Ukraine The breadbasket of Europe

Sunflower: #1 in Europe and #2 in the world

Ukraine is one of the largest agricultural players
445 Ukraine
6.3 Ukraine 4.1 Ukraine in Europe and a major player worldwide 32.4 Ukraine

0.8 Romania 416 Hungary

1.6 France 18.4 France
Harvested area

0.7 Spain 372 France

12.7 Spain
1.5 Hungary

Net export

Arable land
0.7 Bulgaria 324 Bulgaria
12.5 Poland
1.3
(mln ha)
Production

Bulgaria

(ths t)
0.6 France 315 Romania

(mln ha)
11.9 Germany
1.2 Romania
(mln t)

Wheat: #3 in Europe and #8 in the world

UK 82 Germany
39.1 France 7.0 Ukraine 14.4 France
Poland
Germany
Ukraine 72 Turkey
5.5 France 8.9 Ukraine
26.0 Germany France Hungary 64 France
Romania
Harvested area

3.2 Germany 4.6 Hungary

Net export

25.5 Ukraine Italy Bulgaria 62 UK

Population
2.3 Italy 1.9 UK Spain
60 Italy
(mln t)

1.6 Germany Turkey

(mln ha)
Production

17.8 Turkey 2.3 Poland

(mln)
46 Ukraine

17.2 UK
(mln t)

Source: FAPRI, Eurostat, FAO, Ukrstat, 2008

* Europe ranking does not include Russia
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Increase in global demand for agricultural produce
Agricultural output has to increase 3% p.a. to meet the increasing demand (vs. 1% over the last 20 years) due to the following trends:
soaring world population (from 6 bln people in 2000 to 9 bln in 2050)
limited arable land per capita (0.5 hectares of arable land per person in 1950 to 0.2 in 2020)
growing consumption in emerging markets (real GDP of China to grow at 10.4% CAGR over 2010-14)
increasing life expectancy (China: 70 years in 2000 to 77 years in 2050, India: 62 years in 2000 to 75 years in 2050)
rising demand for grain to feed livestock growth (7 kg of grain = 1 kg of beef)

Global wheat consumption vs. population growth Wheat prices, $/t

714 247
wheat consumption, mln t 241
709
population, bln
703 +5% 235
698 7.5 231

Per capita wheat consumption, kg

692 7.4
225 224
687 7.3 182
681 7.3 2009E 2010F 2011F 2012F 2013F 2014F

675 7.2 Sunflower prices, $/t

669 7.1
7.0 502
662
6.9 174 496
491 490 492
6.9
6.8

469
2009 2010F 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F Europe Europe 2009E 2010F 2011F 2012F 2013F 2014F
Source: FAPRI 2009, United States Census Bureau 2009 2018
Source: FAPRI 2009 Source: FAPRI 2009
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Fertile black soils

60
With one-third of the worlds richest black soils, Ukraine occupies a leading place in the world
in terms of its proportion of high-quality fertile soils
Average depth of humus layer, cm

Black soils in eastern Ukraine contain valuable humus layer of approximately 60 cm which aids
30 in the retention of soil nutrients and moisture and results in the highest productivity of any
known soils worldwide

EU Ukraine
Source: Eurostat, Ukrstat

Superior chernozems
Higher than average chernozems
Average chernozems
Lower than average chernozems
Derno-podzolic sandy soils
Soddy soils
Forest and mountain soils
Chestnut soils
Regradated chernozems
Meadow soils
Peat-boggy soils and turf peats
Chernozems
Source: USDA Source: Cartography USSR

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Significant potential for productivity improvements
Wheat yield 8.3
t/ha, 2008
8.1 Superior soil characteristics result in a low cost base for
7.1
Ukraine relative to other countries

+131% Proper fertilization and adequate provision with machinery

5.6 enable Ukrainian agricultural producers to enjoy significant
4.7 upsides for crop yield improvements
4.1
3.6
2.9 3.0 Fertilizer use, kg per ha Tractors use, units per 100 ha
2.8
2.3 2.3 2.4
UK 311 Poland 1,089

Germany 220 UK 884

Argentina Russia Brazil India Canada USA Ukraine Poland China EU av France Germany UK
Source: FAPRI, Eurostat
France 215 Germany 798

Sunflower seed yield World av 139 France 685

t/ha, 2008 2.6
Poland 116 World av 390
+73% 2.2
2.0
USA 110 USA 269
1.9
1.8 1.8 101
1.7 India Canada 160
1.6 1.6
1.5
1.4 Canada 57 India 159
1.1
Argentina 27 Ukraine 120
0.8
Ukraine 18 Argentina 107

India Russia Brazil Ukraine Canada USA Argentina Poland China EU av Germany Italy France Russia 12 Russia 48
Source: FAPRI, FAO, Eurostat Source: NationMaster, World Development Indicators

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Storage capacity key profitability driver of Ukrainian agriculture
Grain storage allows agribusinesses to significantly increase grain trading Ukraine wheat prices scale
and profitability:
180%
The current capacity deficit exceeds 20 million tonnes, or 46% in 2009
160%
Own storage facilities allow sales at prices with an up to 50% premium at
peak season prices 140%

120%

100%

80%
Jul Oct Jan Mar May

Grain storage coverage

2008
Lutsk Chernigiv
Rivno 2007
Sumy harvesting
Zhytomyr
Source: Bloomberg

Lviv
Khmelnitsk Kyiv Ukraine sunflower prices scale
Poltava Kharkiv
Ternopil Luhansk 160%
Cherkasy
Ivano- Vinnitsa 54% 140%
Frankivsk
Uzhgorod Donetsk
Chernivts Kyrovohrad Dnipropetrovsk
120%
i
100%
Zaporizhzhia
under 1.0 mln t storage capacity Odesa Mykolaiv
80%
1.0 - 2.0 mln t storage capacity
Kherson 60%
over 2.0 mln t storage capacity
Sep Nov Feb May July
2008
Crimea Ukraine 2007
harvesting
2009
Source: Apk-Inform, 2009 Source: Bloomberg

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Hidden land appreciation potential
Farmland prices in 2009, $ / ha
Similar assets should sell at similar prices: 58,500
The appreciation potential of Ukrainian land is a hidden 17,100
value that domestic companies are likely to realise after
establishment of a land market
12,500
There is no legal framework in Ukraine for the private 11,000
ownership of land for legal entities they can only lease 9,643
median: $8,151
it
6,600
Why will domestic companies enjoy low level land 4,855
prices of approximately $200-300 per hectare? 3,120 3,450

800
Currently Ukrainian legislation gives the pre-emptive right
to the lessee to purchase the land if the owner decides to Russia Bulgaria Australia Romania Poland New Zealand US France England Ireland
sell it (after the ban on sale is lifted) Source: FAPRI, FAO, Eurostat

Low bargaining power of the lessor (on average the

individual lessor owns 3-7 hectares, while large
agribusiness controls over 50,000 hectares)

The majority of landowners are pensioners (with average

monthly pension of $108) who reside in villages. They do
not have ready access to reliable information on land
values and other topics related to use and benefits of
land ownership

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Strong government support of agriculture in Ukraine
The Ukrainian government continues to support agriculture following WTO accession
I Income tax Ukrainian agricultural producers are
exempt from the 25% income tax, and
pay only the Fixed Agricultural Tax (FAT)
FAT is calculated as a percentage of the
deemed value of all land plots leased and
equals approximately to USD 60 ths per
year per 100,000 hectares held by a
company
II Value added tax Producers are entitled to retain the
difference between Value Added Tax (VAT)
paid on inputs purchased and VAT
received from the sale of crops
III Crop subsidies Farmers are paid a subsidy per hectare
sown that ranges from USD10-45 per
hectare depending on the crop
Source: Company data
IV Interest rate rebate Agricultural companies receive a
rebate of interest paid on loans up to
a maximum rate of 10% for loans
denominated in UAH and 6% for
loans in USD
V Insurance rebate The government refunds 50% of
premiums paid for insuring against
crops failure
VI Equipment rebate The government refunds 30% of the
cost of locally-manufactured farm
equipment purchased
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