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October 9, 2008
Ukraine’s black soil tilled for private investment

Ukraine’s inflation rate stands at 16.1 percent, but has fluctuated by almost 25 percentage points in the last year. Inflation spiked because of a weak wheat harvest, global food competition, elevated energy costs and rising wages produced by rapid economic growth.

The government responded to the increases in food prices by restricting grain exports [PDF]. But the current food crisis in Ukraine — a country known as the breadbasket of Europe and the black-earth belt — presents challenges and opportunities. The cost of staple items like bread, eggs and vegetables increased by 20 to 70 percent.

High global prices and demand for grain result in reduced local supply, and therefore higher prices. Private investors are also lining up to buy and develop Ukrainian land, despite a legislative moratorium that prevents the sale of land.

Dave Marash reports from Kiev on Ukraine’s potential to open up land to private investors, feed the world and support its domestic economy.

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Comments

4 comments

#4

That’s a good question: what is the ratio of the Ukrainian work force employed by domestic vs. foreign owned businesses? I’m sure this information is somewhere on this site (http://www.ukrstat.gov.ua/), but would require further research.

Getting food at a decent/reasonable price is the million dollar question. Exporting locally grown agricultural products does indeed exert upward pressure on local prices (b/c of decreased supply). But for me the more important priority would be for the state to concentrate on managing the raging inflation in the country, which if I’m not mistaken is the highest in Europe and close to the one experienced in Venezuela. Holding down inflation to some reasonable level would go a long way in helping to make the food affordable.

Instead, the government has in the past resorted to placing export quotas on grain and other products. This works in the short-term, but tends to have a chilling effect on future investments.

#3

Hey Vitaliy, thanks for the info.
I admit I was being a bit of an alarmist. However I did consider the fact that locals employed for these foreign companies would probably be better off than if they would be working for a local company, I just thought it would make a small percentage of the work force. But I don’t have exact numbers of projected numbers of how many these companies would employ so I could be wrong.

I understand that selling overseas gets a higher price for the crop and therefore more profit for the company, but what I don’t understand is how that could affect the local food prices? I’m not concerned about profit, I’m concerned that the Ukrainian people can get food at a decent price.

looking forward to hearing your insight, thanks!

#2

That’s the wrong message to take away. It seems that you bring an ideological commitment against any foreign direct investment, on the assumption that the purpose is to take advantage of the investment country and its people.

In this case, I don’t think the land was even bought (hence it couldn’t be illegal). It seems to be rented. Where you get that it’s not benefiting the locals? These people have jobs. I can tell you that, odds are, they prefer to work for this guy than alternative businesses (if there are any).

The products from the land is sold oversees b/c the international price is higher, and hence brings a larger return to the business which invested the money in the first place to guess what – make a profit. Without that incentive, there would be no FDI and the “locals” would not have any jobs.

What Ukraine’s government needs to do is to pass a comprehensive land law reform so that this land can actually be bought rather than leased.

#1

what I take away from this story is that international companies are exploiting the Ukraine: Illegally buying up land while mostly likely greasing politician’s pockets in order to secure their property once regulations change…. and what’s worse is that it’s not benefiting the locals. They have this great land for farming and it’s all being shipped off overseas. Food prices are going up there. I hope the people don’t stand for this. Maybe they could allow these big companies to come in but make it law that they have to keep a certain percentage of the crop in the local market.

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