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Originally published Tuesday, May 27, 2014 at 6:01 PM

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Restoring Ukraine’s farming legacy crucial — but it won’t be easy


The New York Times

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ZIBOLKY, Ukraine — Like many of her neighbors in this old Soviet collective farm, Maria Onysko prefers to be paid in grain instead of cash for the modest plot of land she rents out.

“I have two cows and four pigs, many chickens,” said Onysko, 62. “So we use it for them.”

After the breakup of the Soviet Union, farmland in newly independent Ukraine was divided among villagers, acre by acre, creating a patchwork of agricultural endeavors that are often inefficient or unprofitable. Some land is rented to fruit growers, grain operators or large-scale farming businesses. Some locals work small plots on their own. Some acreage sits fallow, stuck in legal limbo after the owner dies.

Ukraine was once the breadbasket of the Soviet Union, known for its rich soil where grain, sunflowers and livestock flourish. But farming production dropped sharply in the chaotic decade after the collapse of communism, and recovery has come in fits and starts. Production is only now returning to peak levels of the 1990s, stymied by the corruption, red tape and inefficiencies that have plagued the broader Ukrainian economy for years and left the villagers living humble existences.

Restoring Ukraine’s farming legacy will be crucial to the success of the country’s newly elected president, billionaire businessman Petro Poroshenko. Such efforts would go a long way toward fixing Ukraine’s economy and reducing its dependence on Russia. Agriculture once accounted for nearly 20 percent of the gross domestic product; it is now roughly 10 percent.

The potential became clear last year when a strong harvest helped Ukraine avoid a drop in output. “It was just because of agriculture,” said Pavlo Sheremeta, Ukraine’s minister of economic development. “Otherwise, it would have been a decline.”

Against the backdrop of the crisis with Russia, Western interests are advocating for change. The European Union is moving forward with a plan to bolster trade by lifting custom duties on Ukrainian agriculture. As part of a deal with the International Monetary Fund for up to $18 billion in loans, the country’s government must push through business reforms that would help alleviate the problems with farming and other businesses.

The hope is that such initiatives will also bolster the confidence of foreign investors, as the crisis abates. Big multinationals have expressed tentative interest in Ukraine agriculture, but they have largely remained on the sidelines, unwilling to invest in an industry hampered by structural deficiencies, and more recently, the uncertainty with its eastern neighbor.

“If cheap capital comes in along with foreign investment, and you have a good government without roadblocks, Ukraine can close to double its production in the future,” said Roman Fedorowycz, a Ukrainian American who returned here years ago and now runs a farming company that mainly grows corn, sunflowers and soybeans.

Even small improvements would make a big difference in a highly inefficient industry starved for money. While roughly 70 percent of Ukraine’s land is considered suitable for agriculture, it has not been fully cultivated. The country’s yield per hectare of grain is about half that of the United States, according to the World Bank.

Change will not come easy, given the challenges. Previous governments have tried to restrict what crops farmers grow and when they rotate crops, and they have limited exports. Some state inspectors do not even have cars to conduct on-site inspections, so farmers must bring grain to them before shipping.

Selling farmland is also forbidden in Ukraine, a legacy of its communist past. So fields remain cut up “like chessboards,” said Georgiy Vaydanych, land manager for Agrokultura, a Stockholm-based agricultural company that rents 173,000 acres in many such villages. “For the moment we have 40,000 active landlords,” Vaydanych said. “Forty thousand!”

Making matters worse, paperwork is costly and many villagers never officially inherit the farmland after their parents die. “There is uncertainty on how to farm this land, because we have the dead souls in the middle of our fields,” Vaydanych said, in a reference to Nikolai Gogol, whose 19th-century classic, “Dead Souls,” is required school reading here.

Even as the crisis in the east intensifies, life in the agricultural west remains much the same.

A dirt road straddling tilled fields leads into this village, with potholes so deep that drivers zigzag past each other. There are horse-drawn carts, roosters crowing, old women in kerchiefs and a church painted pale green topped by bulbous spires.

Few in this pro-European area of Ukraine are nostalgic for Moscow. Still, Oleg Gusak, head of the village council, said life had not improved.

“When it was a collective, the level of life was better,” he said, explaining that it had once been a larger operation that harvested crops, and had livestock, and produced clothing, furniture and jams.

“People even came from other regions, because we had so much work,” he said, adding, “Now, it’s not the same.”

Trouble raising capital at reasonable prices makes it difficult to start or expand farms.

“I have to pay up to 12 percent if I borrow in euros,” said Taras Barshchovsky, an entrepreneur who founded T.B. Fruit, which makes fruit juices and whose rented orchards cover thousands of acres. He has expanded into Poland, where he said he could borrow for less than 3 percent.

“Those who work with Ukrainian banks in hryvnias, they pay up to 20 percent or more. I don’t believe you can profit and return money on that percentage,” he added.

And while other former Soviet bloc neighbors like Hungary, Romania and Poland began easing their land sale restrictions after joining the EU, Ukraine has repeatedly delayed lifting its moratorium, considering the move politically risky in its agrarian society. In 2013, the government of Viktor Yanukovych, the deposed Ukrainian leader, extended the moratorium until 2016, after he expected to stand for re-election.

“I’m afraid if I sell my land in the future my children will say their old grandfather drank away all their money,” Hrynchyshyn Myroslaw, 62, said as he cleared a willow field near another village.

With a laugh, he added, “It depends how much you will pay me. If there are enough zeros, you can pay me.”

Volodymyr Baran, 43, a tractor mechanic, said he would never sell his 6 acres. “The land is our bread.”

Such dynamics deter foreign investment, which has been tepid for years. Despite some interest from China and multinationals, large agricultural enterprises tend to be Ukrainian owned and recent prominent deals have been less than they seemed. For example, Cargill paid a reported $200 million for a stake in UkrLandFarming, an agricultural holding company. But a Cargill spokeswoman emphasized that the shares were collateral for a loan rather than a long-term investment.



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