Ukraine’s black soil is what everyone talks about. “It looks like Iowa,” says Cary Sifferath, a Midwesterner who monitors Ukraine for the U.S. Grains Council. Tim Burrack, an Arlington, Iowa, farmer, is almost poetic about it: “It’s a black, deep, beautiful soil with good drainage, and after perestroika and the breakup of the Soviet Union, it was just lying there idle.”

Historically the breadbasket of Europe, Ukraine sits in the continent’s black earth belt, spanning Moldova, two-thirds of the Ukraine and deep into Russia. Containing as much as 15% humus, its soils range from a foot deep to 150 in.

The weather, too, is similar to the Upper Midwest.

“Its grain producing area is about the size of Texas, with growing conditions similar to Iowa. But if it’s too hot or too dry, they are much more susceptible across their whole production,” says Sifferath. “But yields are far below the U.S.”

That reflects many years of stagnation under the old Soviet communal farming system, which underutilized land and undercapitalized its agriculture.

As recently as 2010, one-third of its Ukraine’s 104 million arable acres lay fallow, and another third was badly exploited. Ukraine’s corn production has almost quadrupled since 2006-2007, from 250 million bushels (mbu) to 900 mbu. Its exports last year equaled Brazil’s sales (topped 570 mbu), and were only 60 mbu below Argentina’s exports.

In 2000, Ukraine’s agricultural potential and the outlook for growing world grain demand prompted Burrack, the Iowa farmer, to join several other U.S. growers in a Ukraine farming venture.

Soon, they were managing a couple thousand acres but also running into problems that slowed Ukraine’s productive potential.

 

CHALLENGES

Piecemeal land ownership complicates farm management. Privatization after the end of Communism left Ukraine with thousands of 5-12-acre farms too small to invest in better technology, and a ban on land sales that makes it harder to combine farms into productive units.

Only 8,500 of an estimated 50,000 farms can muster the resources to compete in world markets. These farms, from 1,200 acres to 100,000 acres or more, are operated by Ukrainian farming companies or foreign investors who assemble their land by leasing it from hundreds of small landowners.

“You may have modern ideas about how your farm should be run,” says Sifferath. “But it’s hard to get enough educated employees and tough to get them following your plan.”

“They had 80 years of top-down driven management where the state told them what to do,” Burrack explains. “That really takes a toll. To get them to try different, modern ideas, you have to sit and watch or it just didn’t happen.”

Other challenges include a lack of on-farm storage and marketing alternatives that would give Ukrainian farmers more power over when and how they sell their crops.

There’s also a problem with corruption.

“Everything involved cash under the table, and there was crime – crops stolen out of the field. We had two 4WD drive tractors just disappear off the docks,” says Burrack, who stuck with it for five years and still believes in Ukraine’s agronomic potential.

“When our in-country manager was hired away, we didn’t have someone we could trust. Otherwise I would be there today. You have to have somebody reliable on the ground,” he says.

Like Burrack, government leaders, European investors and grain-hungry nations around the world are betting that investments to modernize Ukrainian farming methods and infrastructure can pay off with big productivity gains and a growing flow of exports.

This summer, China agreed to loan Ukraine up to $3 billion for agricultural improvements reported to include construction of a fertilizer plant and purchases of Chinese equipment and seeds – a loan that will be repaid in part with agricultural output.

At the farm level, Ukrainians are beginning to make more use of inputs to increase yields, and the country is on the upswing as a corn supplier, becoming a “formidable competitor in regional grain markets,” according to Sifferath.

Further down the supply chain, “there’s been a lot of investment by Ukraine and foreign interests in export facilities, and their export capacity has grown quite a bit,” he reports. “Ukraine has Nibulon, its own export facility, and runs barges up and down the Dnieper River. Bunge built a new terminal this year near Nibulon.

 

INFRASTRUCTURE AND LABOR

“Both Ukraine and Russia have built enough export capacity to meet the current pace of exports and are now building to meet future demand.”

Ukraine is also scheduled to begin reforming its railway system this year, and next year Ukraine’s laws will permit the sale of farmland.

Ukraine’s labor outlook may also see improvement, according to Tom McGraw, Tom McGraw Consulting, who sees changes with the younger generation. “The young Ukrainians we work with are catching on in a big hurry. Most have a great work ethic.”

On the marketing front, the Chicago Mercantile Exchange initiated its first futures contract based on Black Sea region grains on June 6. Depending on its success, a Black Sea corn futures contract could follow.

Ukraine’s government is also emphasizing exports to earn foreign currency. Ukrainian President Viktor Yanukovychhas said he wants Ukraine to capture a larger share of export sales to countries like Egypt, the world’s largest wheat importer and a major corn importer.

The result: growing production and growing exports.

Since 2006-2007, when it produced just 250 mbu, Ukraine’s corn output has almost quadrupled to 900 mbu, and buoyed by a big crop, its exports topped 550 mbu, passing Argentina to make Ukraine the world’s second largest corn supplier last year.

Ukrainian officials predict similar corn export levels in 2012-2013. That will come on top of Ukraine’s shipments of feed wheat and feed barley, which also compete with U.S. corn for world markets.

 

CORN GROWTH

“Ukraine is definitely in an expansion mode,” says Sifferath. “We’re seeing acres shift from barley and sometimes from wheat into corn. Farmers are seeing a better return on corn, soybeans and sunflowers than on wheat and barley.”

“This year Ukraine has been selling especially into the Eastern Mediterranean, including Syria,” he reports. “It is supplying corn to Spain, Portugal and Israel, and less to Algeria and Morocco. Ukrainian barley continues to be a big factor going into Saudi Arabia. It has a fair amount of exports to the big Asian players like Japan and South Korea, and there’s a lot of talk of future sales to China.”

“They are learning from us that this is how you feed the world,” says McGraw. “Ukraine is an agricultural jewel because of its great productive soil. I can’t say how fast it will happen, but down the road Ukraine will be back as the breadbasket of Europe.”