By Eugene Gerden
The government of Ukraine is looking to attract foreign investors to its feed industry and is doing so through the privatization of some of its leading producers, with the aim of their further sale to investors in the U.S. and the European Union, according to recent statements from the Ukranian Presidential Administration.
During a recent investment conference in Washington, D.C., which was attended by representatives of the U.S. agricultural business and senior officials of the Ukranian government, the latter officially presented a list of 345 companies that could be subject to privatization by the end of the year. Of these, about 50 enterprises are Ukraine’s leading feed producers.
“We have plans to complete transparent privatization of our several state-owned agricultural holdings and feed enterprises, which should help us to raise funds of foreign investors and to provide an opportunity to the U.S. investors to expand in the Ukranian feed market,” Ukraine Prime Minister Vladimir Groysman said.
According to earlier statements by Thomas Donohue, head of the U.S. Chamber of Commerce, a number of U.S. companies are interested in investment in the Ukranian meat sector and other markets but still have some fears that their funds will not be protected under the current legislative system of Ukraine.
According to Groysman, the Ukranian feed and agricultural industries can be attractive for foreign investors, which is mainly due to recent improvement of an investment climate in the country and the ongoing reforms of the Ukranian national legislative system, along with reforms, implemented in the country’s tax and energy systems.
In addition, Groysman said the national government and Ukraine President Petr Poroshenko have recently started the design of a special investment agreement with the U.S. in the field of feed and agricultural business. The new agreement is designed until 2030 and should help U.S. businesses better protect their investments and interests in Ukraine.
According to a spokesman of the Ukranian government, direct expansion of the U.S. and other Western investors into the Ukranian feed market will take place through the acquisition of some of the Ukraine’s leading feed enterprises, or establishment of new companies on the basis of existing facilities.
As part of these plans, the Ukranian government plans to consider the sale of some of its largest feed enterprises. In exchange, the attracted investors should invest funds in the development of their acquired feed assets in Ukraine.
According to Chip Lehtinen, an economic adviser of the U.S. Embassy in Ukraine, a particular interest of U.S. investors is related to Ukraine’s Kharkiv region, one of the country’s most developed regions, located in the central part of the country and which is considered as a center of Ukraine’s feed production.
In addition, according to analysts of the Ukranian Ministry of Agriculture, the acquisition of Ukranian feed producers may create conditions for the organization of regular supplies of these raw materials to the EU and the U.S. meat-producing factories and enterprises.
According to the Ukranian Ministry of Agriculture, among the companies that could be a subject of privatization are some of Ukraine’s leading producers of feed, among which are Mironovsky Hleboproduct (MHP), Niva Pereyaslavshchyna, APK-Invest and others.
According to plans of the Ukranian government, the attraction of foreign investors, and in particular those from the U.S. and the EU, will allow for the significant increase the volume of Ukranian feed production, which has declined considerably since the collapse of the USSR in 1991. At present the annual volume of production of feed in Ukraine is estimated at 6 million metric ton per year: however, the existing design capacities of the industry allow for the production of up to 20 mmt per year. The volume of imports is currently estimated at 1%.
The Ukranian feed industry remains in crisis, which is reflected by the significant decline of profitability of local producers. Some vertically-integrated holdings, affiliated with the state, are said to be doing fine financially.
Of perhaps the greatest interest to foreign investors may be related to MHP, one of the largest feed and poultry producers from the former Soviet space.
The current management of the company has repeatedly announced plans to start exports of feed and poultry to the U.S., which, according to MHP, may successfully compete with the production of local producers, and in particular Tyson and Perdue. In this regard, the company has not ruled out the possibility to sell part of its stake to Western investors and provide its capacities for the establishment of further production.
MHP is confident it can sell feed to the U.S. significantly cheaper than local producers, especially given a new provision that gives it the right to export about 5,000 items of product to the U.S., without paying of export duties.
According to Yury Kosyuk, chairman of MHP, the costs and wages in Ukraine are significantly lower than in the EU and U.S., which provides another competitive advantage for the company. Kosyuk has also added that the company plans to deliver feed to those U.S. meat producers and agricultural enterprises that are interested in increasing the margins of their operations.
In general, privatization of Ukranian feed producers is part of the obligations, given by the Ukraine government to Western countries for the purpose of necessary reforms and one of the conditions of the recent provision of loans from the International Monetary Fund, aimed at saving of the Ukranian economy from the economic collapse, caused by the Russian aggression and political turmoil in Ukraine.
Eugene Gerden is an international free-lance writer, specializing on covering global meet and feed industries. He worked for several industry titles and can be reached at [email protected]