Rebuilding Ukraine’s Agriculture Sector: Emerging Priorities
The aim of the bipartisan and international CSIS Ukraine Economic Reconstruction Commission is to produce a policy framework that will help attract private sector investments to support Ukraine’s future economic reconstruction. To support the commission, CSIS will convene a series of working groups that will address a range of issue-specific areas that are critical for reconstruction and modernization of the Ukrainian economy, including agriculture, energy, and transportation and logistics, as well as addressing the impact of corruption on private sector investment.
Crippling Ukraine’s agriculture sector has been a primary goal of Russia’s invasion of Ukraine, and in seven months, Russia has successfully targeted Ukraine’s farms and fields, warehouses and transportation infrastructure, and agricultural research institutes. These attacks have affected a series of wheat harvests at once: the wheat planted in 2020 and harvested in 2021, which was being exported in early 2022; the wheat planted in 2021, still in the ground at the time of attack and harvested in summer 2022; and future harvests, whose sowing and reaping will depend on the availability of inputs and state of infrastructure this year and for years to come.
According to the U.S. Department of Agriculture (USDA), Ukraine exported about 17 million metric tons of wheat from the 2020–21 harvest, while USDA predicts Ukraine’s exports from the 2022–23 harvest to fall to 10 million metric tons. Before the war, agricultural exports totaled $27.8 billion, accounting for 41 percent of Ukraine’s overall exports. Russia’s attacks diminish income to Ukraine’s government and the wellbeing of millions of families who rely on agriculture for their livelihoods, as well as food security for countries who rely on the Black Sea for their imports of wheat—in addition to sunflower oil, maize, canola oil, and barley, Ukraine’s other major agricultural exports.
Ukraine’s agricultural transportation infrastructure, storage infrastructure, fertilizer industry, and labor force have experienced varying levels of damage and destruction since the war broke out. Equally critical to its agricultural productivity, these sectors deserve particular attention among efforts to rebuild Ukraine’s agriculture sector. The recommendations below reflect the initial findings of the CSIS Ukraine Economic Reconstruction Commission's agriculture sector working group, comprising government officials, private sector representatives, academics, and civil society members from the United States and Ukraine.
Prior to the war, Ukraine exported up to 98 percent of its outbound agricultural products via the Black Sea, with about half of exports traveling through the adjacent ports of Odessa, Chornomorsk, and Pivdennyi. In 2021, Ukraine’s exports of wheat, maize, barley, and sunflower oil averaged over 4 million metric tons per month, with summer and fall shipments exceeding 6 million metric tons. Under the UN-brokered grain deal, more than 100 ships have safely crossed the Black Sea in one month, carrying about 2 million metric tons of agricultural product to global importers. The deal represents a victory for the United Nations and presents a model for wartime transportation but does not restore Ukraine to its prewar capacity for maritime agricultural trade. As Russia continues to threaten Ukraine’s ports and Ukraine continues to protect its coast from an amphibious assault, the volume of trade through the Black Sea will remain limited and the cost of insuring Black Sea bound ships will remain elevated. Increasing the volume and decreasing costs of Ukraine’s agricultural exports requires identifying and fortifying alternative routes.
Export via Romania and export via ports on the Adriatic Sea illustrate two such options. In the first five months of the war, Constanța, Romania, handled nearly 1.5 million metric tons of Ukrainian grain, which arrives in Constanța by rail or truck from Ukraine directly to Constanța, or via barge from Ukraine’s Danube River ports of Reni and Izmail. In 2021, Constanța exported over 25 million metric tons of grains from Romania and other producers, and its capacity to handle Ukrainian grain will depend on the quality of its processing facilities and the status of transportation into Constanța. Romanian port operator Comvex has invested over $4 million in an additional barge offloading platform, and the Constanța Port Business Association estimates it needs approximately $344 million to boost its grain processing speed. The capacity of Constanța is also limited by the poor status of railroad infrastructure and low water levels on the Danube River, which prevent barges from carrying full loads.
French container and shipping company CMA-CGM has proposed an Adriatic Land Bridge Solution, which would move Ukrainian grain from Odessa to Trieste, Italy, via Slovakia and Austria, and to Koper, Slovenia, via Hungary, estimating approximately seven days for transit from Odessa to Trieste or Koper. According to the rail transportation industry, rail-bound exports from Ukraine are outpacing imports into Ukraine. Without imports covering the costs of container movement into Ukraine, potential exporters would have to cover the costs of empty rail cars, increasing the overall cost of transport from Ukraine.
Restoring Ukraine’s agricultural transportation infrastructure will require addressing the challenges unique to the Romanian and Adriatic Sea options described here; any solution proffered would require addressing the common challenges of damaged infrastructure, increased freight costs, and insufficient railway infrastructure. For example, the Zatoka railway bridge between Odessa and Izmail has been the repeated target of Russian missile strikes, and other transportation infrastructure have been targeted for the duration of the war. The increased cost of insurance, due in part to these attacks, in addition to higher fuel and operating costs, has increased the cost of rail transportation by over 600 percent in certain cases, from approximately $35 per metric ton per war to up to $230 per metric ton today.
Finally, redirecting maritime transit to rails requires bringing Ukraine’s rail gauges and rail cars in line with EU standards, as described in Ukraine’s National Recovery Plan's project to increase the capacity of freight car rearrangement points and as considered in the European Commission’s proposal to construct EU standard gauge rail lines at heavily trafficked border crossing points into Ukraine. Equally important is increasing Ukraine’s capacity of EU-standard grain hoppers. Ukrainian-sized grain hoppers are too large for European railway platforms, presenting problems outside Ukraine. Potential approaches to these barriers include providing subsidies to Ukraine to produce or procure European-sized grain hoppers, directing European grain hoppers to the Ukrainian border once they have fulfilled existing contracts, and retrofitting rail cars designed for other purposes with special liners to allow for grain transport.
Improving Ukraine’s agricultural transportation infrastructure is critical to restoring Ukraine’s agricultural export capacity, and for moving prior harvests off farms to make way for current and future harvests. Until Ukraine’s transportation capacity is restored, farmers require expanded access to storage through temporary and permanent means.
According to the government of Ukraine, Ukraine’s prewar agricultural storage capacity was 75 million metric tons. The facilities for storage of over half of this capacity have been damaged or destroyed, are in Russian-occupied territories, or remain filled with last year’s harvest awaiting export. Considering the estimated size of the 2022–2023 harvest, the Food and Agriculture Organization (FAO) predicts a storage deficit of 16 million metric tons and has launched a grain storage support strategy to address this deficit. Approximately $40 million in funding from Canada will be used to procure polyethylene grain sleeves, grain loading and unloading machinery, and longer-term modular storage units for small- and medium-sized farms in 15 oblasts in Ukraine, complementing $16 million from Japan for similar purposes across 10 oblasts. Increasing Ukraine’s storage capacity is likewise a priority of the U.S. Agency for International Development’s (USAID) Agriculture Resilience Initiative for Ukraine (AGRI-Ukraine). USAID has committed $100 million and seeks to leverage an additional $150 million for the initiative, of which a portion of funding will support drying, storage, and processing support for agricultural enterprises.
According to the government of Ukraine, polyethylene bags are the most viable temporary-storage option, holding up to 250 metric tons per bag for up to 17 months. Recognizing the importance of expanding Ukraine’s grain storage capacity, the Ukrainian parliament has exempted polyethylene bags and related equipment from import duties. The Ukrainian government has not, however, published plans to rebuild Ukraine’s permanent storage capacity, approximately 10 percent of which is estimated to be damaged or destroyed. Articulating plans to restore Ukraine’s permanent storage capacity, including in Ukraine’s National Recovery Plan, would guide public- and private-sector investment in this critical agricultural infrastructure.
Exporting past years’ harvest out of Ukraine will free space for the current year’s harvest, and this movement of grains will help provide financing to procure inputs for future plantings, including fertilizer. The challenge of providing fertilizer to Ukrainian farmers involves identifying suppliers, funding transport into Ukraine, and ensuring access for Ukrainian farmers.
The cost of potassium, phosphate, and nitrogenous fertilizers have increased 35–45 percent inside Ukraine since the war’s start. Russia, a major supplier of all forms of fertilizer, announced export restrictions on these inputs, effectively removing almost 15 percent of global supply and driving up global prices. (Russia ceased publishing trade data in 2022, so the practical effect of this announcement on Russia’s fertilizer exports is unclear.) Belarus accounts for one-fifth of global exports of potash, and Western sanctions, which directly target Belarus’s potash, put further pressure on global potash prices. Some countries are turning to Canada, the world’s top exporter of potash, as an alternative source of the nutrient. Apart from potash, Ukraine is likewise seeking new sources of phosphate fertilizers, a major export of China, Morocco, the United States, and the European Union, among other countries. Fertilizer companies are bound to fulfill preexisting contracts, which may prevent them from increasing sales to Ukraine. Finally, though Ukraine produces enough nitrogenous fertilizer to cover 75 percent of its own consumption, elevated energy prices are increasing the costs of producing this input. Transporting fertilizers into Ukraine also presents challenges. Potential exports must contend with elevated fuel prices as well as increased costs of insurance, which make shipping into Ukraine unattractive and would increase the cost of fertilizer for Ukrainian farmers.
In the short term, donors, including the FAO under its Rapid Response Plan and USAID under AGRI-Ukraine, are providing fertilizer directly to Ukrainian farmers. In the longer term, Ukraine and its partners must secure new sources of fertilizers, particularly potash and phosphate. Expanding the global fertilizer supply is a difficult prospect; ramping up fertilizer production takes an average of 3 to 5 years where infrastructure is in place and reserves are available. Absent an expanded supply, many farmers are turning to precision application of fertilizer to make the most efficient use of the fertilizer. Soil testing, and satellite and artificial intelligence technologies can reveal farms’ deficit of nutrients, saving costs by eliminating potential overapplication of nutrients.
The war has changed the nature and needs of Ukraine’s agriculturalists, up to 20 percent of whom have left farms to participate in territorial defense. As the size of the agricultural labor force has changed, so have the needs of Ukraine’s farmers because of the challenges laid out here. For example, because Ukraine’s agricultural exports flowed primarily through Black Sea ports before the war, its expertise in road and rail transportation is limited. Technicians operating new transportation infrastructure may require new trainings and certifications. Some farmers may likewise require new training to operate machinery required for new modes of storage. Others may require financing and training to bolster their capacity for precise application of fertilizers. In places directly affected by fighting, other farmers require assistance to remove land mines from fields, and to replace equipment destroyed by Russian forces. As Ukraine announces plans to rebuild its agriculture sector and allies and the private sector invest in these plans, the needs of Ukraine’s agriculture labor force should remain a primary consideration.
Caitlin Welsh is the director of the Global Food Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Emma Dodd is the program coordinator for CSIS Global Food Security Program.
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