The EBRD and the World Bank called on Tuesday for new government policies to help boost investment in agriculture in Ukraine and so unlock the huge potential the country has to increase farming output.

At a conference on agribusiness one day after the EBRD’s annual meeting in Kyiv, organized together with the Ministry of Agrarian Policy of Ukraine, the two institutions said the current high food prices were a major opportunity for Ukraine, a net grain exporter. Ukraine is one of the few countries in the world that are in a position to significantly increase net exports and make up for emerging deficits elsewhere.

However, they noted that private investment in farming was being deterred by policy deficiencies and a lack of investments in public goods.

The private sector is often confronted by inconsistent policies and a lack of transparency in the policy making processes. Public good problems include research, extension, education of farmers and specialists, as well as infrastructure issues such as inadequate physical capacity of railway networks, ports, the road system as well as storage.

A shift in policies and increases in private and public investments could help the Ukraine to increase its grain production, possibly to as much as 70 million tons (from around 35 million tons in recent years). The increased production would largely translate into increased export potential.

It is particularly important to respond to high food prices with appropriate policies and not with short-term reactions such as the introduction of export restrictions, the EBRD and World Bank said.

They also made the following long-term recommendations, saying it is important to:

Increase investments in storage, handling, transport and market information infrastructure;

Establish an institutional framework for tradable land titles and lift the moratorium on land sales;

Develop a regulatory basis to support financing instruments such as warehouse receipts and hedging instruments such as futures markets;

Significantly increase public investment in agricultural research, development and extension, and in the education of agricultural specialists and farm managers;

Establish a veterinary and food safety control system compliant with EU regulation and invest in the certification infrastructure that would give Ukraine access to the European market;

Strengthen the market for agricultural inputs (seeds, fertilizers, equipment and services).

It is also important to try to deal with the social implications of high food prices. The two banks said the negative impact of higher domestic food prices should be cushioned with targeted social assistance programs. They also noted that the underlying cause of inflation is an overheating economy. Appropriate macroeconomic policies must be put in place to deal with inflation in general.

“This country has huge potential. With the right policies levels of investment can be increased and output can be increased significantly as well,” said EBRD Agribusiness Director, Gilles Mettetal. “The EBRD is more than prepared to help support this investment”

“The public and private sectors need to work together to ensure the opportunities Ukraine has in agriculture are fully utilized”, said Paul Bermingham, World Bank Country Director for Belarus, Moldova and Ukraine. “The World Bank is ready to assist the Government in making the transition to a new, market-based policy framework and public investment program.”

The EBRD can help tackle these challenges and unleash the region’s production potential by

Supporting investments in the agribusiness sector and related infrastructure;

Assisting in the development of financing instruments such as warehouse receipts;

Supporting an effective policy dialogue involving the private sector and government officials at different levels.

The World Bank can help in the development of appropriate and consistent policies and the provision of key public goods including by

Building key rural social infrastructure;

Addressing market failures through upgrading research and extension services, farmer vocational training and information systems;

Designing appropriate food safety and certification systems;

Moving towards an efficient system of state support (de-coupled payments) to agriculture;

Devising targeted social assistance programs for the rural poor and those affected in particular by rising food prices.

The EBRD is the single largest investor in the agribusiness sector in the region where it operates. Its involvement in the agribusiness sector spans all activities throughout the production chain, from farming, processing and trading to food distribution, packaging and retail.

 
The Bank has also played a major role in developing the sector by supporting local and foreign corporate clients as well as micro, small and medium sized enterprises.

In 2007 the EBRD invested ?520 million in the agribusiness sector and expects to invest roughly the same amount this year. Most recently the EBRD provided a $20 million loan to Ukraine’s agribusiness group Astarta, to support its drive to put into operation equipment to achieve higher energy efficiency at its sugar production plants as well as in sugar beet farming operations.

 
The World Bank has invested over US$ 5.5 billion in Ukraine since 1992, with US$ 677 million of commitments in the agricultural sector. It has also provided extensive analytical and advisory services in the sector to help remove obstacles for increased competitiveness. Against the background of the global food crisis, the World Bank prepared a policy note entitled “Competitive Agriculture or State Control: Ukraine’s response to the global food crisis”, highlighting opportunities for Ukraine to benefit from the current situation on international markets, whilst mitigating the social impact of higher food prices at home. The note is available on the World Bank’s website.

web.worldbank.org