In 2024, crop production will break even, and the profitability of livestock production will decrease - Ministry of Agrarian Policy and Food of Ukraine

published 04 March 2024 16:45

Despite decreased production costs and improved logistics, grain cultivation in 2023 remained generally unprofitable. The situation with oil crops was somewhat better: sunflowers showed minimal losses, while soybeans and rapeseeds generated minimal profitability. Overall, profitability levels for grains and oilseeds improved in 2023 compared to 2022, but low global prices prevented the industry from achieving tangible profitability. As reported in the third issue of the study ‘UKRAINE: Impact of the War on Agriculture Profitability’ conducted by the Ministry of Agrarian Policy and Food of Ukraine in cooperation with the Ukrainian Agribusiness Club (UCAB) and with the support of the Global Facility for Disaster Risk Reduction and Recovery (GFDRR) administered by the World Bank.

Fertilizers hold the largest share of farm costs per hectare in 2023 - from 17% to 28%. Therefore, in financial restrictions, Ukrainian farmers have been forced to save on this resource for the second year. Even with lower prices, fertilizer application rates fell by an average of 49% last year. A decrease in prices was also observed for other essential material resources: seeds (-13% per hectare); plant protection products (-22% per hectare of cereals, and -16% per hectare of oil crops); fuels and lubricants (-31% per ha). In addition, farms saved on grain production thanks to using self-produced seed and reducing some insecticides and fungicides applications.

Compared to 2022, logistics costs for exports in 2023 decreased to the ports of Odesa - by 33%, to the port of Constanta through the river ports of the Danube - by 40%, and to the ports of Gdansk/Gdynia - by 42%.

The cost of logistics by direction fluctuated depending on the operation of Odessa seaports, blocking of western borders by farmers from neighboring countries, attacks on port infrastructure, etc. On average, in 2023, logistics accounted for about 21% of the final sale price of grain, while in 2022, it was 25%.

In January 2024, for the first time in the last two years, the seaports of the Odesa region overtook the Romanian port of Constanta and the Polish port of Gdansk in terms of export profitability. In general, the first month of this year was more successful for Ukraine’s agricultural sector than in 2023: thanks to improved sea exports, product prices in Ukrainian ports, considering logistics, became more attractive than in European ones. Therefore, farmers can obtain higher profitability by exporting through stably operating Ukrainian ports.

World grain and oilseed prices were lower in 2023 than in 2021. After the war's impact, world prices remain the most significant deterrent to the recovery of production profitability.

Unlike crop production, most livestock products were profitable throughout 2023. In January 2024, the profitability of milk production increased compared to the average for 2023, thanks to lower feed prices. The level of profitability of poultry meat production also increased. The profitability of beef and pork, on the contrary, decreased - mainly due to a decrease in meat prices compared to the average indicator in 2023.

In 2024, the level of profitability is expected to increase for all types of grain and oil crops, provided that the situation with security and sea exports will not deteriorate and the situation on the western borders stabilizes. As expected, the yield will decrease in 2024 by approximately 4-5%. The cost of elevator services will increase due to increased electricity prices. In addition, a slight land rent increase is expected - by approximately 5% to 125 USD /ha due to the land market opening for legal entities.

Wheat cereals will have negligible profitability, while corn and barley will likely remain unprofitable. At the same time, all types of oil crops are expected to become profitable. If this optimistic forecast comes true, the expected rate of return on results this year will still be ten times lower than in the period before Russia’s full-scale invasion of Ukraine in February 2022.

The profitability of all livestock products is expected to fall in 2024, as costs, particularly for feed and electricity, will rise faster than the prices of the final product. There are also signs of the predicted decrease in the purchasing power of Ukrainians and the devaluation of the hryvnia.

For more information, please see the presentation by clicking the link - Impact of the War on Agriculture Profitability_Issue 3.pdf

***

This report has been made possible by the generous support of the Global Facility for Disaster Risk Reduction and Recovery (GFDRR) administered by the World Bank. The authors' views do not necessarily reflect the opinions of  GFDRR or the World Bank.

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