Despite the fact that the crop was grown and despite the fact that winter crops were sown for the new season, the opinion that «the agricultural sector will be unprofitable for the first time in 30 years» appears more and more often. Time to talk about the main thing - about money?
Is there really nothing that can be done in this situation?
In the sidelines of Kyiv officials, or in the fields, where late crops are still being harvested, the wind is spreading information that a critical situation is developing in agriculture regarding the financial results of activities for 2023. Opinions about impending bankruptcy are spreading more and more often. It is said that losses in crop production alone will amount to 3 billion dollars. Another part of the participants of the agrarian community does not rule out that the agro-industrial complex will receive losses of 56 billion dollars by the end of the year.
The reasons are the same as before, namely the war and the blockade of deep-sea ports. Export, which for many acts as a framework for a financial margin of safety against the limited possibilities of the domestic market, is constantly in the «monkey with a grenade» mode. Incredibly high logistics tariffs. High prices for material and technical resources (MTR).
To call a spade a spade, farmers began to go bankrupt in 2022. Someone simply lost everything, because it is impossible to move the land to another place. Someone was able to relocate the company and is trying to continue working somehow. Last season (during which such things as burned wheat, crushed elevators, mined fields happened) for a fifth of agricultural enterprises became fatal: the status of the farm or the owners changed.
Although, in general, 2022 was completed successfully. The entire economy received UAH 240.4 billion in losses, and the agricultural sector, including forestry and fisheries, recorded a net profit of UAH 87.1 billion. Although if you compare 2022 with the record losses of 2021, it is three times less. However, the economy of our country has earned at least a little and survived.
Agricultural industry is one of the four factors, along with trade, IT and telecommunications, that managed to maintain a positive financial result in the face of the full-scale invasion of the Russian Federation. Operating profitability - 20.3%, total - 13.6%.
Hryvnias and dollars for the past calendar year conditionally entered the accounts of 78.4% of enterprises. Why conditionally, because farmers immediately supported those who remained on the verge of bankruptcy.
At the same time, the share of losses increased from 11.7% in 2021 to 21.6% in 2022.
We will repeat what has been repeatedly emphasized: farmers were able to start and finish the season successfully only thanks to their own resources and capabilities. In the new 2023/2024 season, manufacturers continue to work successfully due to the financial resources they have been able to earn in recent years. But the «financial fat», as one industry authority aptly noted, has almost disappeared. Now representatives of agrarian business have not just tightened their belts, but already have to punch additional holes so that their pants do not fall down.
In 2022, the share of agricultural gross domestic product (GDP) reached UAH 426.8 billion, or 8.22% of the total, but was 28% lower compared to the volume of agricultural gross domestic product (GDP) in 2021.
According to the results of 2023, will the entire agricultural sector be unprofitable or profitable? When answering this question, you should not expect an unequivocal answer, although the situation with the harvest is already clear. We have 39 million tons of grain, of which 22 million are wheat, or translated into a language understandable to the average consumer - our country has sufficient grain reserves, so there will be enough food for everyone.
As much as 203 thousand tons of the high-value buckwheat crop have already been harvested. In addition, agricultural farms continue to harvest corn. The first ten million were threshed into flour. The production forecast is 2828.5 million tons (official). Analytical offices believe that it will not be possible to get more than 25 million. We add here 4 million tons of rapeseed, half of which, by the way, has already been sold to foreign markets.
In addition, the sunflower crop is currently being harvested. There are already more than 10 million tons, a total of 12 million is expected. And let’s not forget about the soybean harvest, which is 4 million tons.
Not bad, but the problem is the price. That is, the problem is that the expected price for the product is not paid.
On the price hook
The numbers that traders voice are sometimes shocking. For example, farmers in Chernihiv region complain that traders are ready to buy sunflower at 8 thousand UAH per ton, although last year they bought at 1313.5 thousand, and this is at the maximum level of supply. We will remind: harvesting continues, the number of tons increases every day in geometric progression. Opportunities to export crops to foreign markets are limited. It is currently estimated at one million tons per month in the equivalent of oil + meal.
Therefore, the average purchase price of sunflower as of mid-October 2023 is only UAH 10,500/ton.
Producers are in constant tension, because they depend on both the exporter and the processor, like the fish that everyone wants to catch on the hook. The farmer is looking for ways to survive and stay afloat. Farmers in the Cherkasy region are building hangars for storage, so as not to sell the goods at very low and unprofitable prices, because in July-August traders bought wheat for UAH/ton including a value-added tax (VAT).
Many are thinking about the new season, guided by the current prices. «Farmers are forced to sell buckwheat for six thousand hryvnias per ton. I will not sow buckwheat next year. We have not sown rye for two years, because the prices are very low and unprofitable. Rye is bought at UAH 2,000 per ton,» one of the farmers frankly admits.
Therefore, next year, rye and buckwheat may be in short supply, which means that we are waiting for another price swing.
The break-even point
Falling prices for products and the impossibility of selling them on time at a decent price put agrarian business in a hopeless and difficult situation.
Scientists have calculated that for farms growing winter wheat, the conditions under which the profit will cover all costs start from a yield of 6 tons/ha at a market price of UAH 4,500/ton. (At the same time, the average yield of wheat in the country is 4.76 t/ha.) It is worth noting that there are farms that harvest 8 tons per hectare, and there are those that harvest less than three per hectare.
In addition, 6.75 t/ha must be harvested for corn. And only under the condition of sale of 4,000 hryvnias per ton of corn, the economy breaks even. At the same time, the average yield is 6.74 t/ha. The price as of mid-October is UAH 3,5004,000/ton, EXW.
Sunflower should be mentioned separately. After all, everyone hoped that the sunflower harvest would be successful and bring a lot of profit. The break-even point is 2 tons/ha at a price of UAH 10,000/ton. Under conditions of lower yield, cultivation will be unprofitable for the farmer. At the same time, the average yield, according to regional data, is 2.3 t/ha.
It is not surprising that farmers assure: they are saving as much as they can. Application of mineral fertilizers was reduced by half. In order not to waste fuel, technology is not taken into account when conducting field work.
In general, the expected production costs per hectare are about UAH 27,000. They are UAH 1,900 higher than the 2021 average.
What awaits us in the future is not yet known
If the current state of affairs does not change, it will entail reformatting of agricultural production in Ukraine as such. We need to decide on the issue of supporting the industry and decide on exports. Without sea routes, the future of domestic agriculture is in question. No, the industry will not disappear. The question is who and how will cultivate black soils.
If there are no changes, half of the agricultural holdings will change owners next year, which may lead to the disappearance of certain areas. In the language of numbers, we can expect losses from 100 to 250 dollars per hectare.
A third of those people who know how to earn will remain. The number of bankrupts will increase. The reason is not only in the war, not only in expensive logistics or the increase in costs for material and technical resources (MTR). First of all, it is important for us to have the ability to manage and successfully sell grown or produced products. People who are involved in agrarian business need knowledge: it is not enough to name the exchange quotations for wheat in Chicago or look at the price per ton of corn on the basis of FOB or CIF. It is necessary to understand that agribusiness is not a process for the sake of a process, it is primarily a clear calculation and the ability to predict the situation for years ahead.
The agricultural sector of Ukraine is multifaceted. Millions of individuals, tens of thousands of farmers and holdings. In addition, we have middle-class Atlantans, that is, representatives of the middle class of business who hold everyone on their shoulders: traders, carriers and the state. If we want to build something that will last for ages, the foundation must be strong enough. It is necessary to start with the field and grain.
Writer: Larysa Guk
Translate: Yuliya Moskalenko