Original article in German here.
The fields of Ukraine are precious and coveted; the interest of Western agribusinesses and Russia enormous. What does that have to do with the war in the east of the country?
By Alexandra Endres
Mar 16, 2015 3:34 pm 114 comments
Photo Credit: Wheat harvest in the fields of Ukrlandfarming, Ukraine's largest agribusiness, last July © Vincent Mundy/Getty Images
For Frédéric Mousseau, the matter is clear: the West wants Ukrainian land – and that's not just a metaphor. Mousseau is the strategy director of the Oakland Institute, California, a think tank specializing in food security and climate issues. In two reports, he and his employees have documented how enormous the interest of Western corporations in the fields of Ukraine is.
The reports show how major US agribusinesses have been doing business in Ukraine for years. Among them is the Monsanto group, which is controversial because of its business with genetically modified seeds, the agricultural company Cargill and the chemical group DuPont. Mousseau says that companies have recently increased their investments significantly - so much so that it is tantamount to a "takeover of Ukrainian agriculture by Western corporations". And the Western financial institutions, such as the World Bank and the International Monetary Fund, supported the interests of capital through their policies.
Then Mousseau goes one better. The struggle for "control of the agricultural sector" is "a decisive factor in the biggest East-West conflict since the Cold War," he explains. The fact that former Ukrainian President Viktor Yanukovych rejected closer integration with the West ultimately played "a key role" in the Ukraine crisis. The left-wing faction in the Bundestag argues similarly.
So is the war in Ukraine also a war over farmland?
Coveted Black Earth
One thing is certain: the Ukrainian fields are in great demand. Only in a few other regions of the world are there similarly valuable - and hitherto economically unexploited - soils. The Ukraine has the nutrient-rich black earth, and in large quantities: around a quarter of the particularly productive so-called chernozem soils worldwide are located on its territory. There are around 32 million hectares of arable land there; this corresponds to about a third of the arable land of the entire European Union.
Ukraine is already the third largest corn and seventh largest wheat exporter in the world. Above all, the countries of North Africa and the Middle East buy grain there. The global food crisis of 2007 and 2008 also had something to do with the fact that the Ukrainian government temporarily stopped exports at the time - after that bread became more expensive in many countries around the world, and hunger riots broke out.
Since that time at the latest, foreign investors have also realized how valuable Ukrainian land is. But it's not just business people from the west who know the value of black earth. Mousseau also concedes this. "We are observing a competition between Russian and Western interests in Ukraine," he says. Some of the powerful Ukrainian oligarchs have very good contacts with Russia, and Mousseau says the east of the country has traditionally maintained close trade ties with Russian partners. "But that's very different from what Western corporations are doing. They're very aggressive in promoting their interests."
However, they come up against clearly defined limits. Foreign companies are not allowed to buy land themselves in Ukraine – regardless of whether they come from the West or the East; national laws prohibit this. About a third of the land is state-owned.
But investors find other ways. You can lease land for a maximum of 49 years at reasonable prices. They exert influence by extending loans to Ukrainian companies, and they also participate directly in the companies, for example by buying shares. Some of the Ukrainian holdings are listed on Western stock exchanges, so they are at least partially owned by Western investors.
And it's not just financial investors and corporations that are expanding into Ukraine. Some German farmers have also made the leap there. Most of them came around the turn of the millennium. "Back then, investors were desperately needed because many of the successor farms to the kolkhozes were on the ground," says Gerlinde Sauer. She is an agricultural expert in the Committee on Eastern European Economic Relations and knows Ukraine well. Today about 40 German farms are active there, says Sauer; most farmed about two to three thousand hectares of land each. "That's about the size of an East German agricultural cooperative."
Some Western investors are also investing directly in Ukrainian farms. For example, the US agricultural company Cargill, which according to Mousseau's report holds around five percent of the largest domestic holding company, Ukrlandfarming. Cargill also trades in pesticides, seeds and fertilizers in Ukraine, produces animal feed and owns silos to get involved in the grain trade. "All aspects of Ukraine's agricultural supply chain - from the production of agricultural inputs to the export of the commodity - are thus increasingly controlled by Western firms," writes Mousseau.
In his view, "Ukraine is about who will have access to the country's resources in the future." But how big is the western influence really? If you dig deeper, you will quickly notice that it is often difficult to understand the details. The connections are too complicated.
This is also shown by a look at a database maintained by scientists at the German Institute of Global and Area Studies (GIGA) in Hamburg. In their country matrix they collect information on land transactions worldwide. About 1.7 million hectares of Ukrainian farmland are in foreign hands, according to the database - only in seven countries in the world, most of them in Africa, foreigners control more land.
Investors from Russia and Saudi Arabia
But at least one foreign company, according to the Land Matrix, is actually run by Ukrainians. It is Kernel, a company registered in the database as an investor from Luxembourg; but the company's headquarters are in Kiev. Kernel is the largest sunflower oil producer in Ukraine. The company's founder and boss, 40-year-old Andrey Verevskiy, was a member of the Ukrainian parliament for former President Yanukovych's Party of Regions. He doesn't shy away from contacts in the West: Kernel shares are traded on the Stuttgart Stock Exchange, and the former Cargill manager Ton Schurink sits on the Kernel Supervisory Board. Nevertheless, Kernel remains a Ukrainian company, and the question of who has the most influence here cannot be answered unequivocally, at least.
According to the Land Matrix, the US pension fund NCH Capital is the largest investor in Ukrainian land: it has leased 450,000 hectares. The best-known company in the list is probably the Swiss commodities group GlencoreXstrata; he has 80,000 hectares under contract. There are also investors from Russia (250,000 hectares) and Saudi Arabia (33,000 hectares) - and Barnstädt e.G. from Saxony-Anhalt, which according to the Land Matrix has around 8,000 hectares of land in Ukraine. The cooperative apparently does not want to comment on their investment; several requests are in vain.
Ukrainian agricultural holdings, in which Western capital is invested, investors from Russia and Saudi Arabia and supposedly Western investors who are in fact managed by Ukrainians - obviously East and West in Ukraine's agriculture can no longer be separated so easily.
This is one of the reasons why it is difficult to say to what extent the run on Ukrainian farmland is actually fueling the war. The association agreement with the EU stipulates that Ukraine should further open its agriculture to foreign investments. But it is not only the West that has benefited from the opening up so far. Further liberalization could also benefit the big Ukrainian or Russian players.
Export-oriented holdings vs. smallholders
East or West? Maybe that's not all that important after all. At least that's Christina Plank's point of view. She researches the agricultural sector in Ukraine from the University of Vienna. Plank specializes in agrofuels, the European Union's interest in cultivation in Ukraine and the related policies of the Ukrainian government.
Like Mousseau, the Austrian researcher says: The big corporations are grabbing the farmland of Ukraine – even though she puts it in a more scientifically distanced way. Unlike Mousseau, Plank also finds the business of the large Ukrainian agricultural holdings problematic. They still own most of the land, "and they're getting bigger and bigger." For example, Ukrlandfarming, the largest holding company, manages around more than 670,000 H
The Ukrainian government, the large agricultural corporations and the international institutions wanted to modernize agriculture - and chose exactly the wrong path, criticizes Plank. "Their goal is intensive farming, on a large scale, for export. But what about the small farmers?" The big farms employed fewer and fewer workers. "And the profits are shifted to tax havens. Ukrainian agricultural holdings are no exception. Is this really the right form of rural development?"
At some point, the free purchase and sale of arable land will also be permitted in Ukraine. Plank fears that the concentration of land ownership will then increase further, to the detriment of the simple rural population. The war could even accelerate the opening, the Reuters news agency recently reported.
However, this is not the most pressing problem at the moment. The greatest danger is that the war in the east of the country will also damage agriculture - with global consequences.
Ukrainian farmers need loans to invest. You have to pre-finance seeds or buy machines. But the key interest rate is currently 30 percent, and because of the depreciation of the Ukrainian currency, imported machines are almost unaffordable. Sauer from the Eastern Committee reports that farmers in central and western Ukraine are also affected by the war. Company employees are drafted into the army and their trucks are requisitioned for military purposes.
At the moment, says Sauer, the agricultural sector is "the only thing that stabilizes Ukraine's economy to some extent." But it doesn't have to stay that way. A Ukraine expert at the Food and Agriculture Organization in Rome warns: "Ukraine will always be able to feed itself. It is a fertile country. But if the situation continues to destabilize, global food security could be threatened."
Just like in the global food crisis eight years ago. Perhaps this is the crucial link between Ukrainian agriculture and the war.