Foreign investors run fingers through Ukraine's black earth

By bne IntelliNews April 15, 2011

Graham Stack in Kyiv -

Chinese and other eastern investors are looking to buy agriculture land and agribusiness across the globe, and Ukraine is increasingly on their radar. But given the restrictions on land ownership in Ukraine, how do you value a company with practically no assets?

Sergei Nalivka of AAA Consulting, a Ukrainian agriculture consultancy, told bne that his firm is advising several Chinese investors that are interested in buying into Ukraine's agriculture sector.

And they are not alone. A source, asking for anonymity, has confirmed to bne reports that Hassad Food, a $1bn unit of Qatar's sovereign wealth fund, is in negotiations about making agriculture acquisitions in Ukraine. The source said that talks were in progress with several Asian investors from the east, saying that it's "basically not too difficult" for an Asian company to come to Ukraine, buy a Ukrainian agribusiness and then export the produce home.

Raiffeisen Investment also told media in February that a number of acquisitions by Asian and Middle Eastern buyers are pending in Ukraine's agricultural sector, naming China for one.

However, Ukrainians are well used to a lot of hot air being talked about their black earth, and some suggest it may not be so straightforward, pointing to a 2009 gas-for-food deal with Libya that came to nothing. "The question of Chinese investor interest can be compared to that announcement two years ago that Libya would farm 100,000 hectares," concludes Nikolai Vernitsky, director of Proagro Consulting. "Does today Libya farm in Ukraine? No."

Foreign investors face significant obstacles to digging into Ukrainian soil. Legal issues preventing the purchase of agricultural land are a big barrier, whilst local players are ready to pounce on anything of value that actually does come onto the market.


In the course of privatisation in the 1990s, land held by Soviet collective farms was handed to their workers. But almost immediately a moratorium was imposed on any further sale of that land, due to populist fears the rural population could be dispossessed by unscrupulous investors.

The result is a stalemate. Agribusiness can lease land plot by plot from villagers or middlemen, with leases mostly for five to 15 years. This is an administrative nightmare, and business investors have no incentive to invest long term, nor can they provide collateral to raise capital. The villagers, 70% of whom are pensioners and many without heirs, are also disadvantaged, since they cannot cash out of their land.

This looks likely to change. On February 25, President Viktor Yanukovich told lawmakers during a speech to parliament that Ukraine needs a "fully fledged" market for farmland to boost the agricultural industry's efficiency and so would allow farmland sales next year for the first time to stimulate investment.

In addition, Ukraine's government owns around 5m ha of land scattered over the whole country and could privatise this, because the moratorium does not apply to land still in state ownership, only to its resale. Legal changes would still be required to allow foreign entities to buy the land, though. According to AAA Consulting's Nalivka, the Chinese investors are looking to enter into partnerships with top Ukrainian businessmen close to the ruling Party of Regions.

There are other drawbacks in buying farm businesses in Ukraine. The poor enforcement of property rights in Ukraine is an issue faced by investors across sectors; AIM-listed Landkom was hit by a double whammy of back-tax claims and land raiders in 2009.

Lifting the moratorium on the sale of land looks likely to raise further issues. As it becomes clear that investors will soon be able to buy Ukraine's fertile land, the country's powerful oligarchs are circling.

Three of the eight Ukrainians on the latest Forbes billionaires list are agro-garchs, among them Oleh Bakhmatyuk, whose grain company Ukrlandfarming recently swallowed two other market players - Rise and Dakor - allowing it to build its bank of leased land to a total of 400,000 ha, the largest in Ukraine.

Given their local knowledge, the "agro-garchs" are likely to have first dibs when it comes to M&A opportunities. "The situation is developing now that any Ukrainian agro companies are extremely attractive [as takeover targets] to other Ukrainian companies," says Vernitsky.

However, Konstantin Golovinsky, vice president of Renaissance Capital Ukraine and Eastern Europe, points out that because of the lack of land ownership in Ukraine, it's extremely difficult to fix a price on Ukrainian agriculture companies, because they don't actually own anything except their equipment.

For all the signs of a developing Sino-Ukraine agricultural partnership, it has bizarrely started with Chinese food exports to Ukraine. Following last summer's drought, there is a shortage in Ukraine of the staple buckwheat used to make the national porridge, kasha. For all the hopes of becoming China's breadbasket, the immediate reality is that Ukraine is now waiting on a 20,000-tonne buckwheat shipment from Dalian.

Related Articles

Ukraine's largest PrivatBank faces down nationalisation fears

Graham Stack in Kyiv - Ukraine's largest lender PrivatBank has survived a stormy week of speculation over its future, but there are larger rocks ahead, with some market participants anticipating the ... more

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.