Agricultural machinery, market potential in Ukraine
Thanks to very favourable climatic and soil conditions, Ukrainian agriculture has great potential for development, but is lacking in terms of production technology. In addition to being obsolete, the fleet of agricultural machinery is undersized compared to the sector’s needs. Potential demand is estimated at 40,000 tractors and 5,000 combine harvesters per year
Černozëm, black soil in Italian, is a Russian word for a very special type of soil. It is a dark-coloured soil - hence the adjective 'black' - calcareous, characterised by a large amount of organic matter and typical of steppe regions. Over the years, it is this fertile černozëm that has earned Ukraine the nickname of "Europe's granary". Covering more than 600,000 square kilometres between Western and Eastern Europe, Ukraine, which is located "on the border" (from the Slavic u okraina), can boast agricultural land covering more than 32 million hectares. This means that about 70% of the country's land is used for the primary sector.
These are very valuable soils, not only because of their fertility - the aforementioned black soil - but also because they are located on large flat areas (a favourable condition for large-scale mechanisation) in temperate climatic zones. From a purely productive point of view, however, there is a regional specificity. In the north, winter rye, oats, potatoes and flax predominate; in the central regions barley, sugar beet, wheat and maize. Sunflowers, grapes, fruit and vegetables prevail in the south, where the climate is milder.
The granary of Europe
Even the most recent data confirm the country's grain-growing vocation. About half of Ukraine's surface area (15.3 million hectares) is used for grains: barley and wheat as well as rye, oats and rice. Moreover, as highlighted in a study by the ICE Agency on agricultural mechanisation in Ukraine, in 2019 grain cultivation reached its highest level in 20 years, exceeding 15 million hectares (13.6 million hectares in 2000). From 2000 to 2019, production yields also increased threefold, from 24.4 million tonnes to over 75 million tonnes. Industrial crops are also growing, both in terms of extension (from 4 to 9 million square kilometres) and production (especially sunflowers, which rose from 3.4 million tonnes to 15.2 million).
The statistics reported by the ICE Agency also show increases in production for vegetables (from 5.8 million tonnes to 9.6 million) and fruit (from 1.5 million to 2.1 million). Among industrial crops, the weight of sunflower, soya and rape increased, while that of sugar beet decreased. Fodder crops also declined as a result of a significant decrease in the number of livestock.
Generally speaking, the ICE report states, the Ukrainian primary system tends to favour highly mechanised crops and larger farms (from two thousand hectares upwards), which are also those that manage to optimise the use of production factors and have a higher yield per hectare. However, this type of size is not very common, since the vast majority of production units are smaller than 100 hectares. In this respect, the ban on buying and selling agricultural land is a clear obstacle to streamlining the system and optimising resources.
The scenario is expected to change in the short to medium term through a progressive liberalisation of land ownership. The first step is set for the beginning of next July, when natural persons will be allowed to buy and sell land; the second step is planned for January 2024, when it will be the turn of legal persons.
Inadequate and obsolete machinery
The last 20 years have seen a significant increase in yield per hectare for all the main crops, but it is still rather low. This is due not only to the structural characteristics of the Ukrainian agricultural system (undersized farms) but also to an inadequate level of mechanisation compared to the real needs and potential of the primary sector. Today, Ukraine has 130,000 tractors and 28,000 combine harvesters, in addition to 65,000 trailers and 70,000 sowing and transplanting machines.
The fact that this equipment is insufficient is also reflected in the sharp decline in the number of tractors from 2000 to 2019. In this period of time, tractors lost 190,000 units (they were 319,000) while the number of combine harvesters has more than halved (from 65,000 to 26,500). It is estimated that the current mechanical equipment of Ukrainian farms can only meet 50% of their actual technological needs. The obsolescence of the circulating mechanical equipment is another factor of weakness for the country's agriculture: one machine in four would have to be replaced due to wear and tear. "Ukraine has a surface area like France and Germany, but the market for agricultural machinery in these countries is around six times larger than in Ukraine.
On the basis of these data, according to experts' estimates," writes the ICE Agency in its report on agricultural mechanisation in the Eastern European country, "the potential of the Ukrainian market in agricultural machinery is 10 times the current level.
A very high potential demand, therefore, which according to the Ukrainian Ministry of Agriculture can be estimated at 40,000 tractors and 5,000 combine harvesters a year for a total value of 1.5 billion dollars a year (considering other machines as well).
Agricultural machinery, the weight of imports
Ukraine has a small number of agro-mechanical companies, which are poor in technology and low in capital resources. To meet its needs for state-of-the-art agricultural equipment, the country therefore has to rely on imports, whose trend has been somewhat fluctuating over the years as it has been affected by the overall economic situation. In 2019, imports amounted to just over USD 500 million, down from the previous year, and mainly concerned combines, seeders, and spare parts.
The main exporters to Ukraine are Germany (37%), the United States (15%) and Belgium (9%). Italy, with a value share of 6% of the total (30 million dollars), which reflects the trend in the sector, is the fifth largest supplier of mechanical equipment, behind Poland but ahead of France. Ukrainian farmers demand mowers, components and spare parts as well as seeders from Italian companies.
Imports of threshers and combine harvesters are less significant.
Although Italian agricultural technology does not occupy a leading position in trade, it enjoys a good reputation in Ukraine, whose dependence on imports can offer interesting business opportunities for Italian manufacturers.