided by market - based approaches. The aim of this

FINAL REPORT organization is to m aintain a sustainable development of Ukrainian agro - industrial complex and promote its integration into the world market.

Founded in 2002, at the present time UAC unites about 80 members, among which there are most of the largest professional associations related to the agriculture and food sector, agroholdings, associations representing insurance and banking sectors, etc. In particular, the UAC membership encompasses Ukrainian Grain Association, the Union of Dairy Enterprises of Ukraine, Association of Far mers and Private Landowners, Ukrainian Vegetable Oil Association, and others. Therefore, UAC represents the interests of over 50,000 business entities with more that 1 million employees. The Oblast (Regional) offices represent UAC in all parts of Ukraine.

Ukrainian Agrarian Association (UAA). Ukrainian Agrarian Association is a non - profit organization, the members of which are the Ukrainian companies, working at the agricultural market. The main purpose of UAA is to protect the interests of the agricultural market in State authorities, public, and other organizations. UAA pays special attention to the development and public examination of legislative and other normative acts that regulate the question of agrarian sphere in Ukraine. Professionals in the field s of law, macroeconomics and finance are working in the administrative apparatus of UAA. This allows perform these functions in effective way.

Agrarian Union of Ukraine (AUU). The Agricultural Union of Ukraine is public organization created by peasants and farmers. AUU combined about 4 thousand businesses that handle 12 million hectares of land. It has offices in every district and region of Ukraine. The smallest enterprise, which is a member of AUU, has 27 hectares, and the biggest 25 thousand hectares. 9 6% of the enterprises - members of the AUU have in use from 500 hectares to 1 thousand hectares. By Ukrainian standards it represents small and medium - sized agribusiness. The Subject of activity of AUU and its regional structures are:

 Ensuring legal guarante es of activity of the Union's members, representing their interests in the legislature, State agencies and public organizations; the improvement of logistical, financial and credit provision of agricultural producers;  Assist in the development and establi shment of the market infrastructure in the rural area, information support of producers on market conditions, price situation, creating conditions to guarantee sales of products;  Implementation of practical work on the establishment of sectorial associati ons and organizations of producers;  Introduction of scientific and technical achievements, effective forms of organization of labour and production.

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4.3. Processors

The main processors of soybeans are indicated in the table below.

Table 29 . TOP processors of soybeans Soya processing capacities, Company Location tsd.t/year Svarog Khmelnytskyy 350 MHP Cherkasy 300 Protein - production Kirovograd 250 ATK Zhytomyr 250 Oliyar Lviv 236 Kakhovka Protein Agro Kherson 220 Astarta Poltava 220 Pologovskiy OEZ Zaporizhzhya 120 All Seeds Odesa 120 Biopreparat Poltava 64 Source: open sources

Methods and technologies of processing in the Ukraine: mills, toasting, drying, etc. The main method of soybean processing in Ukraine now is the production of soybean oil and meal by extraction technology. Oil extraction plant consists of two sections: preparation and extraction. In pr eparation section soya beans go through cleaning, thermal processing and crashes to the small platens (thickness - 0.3 mm). In the extraction section beans go to the extraction of the oil from prepared soybeans by solvent (hexane) and toasting of the meal. After this oil and meal cleans from solvent and cools.

4.4. Distribution, intermediaries, collectors, traders

Trading activity for most traders i s based on network of own grain elevators and cooperation with elevators of partner companies. Each elevator provides purchase of soybeans from producers and intermediaries and accumulation of big volume s of beans. Then, accumulated soybeans are transport e d by rail to the ports such as Odessa or Mykolayiv for loading on ships and export. The cooperation between soybeans producers and traders is based mostly on geographical location of elevators and purchasing price of each trader. So for small and medium fa rms long term cooperati on with traders is not typical.

If the producer has a choice of few trade r s at the same distance the main factor will be the price. In the absence of competition, producers usually supply soybeans to the nearest elevator due to the h igh logistics costs. The a gr o holdings doing the same in the regions , where they do not have own storage facilities. In case they have own elevator with railway line holdings cooperate with traders on CPT basis or directly export their products.

Processing companies are independent players on soybean market. They purchase soybean for own production needs by themselves , mainly focusing on the manufacturers in their area. In case

FINAL REPORT of competition with traders for raw material processors often are forc ed to raise their prices compared to traders. The quality of the raw materials is more important for processing enterprises. Because of this they often provide additional premium for high protein content.

There are a lot of enterprises or individuals on th e market that buy soybean directly from the producers in order to resale them on the domestic market. Mainly such operations are made with use of “shadow schemes”. Manufacturers sell their products to intermediaries when they need cash, in order to hide th e real results of the production activity or illegal use of agricultural land, in the case of problems with the quality of produced soybeans (including GMOs) and in case of absence of their own transport for delivery to the elevator. Price discount by real ization to intermediaries, given these factors, can be up to 30%. Intermediaries operate “semi - legally”, buying soybeans from producers without control of quality , origin and paying in cash. Further such “traders” supply these batches of soybeans to the el evators of real traders or small processing enterprises.

Table 30 . TOP exporters of soybeans Company Share of export in 2014, % Volume of export in 2014, tsd.t Kernel 10.2% 171.4 Serna 6.1% 102.5 Sungrant Plus 4.8% 80.6 Greentour - Ex 3.7% 62.2 Cargill 3.3% 55.4 Nibulon 2.9% 48.7 Alfred C. Toepfer International 2.4% 40.3 Kyivkhlib 2.4% 40.3 Ukrelevatorprom 2.2% 37.0 OKKO - Business 2.1% 35.3 TOP - 10 - total 40% 672 Total exports 100% 1680 Source: AgroSpectrum, 2015, AgriSurvey

4.5. Wholesalers, retailers, etc.

In stores without easily can be found products of "Soybean Factory "Agroprod", NC "Golden Beans" (Odessa), LLC "Olesia", LLC "Solodko" (both situated in Zaporizhzhya), LLC "EKKO" (Cherkasy), LLC "Teda" (Kyiv), LLC "Bilok" (Kirovograd), and others. Some of them produce a complete range of products, others - only soy milk, or nuts (in fact, fried beans), textured soy products (meat, steaks, pasta, goulash, tongues, shrimp, meat balls, etc.).

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LLC "TRADING COMPANY EKONA"

Table 31 . Pricelist example of the soybean processed products in Ukraine Product title Price UAH/kg SOY GOULASH (cubes) 200 g 26.21 131.05 SOY GOULASH (cubes) 100 g 13.13 131.30 SOY CHOPS (SLICED), kg 142.45 142.45 SOYA MINCE, kg 149.10 149.10 SOY MINCE 100 g 13.87 138.70 SOY MINCE for RISSOLES "home", 100 g 12.00 120.00 Source: open sources

Sales places throughout Ukraine:

 network of supermarkets "ATB - market";  network of supermarkets "Brusnichka";  "Silpo" supermarket chain;  the network of hypermarkets "FOZZY";  network of supermarkets "Megamarket";  supermarket "Fora";  the network of hypermarkets "KARAVAN";  network of supermarkets "Eco - market";  network of supermarkets "VELMART";  supermarket chain "Velyka Kyshenya";  supermarket chain “ Novus ” ;  supermarket chain “Varus”;  supermarket chain “ Tavria V ” ;  supermarket chain “Kopeyka ” ;  chain of hypermarkets Auchan;  supermarkets "Absolut";  supermarkets "Continent";  supermarkets "Hippo";  supermarkets "Vostorg";  supermarkets "Dastor";  supermarkets “ Obzhora ” ;  supermarkets “ Fifth Ocean ” ;  network of supermarkets "Rost";  network of supermarkets "Furshet";  network of supermarkets "Tam - Tam";  supermarket chain “Fresh”;  supermarket chain “Arsen”;

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 network of supermarkets "Souz";  network of supermarkets "Kvartal";  supermarket chain "Fresh - market".

Contacts

49098, Ukraine, Dnepropetrovsk, str. Belostotskogo, 126 Phone: + 38 (056) 732 45 30 Fax: + 38 (056) 732 45 31 e - mail: [email protected] http://ekona.com.ua/

"Soybean Factory "Agroprod"

The factory produces 16 kinds of soybean products (milk, textured soy products, soybean flour, soybean oil, soy protein concentrate and others).

Table 32 . Pricelist example of the soybean processed products in Ukraine Product title Price UAH/kg Goulash soy Agroprod, 250 g 20 80 Soy steaks Agroprod, 250 g 20 80 Oil "Soûško" gidratirovannoe, 1 l 39

Noodles soy Agroprod, 250 g 20 80 Soy mince Agroprod, 250 g 20 80 Source: open sources

Contacts

08162, Kyiv region., Chabany, Kyiv - Odessa Highway, 1 phones + 38 (044) 522 - 47 - 90, 251 - 02 - 65, fax: + 38 (044) 522 - 47 - 93 E - mail: [email protected] http://agroprod.Kyiv.ua/

Enterprise “Vegetus Ukraine”

Table 33 . Pricelist example of th e soybean processed products in Ukraine Product title Price UAH/kg Dice soy, 100 g 11.00 110 Soya meat balls, 100 g 11.00 110 Soy, steak 250 g 23.00 92 Soy noodles (sliced), 80 g 11.20 140 Soy beef, 100 g 9.00 90

Source: open sources

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Contacts

Kharkov, Lane. Theatre, 11 + 38 099 624 - 46 - 93 Cooperation and wholesale purchases: + 38 050 630 - 20 - 59 + 38 050 405 - 59 - 70 + 38 096 - 010 29 - 13 Internet shop: http://www.vegetus.com.ua/

“Gula”

Table 34 . Pricelist example of the soybean processed products in Ukraine Product title Price Soy meat “Goulash” 400 g 22.00 Soy meat " Cutlets" 200 g 14.00 Soy meat " Meat balls" 400 g 25.00 Soy meat “Mince soya"200 g 14.00 Soy meat “Mince soya"10 kg bag 495.00 Soy meat “Goulash"10 kg bag 495.00 Source: open sources

Sells its products via the Internet: http://mafusal.com.ua/products/soevye_produkty/ppgula.html

“Soy farm”

Table 35 . Pricelist example of the soybean processed products in Ukraine Product title Price Soy mayonnaise, 450 g 24 Soy cheese, 500 g 25 Soy sausage, 1 kg 55 Tofu, 1 kg 50 Soy cheese, 500 g 24 Source: open sources

Sells its products via the Internet: http://mafusal.com.ua/products/soevye_produkty/soevayaferma.html

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4.6. SWOT - analys i s of existing supply chain

Strengths Weaknesses Opportunities Threats Procurement For 75% of respondents For 25% of respondents Reduction of the quantity of Devaluation of the national of seeds the origin of seed and both confidence in the producers who disregard the currency reduced confidence in its origin is seed origin and the seed soy origin and confidence in purchasing capacity of an important factor. origin are not important. its origin. agricultural producers, the Majority of producers try Mostly small businesses Establishment of the share of own seeds is to control the quality of do not monitor quality of certificated authorities in expected to increase and their seeding material. the seeds. order to obtain easily the these seeds, in the absence necessary certified seeds. of systematic control, will Attraction of the state funds be of poor quality for producers’ support. Planting / Soybean production Due to lack of Increase awareness of both High demand from growing technologies are understanding of the pr oducers growing GM processing plants for improving every year; as control process during products and non - GM soybeans high on protein of today we can observe production of non - GMO products with regard to the can mitigate the producers’ an increase in demand soybeans, there is a rules / standards for non - GM wish to increase production from agricultural possibility of non - GMO soybean growing. and observe standards f or producers for the use of soybean pollination with the soy production. inoculum while seeding. cells of GMO soybeans Presence of the shadow Yield increases on the from a neighbouring field. market. condi tion of favourable weather. Transportation Wide variety of Substantial part of service Development of There is a threat when the transportation, i.e. motor, lines is in poor condition. communication lines, soybean leaves elevator as railway and marine During the season there particularly river transport to non - GMO according to the transportation. are problems with reduce logistic costs. analysis results, but the obtaining wagons for Establish certificate analysis in port reveal transportation. There is a authorities to certify soybean presence of GM impurities possibility of mixing at this stage and provide in the batch. Thereafter the soybeans (GMO and non - support for the producers batch will be returned and GMO). against the threats described re - dispatched to the port in the section "threats". under the new documents. It entails additional expenses incurred by the producer. Feed Irreplaceable component Low requirements for Increase of the soybean meal L ow - level prices in processing in the feeding ration of soybeans; the main production satisfying demand international market can animals. Increase of the requirement is protein. in the domestic and foreign create additional demand from processing markets. competition for domestic plants due to the increase producers of the demand in both domestic and foreign markets. Food Soybean increases its Absence of the sufficient Promotion and raise of the Economic situation in processing presence in food either as amount of certificated trust level in terms of Ukraine and military conflict finished product or food authorities to confirm the etherification from the can result in reduction of supplement. On the "naturalness" of consumers. Increase of the production processing condition of further products. Is a product for quantity of processing outputs inflation the share of specific population enterprises dealing with soybe an in the food groups (vegetarians, industrial processing and industry will increase. people with diabetes, manufacturing products with Waste - free production consumers wh o are added value. Attraction of the allergic to animal state support to encourage protein), provided that it processing enterprises. consists of 100% soy products or its processed products

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Consu mption Gradual increase of Distrust of consumers Increasing of consumer On the condition of demand by virtue of the towards labelling both awareness regarding products increase of the raw increase of the prices for GMO and organic. certification. Increasing of materials export (soybeans) meat products. Relatively confidence in the at a relatively steady affordable prices for the certification production, the increase of products (where soy is processing pr oducts food supplement ) for the consumption is not low income population expected, since the price is the major factor to decide where soy will be used.

4.7. Quality standards, certification and labels

OECD ISTA. Ukraine is partially incorporated into certification system OECD ISTA. However, the Government still needs to legislatively consolidate the methods, rules and procedures of certification of soybean. With the use of this sign of quality, seeds imported to Ukraine will not have to reregister and carry out additional certification already in Ukraine. The same will be applicable to the seeds exported from Ukraine: seeding material will meet all of the standards OECD ISTA and therefore will be able to get both the European market and in other markets around the world easily.

Soybeans, which are meant to be exported, should also undergo laboratory examination on the content of the GMO before leaving the borders of Ukraine. However, to date, export - oriented companies have such laboratories in their production, and therefore can define the presence or absence of GMOs in soybeans on their own. For the further processing, manufacturers should also provide quarantine sheets for the processing company.

DSTU. State Standard of Ukraine (DSTU) – developed standards in accordance with the current legislation of Ukraine, which establish rules for general and repeated use as well as general principles or characteristics that relate to the activity or its results. State Standards of Ukraine contain mandatory and recommended requirements.

Mandatory are:

 requireme nts that ensure the safety of products for life, health and property of citizens, its compatibility and interchangeability, environmental protection, and requirements for methods of testing of these indicators;  requirements of safety and hygiene with refer ence to the appropriate sanitary standards and rules;  metrological standards, rules, regulations and requirements to ensure the reliability and uniformity of measurements;  provisions to ensure the technical unity during the development, production, operati on of (using) products;  concepts and terms used in the field of waste management, waste classification requirements and certification;  ways to determine the composition of the waste and their degree of hazard, methods of control as objects of waste managem ent requirements of safe for the environment and

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human health of waste management, as well as requirements for waste as secondary raw materials.

Obligatory requirements of State Standards are subjects to the unconditional implementation by the relevant Sta te authorities, all enterprises, their associations, institutions, organizations and citizens - entrepreneurs, whose activities are covered by the standards.

Featured requirements of State Standards of Ukraine are subject to unconditional implementation if:

 It is provided by applicable laws;  These requirements are included in the contracts for the development, manufacturing and supplying of products;  Producers (provider) of goods make a statement of conformity to these Standards.

State Standards of Ukraine ar e approved by the Executive body for technical regulation.

HACCP. In Ukraine the introduction of HACCP standards is regulated by a number of legislative acts, in particular:

 DSTU 4161 - 2003 “Requirements for the food safety management system”;  DSTU ISO 22 000:2007 “Food safety management systems. Requirements for all organizations in the food chain”;  DSTU - P ISO/TS 22003:2009 “Food safety management systems. Requirements for bodies providing audit and certification of food safety management systems”;  DSTU - P ISO/TS 22004:2009 “Food safety management systems. Implementation of the use of ISO 22000:2005”, as well as other documents.

Despite developed legislative framework, the level of implementation of HACCP on Ukrainian food enterprises remains low. This is due to a number of factors:

 There is no demand for certified products on the domestic market;  Institutions, whose responsibilities include quality control and food safety standards, carry out their work ineffectively. At the same time verification of the implementation of HACCP system will be a newly created body - State Service of Ukraine on Food Safety and Consumer Protection, which is currently in the formation process;  The enterprises themselves have no incentives to the introduction of HACCP system due to the high financial costs needed for its implementation, as well as the lack of Government support;  Management of the majority of the enterprises of the food industry does not understand that these standards are the key to the competitiveness of their products and facilitate the access to the markets of EU countries.

About 300 enterprises of food and processing industry have already implemented HACCP systems. Another 80 are working under implementation of this system. Given the current legal

FINAL REPORT requirements during the next four years all enterprises will be required to have an embedded system.

Th e Law of Ukraine “On the basic principles and requirements for the safety and quality of food products” provides phased implementation of the HACCP system at the facilities that operate with food during 2017 - 2019. In this connection, the Ministry of Agricu ltural Policy and Food of Ukraine has already started and plans to organize workshops on practical aspects of the implementation of the HACCP system in each region during the next year.

GLOBAL G.A.P. Ukrainian farmers point out that Global G.A.P. in our co nditions is feasible for the implementation quality system, moreover, it is not as difficult as it seems at first glance, because Global G.A.P. matches many aspects and requirements of our legislation and certification, and in a large part Ukrainian legisl ation is more demanding. So if the farmer will follow completely all the legislative requirements, he will have to deal only with the “paper” work in order to get the certificate.

Worth noting the presence of complete information vacuum among the farmers a bout the possibility of the access to the European market and requirements it imposes. Ukrainian producers probably would like to follow European rules, but do not know how to start.

The second trend is more disappointing – producers are not prepared to fu lfil all the requirements. Small and medium - sized producers still mostly focused on domestic market and therefore do not see sense in implementation of this system in the production. Nevertheless, many greenhouses have already received the Global GAP certi fication or will implement it in the near future.

Dobrij (good) Sign. A Good Sign is an independent quality and security control system created by the Ukrainian TV channel “STB”. Also there was created special audit department with specialists in different areas of food quality and safety. Auditors, food technologists and quality standardization experts carefully check products and production process, so that consumers can confidently buy high - quality products, which are marked with a “Good Sign”. The work of the audit department is overseen by the Council of Independent European Auditors.

The process of verification of each product consists of two phases – verification of the product and the production itself.

In the first phase certified European bodies, a uditors check the production (factories, plants, grading places) in accordance with the IFS system. Examination of the factories, which produce a product, is conducted regardless the country they are situated in. Particular attention is paid to safety when assessing the reliability of suppliers of raw materials and production lines.

In the second phase, the product is sent to Europe to one of the accredited laboratories of the Eurofins Scientific. Then the auditing committee compares the results of the laboratory with the prescribed European quality and safety requirements for this ty pe of product (for example, the absence of antibiotics, heavy metals in milk etc.). This document is prepared by the international

FINAL REPORT certification body DQS. If the results of the laboratory for safety and quality of the product comply with the valid standard s, the audit allows the manufacturer to put the logo “Good Sign” on their packaging.

Quality and safety verification is conducted throughout the period, while “Good Sign” is printed on the packaging. Until a “Good Sign” is presented on the product packagi ng, the company shares the responsibility for quality and safety of the product with manufacturer, therefore, must be confident in the quality of the product. That is why the company conducts inspections of the production and “Good Signed” products.

Organi c green leaf. It’s a European quality standard label, which insures that food was produced in accordance with the European organic standards. Thus, the European control bodies are in charge of placing such symbol on the products.

If the production of the o rganic products was carried out according to the standards of the European Union (Council Regulation (EC) №834/2007 and Commission Regulations (EC) №889/2008), the packaging should contain the following:

 logo of the “Euroleaf”;  control body code number;  ra w materials origin country.

Quality mark. The main goal of placing the QUALITY MARK is to promote the increase of the life quality of Ukrainians. In order to achieve this aim an award should solve two major issues:

 help Ukrainians to make the right choice in choosing goods, by drawing attention to the goods and services of adequate quality;  help the entrepreneurs that offer consumers high quality products and services advantageously stand out among competitors.

Objectivity of the Expert Council decisions on the rewarding the goods and services with the Quality Mark is based on objective analysis of the documents confirming the quality of the goods and services. The Expert Council does not carry the verification of the product’s quality, because applicants ha ve to independently provide duly certified documents confirming proper quality of products declared to award the Quality Mark.

National conformity mark. The purpose of the development and application of the technical regulations is to protect the life and health of humans, animals, plants, national security, environmental protection and natural resources, prevention of unfair practice. National conformity mark certifies the conformity of the product with the requirements of the technical regulations that ap ply to it. Conformity mark is applied only to those types of products, the description of which is contained in the technical regulations. In this case the application of the mark of conformity is required.

The central executive body that implements the State policy in the sphere of technical regulation coordinates the development of technical regulations and the work of executive bodies

FINAL REPORT that will carry out the supervision on the market over the objects of te chnical regulations; prepares the program of development of technical regulations; organizes the development of rules and procedures of the market surveillance over the objects of technical regulations with the participation of other relevant central execu tive bodies.

To sum up about certification of food products, we should provide some figures on the trust of consumers to non - GMO and organic labeling. On the figure below you can see that local consumers have low level of trust for both labeling: 75% did n ot trust to non - GMO, 63% - organic.

100% 3% 3% 8% 5% 90% 13% 80% 20% 70% 28% 60% 23% 50% 40% 30% 40% 48% 20% 10% 10% 0% 3% without GMO Organic no answer very low low moderate high very high

Figure 72 . Trust of the consumers to non - GMO and organic labelling Source: interviews of UCAB At the same time we received some comments regarding this issue:

 I trust to both labelling in case if it is foreign syst em of labelling or foreign product;  Producers could not produce fully organic products due to Chornobyl.  Low level of trust because everything could be falsified.

After the interviews with producers we realized that they have different imagination about the standards of production. 54% of the producers said that they are following the production standards, but on a question “What standards?” we received following answers:

 Standards of choice between the GM and non - GM soya seeds;  Technological standards;  Standards on a protein content;  Application of inputs according to standards;  All of the standards according to legislation, DSTU and so on.

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The average assessment of the production standards was at the level of 3.5 points 29 , but many of them even did not a ssessed previously mentioned standards. At the same time nobody assessed production standards as “very ineffective” or “ineffective”.

61% 21% 14% 4%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

can not assess or no answer very ineffective ineffective moderate effective very effective Figure 7 3. Assessment of the production standards effectiveness Source: interviews of UCAB Regarding the changes in s tandards respondents mainly answered:

 Frequent monitoring and analysis of GMO production should be done on a national level;  Programs on a decrease of the GMO population should be provided;  Discard any certifications for GMO producers.

On our opinion, first two changes should be mentioned in the part of legislation, but producers mentioned them only answering this question.

Concerning phytosanitary regulation, only 11% of respondents indicated that they have problems in this area. 54% think that it took a lot of time to receive such certificate, but according to last changes in legislation, the issuing term of this document d ecreased from 5 days to 24 hours.

The costs of soya analysis on GM content vary from 150 to 500 UAH, according to the market entities answers (average value – 300 UAH). We asked to provide official and unofficial price if it exists, but producers ensure us that there is only official price that can vary depending on the laboratory (state owned or private).

4.8. Problems and obstacles in supply chain, risks and constraints

One of the main problems in supply chain is the lack of producers’ knowledge about stand ards of producing. According to the results of the research majority produces the GM - free soya, but they have no understanding of who and how is controlling it.

Evidence of interviewers: “T he major part of small producers during the friendly conversation says that they plant GM - soya, but when you ask s about their enterprises – they started to feel embarrassed and do not want to give this information. It looks like they afraid of liability from GM - production . ”

The next obstacle is the low standards at the p rocessing plants, which are basically general: moisture, protein and waste impurities. However, the enterprise s that speci alize on the food processing have higher

29 Scale: 1 – very ineffective, 2 – ineffective, 3 – moderate, 4 – effective, 5 – very effective.

FINAL REPORT standards. It is necessary to have the certificate with the basic information and to make add itional test of the GM identification. If there is no GM soya is used in the food processing. In case if GM presents and this soya will be used in processing (at some plants), this fact must be shown at the product contain. Another problem that producers f ace is the transportation and appearance of the GM impurities while conducting analyzes in the port laboratory. Therefore, the introduction of the certification and increase the competent of the authorities in each stage in the supply chain would help prod ucers, processing companies and traders to avoid additional problems and conflicts. It is important to understand the state position, which would stimulate production of GM - free products in Ukraine and will fully support the producers, at the same time pro vide an opportunity to develop businesses that willing to plant and GM soybeans, but it is supposed to be stated at the law level.

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V. Danube Soya in Ukraine

As it was detailed described in the report, we should clearly separate manufacturers focused on the domestic market or on the export. Given the significant differences in the needs of producers and traders in securing exports, the attention of Danube Soya should be paid to the following activities:

 Ensure storage (storage, forming consignments) - a network of existing elevators prepared for soybeans;  Providing export logistics (transport infrastructure for the bringing to the port elevators, port facilities , capacity for liquid cargo) - Ukrainian Railways, automobile enterprises, joining the projects of water logistic through the use of river transport;  Appropriate laboratory equipment (mobile and stationary laboratories for quality determination for subsequ ent formation of the consignments and determination of GMOs), stationary laboratories in ports (ports’ responsibility and assignment provided by the newly formed State Service of Ukraine on issues of food safety and consumer protection of Ukraine using the experience State Veterinary and Phytosanitary Service);  Export promotion: despite the leading position and recognition in the production of soy - cooperation with the Ministry of Agrarian Policy and Food of Ukraine would be useful, as well as participatio n in international events; creation of a separate program to promote Ukrainian food in foreign markets ( e.g. program, which coordinates by Ministry of Foreign Affairs and Administration of the President of Ukraine, on the base of Ukrainian Chamber of Comme rce );  promotion of exports of finished processed goods without deep processing into meal (oil, oil cake) .

As for concentration on the domestic market, creating a network of stakeholders processing enterprises that would generate additional demand in the market is an important component. In this area it is possible to offer the following:

 Food processing - promotion and support of the processing enterprises in the area of soy processing (soy milk, soy meat, protein - intensive products) and a separate progra m for the popularization of soy as appropriate protein product for the part of the society. I is necessary to separate soy as a substitute for meat and bring it to the market as a separate product (marketing programs);  Forage - concentration on livestock p roducers and producers of feed – zooengineers are also important; advice on rations – development of the rations for all types of livestock production.

Support to producers on growing technology, specificity, characteristics, varieties, farming should also be offered. Considering that half of the soybean seeds have Ukrainian origin, perhaps it is also worth focusing on growing in different regional features, as well as determination of the export and domestic areas (something like corn, but with a concentra tion on the direction of consumption).

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Annex A. Basic data on the interviews Name of the variable Value № of interviews 40 The share of 30 agricultural producers 70% processors 15% traders 13% governmental bodies 13% NGOs 13% others 8% Interviewees represent 24 oblasts of Ukraine Ownership 31 Ukrainian enterprise 60% (24%) Foreign 8% (2%) Mixed 18% (74%) Not applicable 15% (0%) Governance structure Farm 18% Individual enterprise 28% Holding 25% Other 30% Total land bank, thousand ha 2 739.2 Average land bank among interviewed producers, 78.2 thousand ha Main specialization Plant production 38% Animal production 0% Mixed 23% Processing 13% Not applicable 28% Production of 20 Meat 18% Milk 18% Grains 60% Oilseeds 73% Niche crops 5% Sales markets Domestic 45% Foreign 5% Both 23% Not applicable 28% Areas under soya, thousand ha 246.1 The share of soya in total land bank of interviewed 9% companies, % The share of interviewed companies in total area under 14% soybeans in Ukraine, %

30 Multiple choice answer 31 First number represents the shares corresponding to the number of interviewees, second, in brackets, - weighted by land bank

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Annex B . Soya varieties included in the Register of Plant Species of Ukraine

Registration Recommended Group of Variety denomination Quality year zones for growing ripeness Lara 2005 SLP em mo Sviatkova 2005 SLP em mo El`dorado 2005 SLP me mo Vinnychanka 2006 LP mm mo Diona 2007 LP em mo Berehynia 2002 S me mo Don'ka 2003 SL em mo Apolon 2003 SLP em mo Ksenia 2004 SLP fm mo Yelena 2004 SLP fm mo Znakhidka 2005 SLP fm mo Yuvileina 2005 SLP em mo Oriana 2002 S me mo Ustia 2002 P fm mo CSB 938 2008 SL mm mo Hoverla 2009 SL em mo Vorskla 2008 SL fm mo Lehenda 2009 SLP fm mo Tavriia 2008 SL me mo Danaia 2009 SL me mo Farvater 2008 L me mo Merlin 2008 L em mo Monada 2008 L em mo Smolianka 2008 LP em mo Almaz 2007 L em mo Anzhelika 2007 LP em mo Mel`pomen 2007 L em mo KyVin 2007 L em mo Sponsor 2010 SLP em mo Vinni 2010 SL mm mo Vezha 2010 S me mo Danko 2010 S me mo Siaivo 2010 S me mo Antoshka 2010 S mm mo Anastasiia 2010 SLP fm mo Heorhina 2010 S me mo Moravia 2011 SL mm mo Bohemians 2010 S me mo Antares 2010 SLP me mo Sribna Rut 2010 SL em mo

FINAL REPORT

Registration Recommended Group of Variety denomination Quality year zones for growing ripeness Desna 2010 SLP em mo Vil`shanka 2011 LP fm mo Hali 2012 S fm mo OAS Chempion 2011 SLP fm mo Smuhlianka 2010 SLP em mo Suzir'ia 2010 SLP em mo Cheremosh 2010 SLP fm mo Lybid` 2010 SLP fm mo Larisa 2010 SLP fm mo Fortuna 2010 SLP fm mo Mercur 2011 SLP fm mo Khutorianochk 2010 SLP fm mo Antratsyt 2011 S fm mo OAC Wallace 2011 SLP fm mo Biliavka 2011 S mm mo (8902755) / Vytiaz' 50 1992 S me mo Іvanka 1996 L me mo Omeha vinnyts` 2007 L me mo Іzumrudna 1995 S me mo Soniachna 1997 SL me mo Versiia 2007 LP me mo Podil`s`ka 416 2001 L me mo Chernіvets'ka 9 2000 SL me mo Sprynt 2003 SL em mo Mriia 1999 SL em mo Faeton 2000 SLP me mo Oksana 2001 S me mo Artemida 2001 С me mo Prykarpats'ka 9 2001 S em mo Anatoliivka 2001 S em mo Kyivs'ka 98 2001 LP fm mo Podіl's'ka 1 1997 SL fm mo Valiuta 2001 S fm mo Odes`ka 150А 2001 SL fm mo Medeia 1998 SL fm mo Ametyst 1998 SL fm mo Romantyka 1998 SL fm mo Deimos 1998 S fm mo Podolianka 1999 P mm mo AMPHOR 2014 P me mo Yatran` 2006 SLP me mo Osoblyva 2006 LP me mo

FINAL REPORT

Registration Recommended Group of Variety denomination Quality year zones for growing ripeness Horlytsia 2006 SLP me mo Masha 2006 LP me mo Skelia 2007 L me mo SB Trail 2014 P me mo Silesia 2014 LP me mo Sinara 2014 SL em mo Gallec 2014 SLP em mo Kassidy 2014 SLP me mo Sviatohor 2014 P me mo Baika 2014 S me mo Sultana 2014 SL me mo Prykarpats'ka 96 2001 S me mo Anatoliivka 2001 S mm mo Kyivs'ka 98 2001 LP em mo Podіl's'ka 1 1997 SL mm mo Valiuta 2001 S me mo Odes`ka 150А 2001 SL mm mo Medeia 1998 SL em mo Ametyst 1998 SL em mo Romantyka 1998 SL em mo Deimos 1998 S mm mo Podolianka 1999 P mm mo AMPHOR 2014 P fm mo Yatran` 2006 SLP me mo Osoblyva 2006 LP me mo Horlytsia 2006 SLP me mo Masha 2006 LP mm mo Skelia 2007 L me mo SB Trail 2014 P fm mo Silesia 2014 LP fm mo Sinara 2014 SL mm mo Gallec 2014 SLP fm mo Kassidy 2014 SLP em mo Sviatohor 2014 P me mo Baika 2014 S fm mo Sultana 2014 SL mm mo Kyoto 2014 SLP em mo Sigalia 2014 SL mm mo Opaline 2014 P em mo Al`ians 2014 L fm mo Rapsodiia 2014 SLP em mo Poltava 2009 SL mm mo

FINAL REPORT

Registration Recommended Group of Variety denomination Quality year zones for growing ripeness Halyna 2009 S mm mo Ina 2008 S mm mo Iryna 2009 S mm mo Sharm 2008 L me mo Madison 2008 LP me mo Vasyl`kivs`ka 2003 SLP me mo Annushka 2007 SLP fm mo Feia 2004 SLP fm mo Femida 2004 SL mm mo Zolotysta 2004 SLP me mo Stratehiia 2004 SLP me mo Ofeliia 2003 S me mo Podiaka 2011 S em mo Mal`vina 2011 SL em mo Aratta 2013 SLP fm mo Horol 2011 SLP fm mo Korsak 2011 SLP me mo Tanais 2011 P fm mo Kniazhna 2011 SLP fm mo Buga 2014 P fm mo Kent 2014 S mm mo Cardiff 2014 SL mm mo Terek 2012 SLP fm mo Kuban` 2012 SLP em mo Rusa 2013 P em mo Mavka 2013 SLP fm mo Atlanta 2013 SLP em mo Aleksandryt 2013 SLP fm mo Adamos 2013 SL fm mo Estafeta 2013 S fm mo Sprytna 2013 S fm mo Khvylia 2013 S fm mo Siverka 2013 S fm mo ES Mentor 2013 SLP em mo Luna 2012 SLP em mo Hortica 2013 SLP em mo Kristina 2013 SP me mo Favorit 2013 SLP fm mo Aligator 2014 P fm mo Kanata 2014 P me mo Opus 2014 LP fm mo PADUA 2014 L mm mo

FINAL REPORT

Registration Recommended Group of Variety denomination Quality year zones for growing ripeness CORDOBA 2014 SLP me mo LISSABON 2014 SLP fm mo ES SENATOR 2014 LP em mo Biser 2014 SLP em mo Dana 2014 LP fm mo Brunensis 2014 SLP em mo Vidra 2014 SLP fm mo Sandra 2014 SL fm mo Deni 2013 SLP me mo Romashka 2013 S me mo Zolushka 2014 SP fm mo Source: Register of Plant Species in the Ukraine Legend R ec o mm e n d e d z on e s f o r g r o w i ng:  S – Steppe  L – Lisosteppe  P - Polissia Group of ripeness:  em – early mature  fm – fast mature  mm – medium mature  me – middle early Quality:  mo – medium oil

FINAL REPORT

Annex C . List of soybean distributors

Company Phone E - mail Location of head office AIS +380552490500 agro - [email protected] Kherson Ramburs +380442772494 [email protected] Kyiv Nibulon +380512372344 [email protected] Mykolayiv Agro Export Group +380503882122 [email protected] Kyiv B&G Trade Limited +380502445535 [email protected] Kyiv Tenfore +380637394901 [email protected] Kyiv Bunge +380509561003 [email protected] Mykolayiv MHP +380949409257 [email protected] Odesa System +380442201091 [email protected] Kyiv Concord Commodities +380503882122 [email protected] Lviv Agro Fund +380671364460 agro - [email protected] Volyn Eko Leader +380445025875 [email protected] Kyiv Agro Provision +380512362939 [email protected] Mykolayiv Kahovka Protein Agro +380983419080 [email protected] Kherson Skyseed +380668112328 [email protected] Kyiv Poliekspo +380552325273 [email protected] Kherson ZernoEksport +380675585796 [email protected] Odesa Agro - industrial group +380934545466 [email protected] Kyiv Viteks +380503371414 [email protected] Mykolayiv ColorTec +380994876800 [email protected] Kyiv Sangrant +380952871543 - Kyiv Logistik Granum +380674802520 [email protected] Odesa Technotorg +380674627622 [email protected] Kyiv Progredis +380445852785 [email protected] Kyiv Kernel +380444618801 [email protected] Kyiv

FINAL REPORT

Annex D . List of CPPs producers and their official distributors BASF Aval - Agro, Agrosem, Agrozahyst Pivden, Agrozahyst Donbass, Agro Prestige, Agroros, Agrosvit; Agroskop, Cargill. Syngenta A g ralp Ukraine, Agro Ros, Agrobonus, Agrozahyst Donbass, Kyiv Agrozahyst, Agroprom Center , Agroresurs , Agrosvit , Agr oskop Ukraine , Agro - Tandem , Agrochim , A g ro k himservis , Adler , Amaco Ukraine , Agroindustrial company Arhat , Bi z on - Tech 2006 , Bi z on - Tech 2012 , Bi z on - Import , Agro Stack Galich , Eridon , Imperia - Agro , Cargill , Lebed y nsk y y Seed Plant , Magnat Agro , Trade house “ Se ed ”, Oster , Suntrade , Agro Sedna , Service - Agrocentr , Spectrum Agro , Agro Ukraine Suffle , Glow , Ukragrocom , UkrA g roResurs , Ukrainian agro - chemical company , Flora , Shchedryy Lan , Yunitek . Bayer A g ralp Ukraine , Ag rozahyst Donbass , Agricultural I ndustry C enter , Agroros , Agroskop , Agrotek , A g ro k him c entr , Amaco Ukraine , Bi z on - Tech 2006 , Grano , Eridon , Trad e house “ S eeds”, Oster , Ukrainian D istribution C enter , Suntrade , Sedna - Agro , Service A griholding , Spektr Agro , Agro Ukraine Suffle , Ukrainian A gro - C hemical C ompany , Flora , Avangard , Imperia - Agro . Monsanto A g ralp Ukraine , Arhimatyka , Agroresurs , Agro Ros , Agrosvit , A g rotok , Oster . Adama Eridon, Agroskop , Trade h ouse “ Seed s”, Agros , Spektr Agr o, A g rozahyst Donbass , Kharkiv A g rozahyst , Av angard , Agro Ros , Oster , Service Agrocentr , Agrosvit , Cargill , Land West , ARAS (A g ro S olu t ions); Bershad Ag roplyus , Agro Ukraine Suffle , A g rozahyst , Empire – Agro , Agro Expert , Acht – Agro , A g ralp Ukraine . Nufarm A g ralp Ukraine , A g rykola , A grozahyst D onbass, Agrozahyst Pivden, Agr ozahyst K harkiv, Agro - Leader , A grolyuks, Agro - I ndustrial T rade C ompany , Agroros , Agrosvit , Agrotek , A g ro k himservis , Agrocentr - Galychyna, Adler , Bizon - T ech 2006 , Gabov , Garden Club , Eridon , Zahid agribusiness, Imperia - Agro , Rayz, Y unitek, Oster , Podill y a - A g ro k himservis , Sedna - Agro , Service - Agrocentr , Spektr - Agro , Todosiychuk V . I . ; Trade h ouse “S eed s”, U krainian Company A gro - C hemicals, Bershad A g roplyus . Arista LifeScience A g ralp Ukraine; A grimatco - Ukraine , A g rozahyst Donbass , Agroprom - Center , Agroros , Agrosvit , Agroskop , Agrotek , A g ro k him c entr , AMAKO Ukraine , Adler , Bi z on - Tech 2006 , Gaben , Grand - Agro , Grano , Imperia - Agro , Eridon , Cargill , Trading house “ Seeds ”, Oster , Podill y a - A g ro k himservis , R ayz, Sedna - Agro , Service - Agrocentr , Spektr - Agro , Tetiiv Agr oindustrial Company , Ukrainian A gro - C hemical C ompany , Ukragroservice , Ukrainian Agrarian Systems , Yunitek . Dupont Agrimatko Ukraine , A g rozahyst Donbass , Agrosvit , Agroskop Ukraine , A g ro k him c entr , Eridon , Rayz, Ukrainian Agro - C hemical C ompany , Flora , Yunitek , Service - Agrocentr , Trade h ouse “Seeds”, A maco Ukraine , Oster , Ukragroservice , Agroros; Bi zon - Tech 2006 , Spektr - Agro , Art , Sedna - Agro , Agromir , G rand - Agro , Adler , Agro Prestige , Cargill , Suntrade , Imperia - Agro , A g rotok .

FINAL REPORT

Avgust West Agrobusiness, Roscoe Trade , Yunitek , A grozahyst Donbass, Bizon - T ech 2006 , Ukrag roresurs , Antey , Eridon , Bershad A g roplyus , Service - Agrocentr , Oster , Spektr - Agro . Cheminova Service - Agrocentr, Eridon , Agrosvit , Summit - Agro , Agroros , A g ro k him c entr , Spektr - Agro , Agroskop U kraine , Agrotek , Land West , Gaben . Schelkovo Agrochim Tetiiv A gro - I ndustrial C ompany , Ukrainian A grarian S ystems , Spektr - Agro , Agrosvit , Empire Agro , Roscoe Group , Lebed y nsk y y Seed Plant , A g rotok , West Agr o business , A g rykola , A g rozahyst Donbass . Ukravit Acht - Agro , Agro Expert Vinnitsa , Arsenal Agro , Bi z on - T ech 2006 , Agr o business Invest , Ukragrocom , Roscoe Trade , A + Service , Ukravit , Agrochemical Company Vitagro , Service - A g rozahid , Servisa g ro - Uman .

FINAL REPORT

Annex E . Strategy of Agriculture and Rural Development with respect to soya production The results of activities of the agricultural industry Over the past ten years, the overall volume of grain production of grains and oilseed crops in Ukraine grew by 56 percent and reached a record level of the 79 million to ns in 2014. During this period, exports of grain, oilseed crops and products of their processing increased by 250 percent and reached 35 million tons in 2014. This growth in the production volume was due to the expansion of cultivated areas as well as incr easing productivity. However, the growing of grain and technical crops continues to dominate in the agricultural sector, for the efficient production of which large areas of land are required, while little progress has been made in the development of agric ultural products processing and food production with high added value. The share of cereals in the total export of Ukrainian agro - food products has risen from 26 percent in 2004 to 39 percent in 2014, or 7.6 million tons to 32.6 million tons during this pe riod; the share of oilseeds has risen from 5 percent to 12 percent or from 0.5 up to 3.8 million tons during this period. Today, the EU is the main trading partner of Ukraine, exports of agricultural products to the EU amounts to 30.9 % of the total export s, and imports of agricultural products from the EU is 39 % of the total imports. Over the past ten years, the export of Ukrainian agricultural products to the EU has increased in six times. Among the goods that Ukraine exports to the EU oilseeds, vegetabl e oil, food processing waste dominate. Prospects for agricultural trade According to the forecast, the OECD - FAO for the period 2015 - 2024, it is expected that the volume of world trade in agricultural products will continue to grow, albeit somewhat lower pa ce than in the previous decades, maintaining a stable share in relation to global production and consumption. Speaking about products that are important for Ukrainian agriculture, it is expected that the global volume of their exports will significantly in crease. Projected exports of wheat will increase by about 11%, compared with the average indicator in the period between 2012 - 2014 and 2024; export of forage crops will increase by 16%. Export of oilseed can grow by almost 30% over the forecasted period, a nd export of oil - 17%. Regarding animal products, export of chicken can rise by 33%, and cheese – by 24%. In the previous agricultural forecast OECD - FAO has significantly reduced the rate of Ukrainian growth compared with previous years. In addition, it is expected a similar significant reduction in the rate of growth of production volumes and exports of feed grain and oilseed crops in 2015 - 2024 compared to 2005 - 2014, which is a consequence of the unprecedented growth of the yields, which were recorded in th e past years (the export was about 19.5%). For comparison, the EU can get the most benefit from the opportunities arising from the changing world demand due to the increase in the annual growth rate, despite the stagnation of production. Speaking about pri ces, the forecast OECD - FAO, in 2024 the nominal prices of wheat and oilseeds will be reduced by almost 30% in constant prices, compared with the average price in the period from 2012 to 2014. To keep the income from the export of agricultural products, Ukr aine should take seriously the issue of grain processing to use to its advantage value added stage of processing.