Commodity trends for the season

1. Commodity trends for the season Volodymyr Konovalchuk, Ph.D. Head of Consulting, Co-founder, Bridges

2. Content • Global trends and position of Ukraine in international food markets • Commodity trends for the season: wheat, rye, corn, barley, soybeans, sunflowers • Agricultural policy issues and ways to improve

3. Global trends and position of international food markets

4. Developments in world food markets Food pricesare likely to increase in the future:Demand and supply are the major forces determining prices • Higher demand: • - Diet changes due to income growth – more meat, especially in developing countries • - Population growth • - Expansion of biofuels production • Inadequate supply: • - Bad weather • - Exporter policies (export quotas and other trade restrictions) • - Competition for agricultural land • - Increasing input (energy) prices • - Agricultural land area is limited

5. Total world grain & oilseeds:Future increase in food production can only be achieved by increasing yields

6. Agribusiness: A Global Industry • North America, South America and Eastern Europe are key global suppliers • Asia is expected to remain a major importer of agri-commodities • Africa and Middle East will continue to depend on grain imports Regional Imports and Exports of Selected Agri-Commodities (in millions metric tons) Soybean and Meal Imports 24 Soybean Imports 131 (36) (38) 16 57 (28) (57) 54 Wheat Exports 33 33 4 Corn Exports 75 (3) Soybean and Meal Exports Corn Exports Soybean Meal Imports Wheat Imports (8) (12) 26 (31) (37) 12 Exports 2011 2016 Corn Exports Soybean and Meal Exports 2011 2016 Imports

7. Position of Ukraine:Leading world wheat producers

8. Position of Ukraine: Leading world barley producers

9. Position of Ukraine: Leading world sunflower seed producers

10. Main Types of Farms/Ag Producers in Ukraine Agricultural Enterprises and agro-holdings, • Some farm up to 500,000 ha • Legal & organization status: joint-stock companies, limited liability companies, private enterprises, etc. Private family farms • Average size 45 hectares (vary from 2 hectares to 4,000 hectares), employ on average 5 workers • Legal status: a private family-run ag. business/enterprise Small land plot holders • Land shares received by former collective farm workers • Average land share size is 4 hectares (varies from 1 to 8 hectares depending on region) • Most of land plots are rented out to bigger agricultural producers.

11. Present Environment in Ukraine • Land of former collective farms was distributed among its members. Each member received “share” (or plot) of land that varied in size depending on the region. Average share size is 4 ha (or about 9-10 acres) • Currently there is a land sales ban (moratorium), so owners of land plots can not legally sell them. • The main method of agricultural land distribution is rent. Farmers and agricultural companies rent land from multiple plot owners. • Rent payments range between $20-60/hectare/year depending on the region

12. NUMBER OF PRIVATE FARMS BY OBLASTS Odesa vs Ivano-Frankivsk oblast Area of cultivated land is 4,1 times greater in Odesa There are 13 time more private farmers in Odesa oblast. Farm size is almost the same – about 40 ha as of January, 2011

13. COMMODITY TRENDS FOR THE SEASON IN UKRAINE: WHEAT, RYE, CORN, BARLEY, SOYBEANS, SUNFLOWERS

14. AREA PLANTED UNDER GRAINS AND LEGUMES IN UKRAINE FOR SUMMER 2012 CROP

15. Wheat supply and demand Units: 1000 tons; yield: tons/ha Source: USDA/FAS

16. Barley supply and demand Units: 1000 tons; yield: tons/ha Source: USDA/FAS

17. Corn supply and demand Units: 1000 tons; yield: tons/ha Source: USDA/FAS

18. Rye supply and demand Units: 1000 tons; yield: tons/ha Source: USDA/FAS

19. Production Highlights: 2011 MY VS 2012 MY • Notes: • Total grain crop this marketing year is expected to be about • 45-46 million tons (vs 56.7 million tons last year); • The average total grain crop during 2002-2011 was 39.8 million tons

20. GRAIN CROP PRICE TRENDS IN UKRAINE, USD/ton

21. OIL CROP PRICE TRENDS IN UKRAINE, USD/ton

22. World markets Wheat and Barley price trends Chicago Board of trade, USD/ton

23. COMMODITY TRENDS FOR THE SEASON: SOME KEY POINTS • The total grain crop in Ukraine is above average but lower than last year’s record crop • High world market prices • Ukraine has accumulated significant ending stocks of major crops that should allow the country to fully satisfy its domestic consumption needs and to have some exportable surplus • Wheat and barley production in MY 2012/13 is projected to decline compared to last year, mainly due to winter kill and anticipated lower yields than last year • Marketing Year 2012/13 may well be called the year of corn in Ukraine, which was gaining popularity in the country in the last several years • Increase in corn production is mostly attributed to the need to replant large areas of lost or damaged wheat and barley and some favorable market conditions for corn. • Large supplies of corn may result in lower corn prices later in • the season

24. CORN PRODUCTION, YIELD, DOMESTIC CONSUMPTION AND EXPORT TRENDS

25. While Ukraine is important world agricultural player, productivity of agriculture in Ukraine remains low

26. 1.8 Yield comparisons across countries Oil crop yields, t/ha Grain yields, t/ha • 6.4 • 2.6 USA • 4.9 • 2.6 EU-25 China • 4.6 • 2.1 Argentina • 4.4 • 2.8 Brazil • 3.2 • 2.8 • 2.9 • 1.5 Romania • 3.0 • 1.9 Canada Ukraine • 2.5 • 1.4 India • 2.0 • 0.9 • 1.8 • 1.2 Russia Kazakhstan Source: UNDP reports

27. Agricultural policy issues and ways to improve Ukraine’s agriculture

28. SOME POLICY DEVELOPMENTS DURING THE LAST YEAR • The Ministry of Agriculture agreed with the traders that • they will export no more than 19.4 million tons of grain, • which includes only about 4 million tons of wheat. • Because the export limit for wheat has almost been • reached, the government announced wheat export ban • beginning in mid November. • There is lack of grain transporting railroad cars in Ukraine. • Possible restrictions for wheat exports worsened the • situation. • Another policy change affected planting seeds market. • Beginning in the fall 2011 State Customs Service started • requiring GMO test results for every single shipment of • planting seed. • In MY 2011/12, the government introduced grain export tariffs • starting July 2011 that were later lifted. • In spring 2012, the government revived the idea of bio- • ethanol production from agricultural crops. Draft legislation is • considered for adoption.

29. Agricultural land sales ban (or moratorium) may be lifted in the future What is going to happen? What will be the agricultural land price in Ukraine?

30. FORECASTED VALUE OF AGRICULTURAL LAND AFTER LIFTING THE LAND SALES BAN, UAH/HECTARE ($1=8 UAH) After lifting the agricultural land sales ban expected value of agricultural land in Ukraine will range $190-690/hectare

31. Challenges to achieve full potential for Ukrainian agriculture • Lack of working capital in agribusiness • Lack of new technologies, inefficient land use and input use, thus a lower productivity • Poor supply chain logistics and infrastructure • Undeveloped farm credit system

32. How to exactly resolve these challenges? Some of the most important measures include: • Lift agricultural land sales moratorium (currently the major way of land re-distribution is lease). • Improve agricultural education • Reduce government bureaucracy and intervention (obey WTO rules, remove export quotas forever, reduce tariffs and other non-tariff barriers) • Enforce property rights and protect investors

33. Thank you!