by John Shmorhun

KYIV – Regarding global trends, food security will become a major issue over the next decades. This will be bigger than today’s issues of droughts and starvation in Third World countries. These are distribution issues more than anything else.

The real issue is one of supply and demand for the world.

Global agricultural demand will continue to grow. This growth will be affected by four major trends. Two will be caused by demographic pressures -- population growth and urbanization. The other two will be consequences of economic development, namely the demand for biofuels and higher per capita income in developing countries and increased demand for animal proteins.

Sources: IMF, FAO

Which agricultural demand?

The demand for agricultural commodities, such as wheat, corn, soy, barley, etc. – grains that are quoted on the Chicago Board or MATIF in Europe.

What is the general size of this growth?

The European Bank for Reconstruction and Development (EBRD) estimates that the world’s agricultural production will need to increase by more than 50% over the next 40 years! In numbers, that will be from over 2 billion metric tons today to over 3 billion metric tons by 2055.

Source: FAO

Although food prices bottomed out in late 2016 and have slowly increased since then, the current levels of inventories will continue to suppress any growth for the next few years. Still, as global grain stocks continue to be depleted, all other factors for demand growth will continue to play a role as global supply tightens.

As we look at the supply side, the increasing demand for agriculture production is being constrained by the shortage of agricultural land. Other supply constraints are the slowing growth of productivity as well as environmental degradation. These constraints can be overcome only through productivity-enhancing technologies especially across developing countries. Investments should go into improved machinery and associated technology, fertilizers, seeds, plant protection, storage, logistics and other on-farm facilities.

Since demand is projected to outpace supply the coming years where stocks of grain exporters will remain low thus putting world food prices on an upward trend.

Real food scarcities would be a source of political and economic instability in most vulnerable regions of the world. This includes a number of countries in the Gulf Cooperation Council region and Asia whose populations will be growing and where acreages available to meet those growths will be severely limited.

Addressing these needs will require major investments in only a handful of countries in the world that have the potential to dramatically increase agriculture commodity production.

Ukraine happens to be one of them. Ukraine has the potential to become the breadbasket of the world in a relatively short period of time and become a major player in global food security.

Source: FAO

What makes me so confident? It really is a combination of competitive advantages:

• abundant and naturally fertile soil of which 50% is “chernozem” (black earth)- 1/3^rd of the earth’s total reserve. Ukraine already has more arable land (32 million hectares) than any country in Europe;
• favorable climate;
• a well-educated albeit inexpensive labor force. According to the World Economic Forum’s Global Competitiveness Report 2012-2013, Ukraine has one of the highest university enrollments in the world (10^th out of 142 countries). At the same time, wages are 1/3 of average Chinese wages: $287/month in Ukraine vs. $855/month in China, according to the State Statistics of Ukraine;
• a reasonably developed infrastructure;
• proximity to key markets of the world.

These characteristics create tremendous potential for Ukraine to become the world’s leading grain exporter. Ukraine is at the crossroads of Europe and Asia with a comparative advantage to export to major markets in the Middle and Far East, North Africa and the European Union.

Higher exports could be achieved through bringing unutilized farmland into production. Out of Ukraine’s 32 million hectares of arable land, only 27 million are actually utilized. Also: intensive use of modern practices, better management, state-of-the -art storage capacity increases, and improvement in rail, river and truck infrastructures.

Source: the Bleyzer Foundation

Two words about Ukraine’s ability to increase production through yield improvements. Although Ukraine is slightly behind key EU and US producers, it has the ability to double yields based on its own genetic potential. This in spite of the fact that Ukraine does not produce GMO crops, which are known to improve yields and other characteristics.

Sources: USDA, FAOSTAT, Ukrstat

With this, Ukraine could potentially boost its grain production from 60 million metric tons to 130-150 million metric tons of wheat, corn, soy and other commodity grains per annum. Based on this improved productivity, exports could grow by 2-3 times to 110-120 million metric tons, as domestic consumption will remain steady. This will make Ukraine by far the #1 exporter in the world. Ukraine is currently #2 in the world after the United States.

¹ Excl. rice

Sources: State Statistics Committee, USDA (March 2017 Grain Report)

Ukraine still needs comprehensive investment in infrastructure, new technologies including precision agriculture, business diversification in downstream production, specialty crops and the animal industry. Ukraine is reforming in the financial, legal/judicial and other government sectors. Still, in spite of the slow pace of improvements, exports are growing every year.

So, where there are few countries in the world that can become the breadbasket of the world, my bet is that Ukraine will be one of them.

John Shmorhun, a former DuPont executive has worked in Ukraine and Russia for more than 25 years managing DuPont’s agricultural businesses in the region. A graduate of the US Naval Academy, Shmorhun is CEO of AgroGeneration S.A. (www.agrogeneration.com), a portfolio company of SigmaBleyzer. He can be reached at: jshmorhun@agrogeneration.com

Slider photo: In a Kharkiv field, a harvester unloads wheat into truck in July. (UNIAN/Andrii Marienko)

Posted Sept. 5, 2017