Ukraine is a country with a strong agricultural tradition with an area of 600,000 km2, which within the European / Eurasian area ranks the country in second place after Russia in terms of superficy. Once the breadbasket of the Soviet Union, the current situation of conflict endangers the food industry that obviously was not able to adapt to the European market.
A coveted potential
The situation is distressing: the recent events between Ukraine and Russia tear the world apart (and especially Europe), as a consequence, the different Ukrainian industrial sectors fall one after the other. Indeed, investors are being a little chilly regarding a potential involvement in the Ukrainian economy. And for good reason: some mention the failed economic transition of Ukraine (implemented following its independence in 1991), which did not allow the country to adapt to the European market and therefore attracted very little foreign investment. Food products are not necessarily conform to EU standards and as producers possess only little resources and equipment, no need to say that the food industry should be no exception and shows symptoms of a branch out of breath.
Consisting of 17 % of GDP, the sector is a pillar of the Ukrainian economy which happens to be dependent on long term contracts that customers would not necessarily be keen on renewing. It must also be said that Ukraine presents technological backwardness in terms of manufacturing processes and industrial facilities, and has trouble getting rid of its image of a Soviet breadbasket. However, following the decline of machinery production, food industry has since 1992 mobilized a sum amounting up to $ 1 billion to remodernise the sector. Modernization which is also meant to increase by the purchase of a large number of packaging machines for dairy and beverage factories, a strong sector of the Ukrainian food industry.
Can we talk about rescue or looting ?
Some others, however, speak of looting, as suggests Dr. Paul Craig Roberts, former editor of the WallStreet Journal. If differences of opinion of both Obama and Putin are well known to the general public, the two heads of state, however, seem to agree on one thing: Ukraine has great potential in terms of resources and food is indeed targeted by the two major forces currently opening diplomatic conflict. Indeed, Ukraine ranks sixth in the world for the export of wheat and 3rd place for the export of corn. The country also possesses 40% of black earth (chernozem) in the world, a natural outlet to the sea (Odessa) and an exceptionally fertile land. Furthermore, over 15,000 legal texts are being processed to make them conform to the WTO and Codex Alimentarius, therefore, the question of the eligibility of products and manufacturing processes should soon be a problem.
Washington and Moscow have good reasons to be interested in this potential, moreover, it is argued that the reduction of Ukrainian pensions, and the austerity plan that will soon be implemented by the IMF would be connected to this sudden interest in Ukraine, since the repayment of debt to Western bankers should open the weakened country to new external influences. With already 22,000 companies present in all food processing sectors, Ukraine already owns a viable infrastructure and equipment basis, which should attract buyers without too much trouble if Ukraine manages to go through the current diplomatic crisis without too much hassle.
The food industry is the only one sector not showing negative growth yet, but until a turnaround shows up, the country will have to quickly find a financial solution so that crops can be harvested despite the increasing poverty of the farmers.