Agricultural and Rural Development Support ANALYSIS OF THE AGRARIAN SECTOR OF DONETSK AND LUHANSK OBLASTS AND ADJACENT DISTRICTS OF ZAPORIZHZHYA OBLAST Report on Research Findings 2017 The survey was conducted by the USAID Agriculture and Rural Development Support Project. The authors’ views do not necessarily reflect the views of the USAID or the United States Government. The research is i mplemented under Subcontract ARDS-S2-03 within the US Agency for International Development (USAID) Agriculture and Rural Development Support Project (ARDS). More details about the USAID ARDS project is available at https://www.facebook.com/usaid.ards/ 2017 2 USAID Agricultural and Rural Development Support project CONTENTS AIMS AND OBJECTIVES OF THE RESEARCH . 4 INTRODUCTION . 7 THE SITUATION IN THE AGRARIAN SECTOR OF ZAPORIZHZHYA OBLAST . 8 THE SITUATION IN THE AGRARIAN SECTOR OF DONETSK OBLAST . 10 THE SITUATION IN THE AGRARIAN SECTOR OF LUHANSK OBLAST. 13 STRUCTURE OF MEAT, DAIRY AND HORTICULTURE PRODUCTS MARKET OF DONETSK, LUHANSK OBLASTS AND FOUR DISTRICTS OF ZAPORIZHZHYA OBLAST (DESK RESEARCH FINDINGS) . 17 ANALYSIS AND ASSESSMENT OF MARKETING AND LOGISTICAL CHANNELS FOR THE FORMATION OF A LOCAL MARKET FOR HORTICULTURE, MEAT AND DAIRY PRODUCTS . 21 WAYS TO IMPROVE MARKETING AND LOGISTICAL CHANNELS FOR THE FORMATION OF A LOCAL MARKET BY TYPES OF PRODUCTS BY REGION . 29 CHARACTERISTICS OF INSTITUTIONAL FORMS FOR DEVELOPMENT OF FARMING IN DONETSK, LUHANSK AND FOUR DISTRICTS OF ZAPORIZHZHYA OBLAST . 38 NEEDS OF THE TARGET GROUP OF AGRICULTURAL PRODUCERS, INCLUDING WOMEN AND SMALL FARMERS, FOR SKILLS AND KNOWLEDGE IN EFFICIENT ECONOMIC MANAGEMENT . 42 USAID Agricultural and Rural Development Support project 3 AIMS AND OBJECTIVES OF THE RESEARCH The aims of this research within the framework of the USAID Agricultural and Rural Development Project (ARDS), implemented by Chemonics, Inc., were as follows: A ssessment of the current status of the development of the local agrarian market, the capacity of local small and medium enterprises (SMEs) and cooperatives to complete it, and obstacles and ways to eliminate them; D evelopment of proposals for increasing the capacity of SMEs and cooperatives to develop value-added chains, market saturation and development of agrarian products markets in Luhansk and Donetsk Oblasts and districts close to the confrontation line in Zaporizhzhya Oblast. OBJECTIVES OF THE RESEARCH The research involved the following: D esk research on the actual structure of the agrarian sector of Donetsk and Luhansk Oblasts (Ukraine Government-controlled areas), as well as districts close to the con- frontation line in Zaporizhzhya Oblast (Berdyansk, Bilmak, Huliaypole, and Rozivka districts and the city of oblast subordination of Berdyansk). C ollection of primary data with regard to the speci¿ cs of the production, processing and sales of products in the region, as well as determination of the needs of target groups of agricultural producers. D evelopment of recommendations for increasing the potential for SAPs and large enterprises, as well as households, with regard to the development of value added chains, as well as prospects for local agrarian products markets. A nalysis and assessment of marketing and logistical channels for the formation of a local market for horticulture, meat and dairy products. C haracterization of the institutional development of farmers’ organizations in the region, their capacity to represent the interests of farmers and landowners, and their activities. D etermination of the needs for urgent and long-term support to agricultural producers in Luhansk and Donetsk Oblasts and districts close to the confrontation line in Zapor- izhzhya Oblast, the sta tus for provision and effects of military actions on the situation with provision with means for production, processing and other resources. 4 USAID Agricultural and Rural Development Support project D etermination of the needs of target groups of agricultural producers, including wom- en and small farmers, regarding acquiring skills and knowledge in ef¿ cient business management. P roposing and justifying ways to improve marketing and logistical channels for local market development; the most suitable locations, from the economic point of view, for creating units for the development/ processing of agricultural production aiming to improve value-added chains; and provision of the region with the required food- stuffs. RESEARCH PROCESS The research was conducted by SYNERGY DEVELOPMENT CONSULTING LLC in consortium with Business-Accelerator Agrochallenge LLC and MLC Group LLC within the period of May-June 2017. The de¿ nitions of small and medium enterprises (SMEs) and agricultural service co- operatives (ASCs) used by the ARDS Project have been applied within the framework of the research: Small agricultural enterprises are enterprises having staff employees in addition to family and seasonal employees. A small farm must have more than 10 (ten), but less than 50 (¿ fty) family and seasonal workers, and a certain number of staff employees, not to exceed 50 (¿ fty) full-time or part-time workers, including family members. Small non-agricultural enterprises in rural areas shall have more than 10 (ten) but less than 50 (¿ fty) full-time employees. Small agricultural enterprises must focus their activities on the sale of goods in the existing channels. Enterprises capable of presenting ¿ nan- cial statements on sales of goods for three or more years with an annual turnover not less than UAH 1 million, but not exceeding UAH 15 million, shall be suitable for the purposes of these activities. The same criteria shall apply to non-agricultural enterpris- es with consideration of sales of goods and services. Medium agricultural enterprises must have signi¿ cant number of seasonal and part- time workers, in particular, 50 or more staff employees. Unlike in small enterprises, staff employees at medium-sized enterprises must play a leading role in certain man- agerial and technical solutions. Non-agricultural medium-sized enterprises must have a signi¿ cant number of workers, and at least 50 (¿ fty) of them must work at one of the locations included in the program. Enterprises with a smaller number of employees located on the territory of program implementation may also be considered. Medi- um-sized agricultural and non-agricultural enterprises must present ¿ nancial state- USAID Agricultural and Rural Development Support project 5 ments on sales of goods for at least three years for an amount exceeding UAH 15 million, but not to exceed UAH 100 million annually. An agricultural service cooperative shall be a legal entity set up by agricultural pro- ducers (individuals and/ or legal entities) that have voluntarily united through common membership in order to conduct business and engage in other activities related to the production, processing, storage, and sales of horticulture, stock-raising, forestry and ¿ shery, the delivery of goods and materials for members of the cooperative, and the rendering of services to satisfy economic, social and other needs on the basis of self-government. The following has been completed within the framework of the research: 1. Desk research, including analysis of existing research ¿ ndings on similar topics and other informational sources 2. Meetings with key stakeholders on the agrarian market, including state and local authorities and representatives of international technical and humanitarian aid projects 3. Interviews with representatives of medium, small, and micro enterprises of the agrarian sector and private family-operated farms (hereinafter referred to as “PFOFs”). 6 USAID Agricultural and Rural Development Support project INTRODUCTION The war in Donbasis causing steadily deteriorating economic indicators for the de- velopment of Donetsk and Luhansk Oblasts, which is accompanied by the loss (de- struction, plunder, etc.) of a part of assets in the agrarian sector. Assessments of the value of destroyed components of production, municipal, social, transport, energy and other infrastructure for the agrarian industry are estimates due to the impossibility of inspecting sites located on the territory controlled by terrorist groups. Proceeding from the above, direct economic losses alone in the country’s agrarian sector caused by the intensi¿ cation of the social and political situation and the armed confrontation in the east of the country are estimated at over UAH 30 billion. The conÀ ict, which has been ongoing for more than 3 years, caused a sharp increase in prices for food, fuel, transport, seed, fertilizers, fodder and other agricultural and household needs. Economic conditions and the lack of reliable safety guarantees are decreasing people’s capacity to adapt. In the ¿ rst two years, based on the standards for humanitarian response, external aid to residents of eastern Ukraine mainly con- sisted of direct distribution of foodstuffs as humanitarian aid. However, presently the response stage is transitioning to the stage of early recovery, and in order to ensure a fully-functional return to peaceful life in the territories liberated from military actions, it is necessary to facilitate the development of agriculture as a major branch of the econ- omy providing for the life of the rural population and the country in general. USAID Agricultural and Rural Development Support project 7 THE SITUATION IN THE AGRARIAN SECTOR OF ZAPORIZHZHYA OBLAST As of 2017, on the territory of the Bilmak, Rozivka, Berdyansk and Huliaypole