Ukrainian agricultural producers’ access to good-quality equipment this year, as has been the case for most of the period since independence, leaves much to be desired. On top of all the existing problems – hryvnia devaluation, military action, the effective halt of lending – the government has added another “surprise”: a 5% duty on imports of agricultural machinery and its components (the Cabinet of Ministers order took effect on 24.02.2015 – Ed.) In short, to describe the situation, it’s worth borrowing from the medical consultation in the fairy tale “Pinocchio”: “The patient is more dead than alive!”
A survival course
The “Ukrainian Agribusiness Club” (UCAB) association says that under current conditions, most farmers will forgo buying expensive new equipment, favouring either used machinery, new domestically produced equipment, or equipment made in CIS countries, which falls into the lower price segment.
“The hryvnia’s near two-fold devaluation since the start of the year has led to a corresponding rise in the cost of agricultural machinery, which is predominantly imported, so its prices are entirely dependent on the exchange rate. As a result, demand on the market has dropped significantly, since new agricultural machinery, which wasn’t cheap to begin with, has become practically unaffordable for most farmers,” states UCAB general director Taras Vysotskyi.
According to calculations by Ukraine’s Ministry of Agrarian Policy and Food, the rising dollar exchange rate has tripled the cost of imported equipment. The ministry also points to a significant rise in spare parts prices, since the vast majority of domestic equipment manufacturers use imported components, and given rising energy tariffs, the cost of finished products has doubled.
In general, the financial squeeze has put the agricultural machinery market in a state of high uncertainty. “On the one hand, distributors are forced to constantly recalculate the prices of their products in line with new currency fluctuations, while on the other hand, in these conditions, buyers are forced to postpone equipment purchases until better times, or give them up entirely,” adds Taras Vysotskyi.
If farmers do decide to buy, then according to Ukraine’s Minister of Agrarian Policy and Food, Oleksii Pavlenko, in the first half of the year we can only be talking about equipment that is absolutely essential for the sowing campaign. He expects that a rise in agricultural machinery sales should be expected in the second half of 2015. “For agricultural producers, this is the period for harvesting early grain and legume crops, and an opportunity to revisit promising development plans for the enterprise, including updating their equipment fleet. Preliminary forecasts for winter crops and weather conditions give hope of harvesting winter grain at last year’s level,” states the agriculture minister.
Meanwhile, the fact that farmers are deciding whether to buy equipment or not, depending on the situation, is forcing agricultural machinery manufacturers to bring a significant share of equipment into warehouse stock.
“The market has frozen. Warehouses are packed, so for those who have the funds, buying equipment won’t be a problem at all,” adds Oleh Prykhodko, head of the Technical Consulting Bureau. At the same time, he notes that agricultural producers aren’t rushing to give up on premium-class equipment, since “it’s very difficult to switch, say, self-propelled machinery from one brand to another, because that’s a question of service, spare parts, and training scarce machine operators too.”
Puzzles, Ukrainian-style
However, while finances remain tight and domestic agricultural producers rack their brains over how and where to find money to update their machinery fleet (since, whichever way you look at it, that’s what determines a stable increase in agricultural output), the hryvnia’s exchange rate has been “backed up” by new import duties. Serhii Khlan, a member of Ukraine’s parliamentary committee on agrarian policy and land relations, expressed the conviction that simply raising the price of quality imported equipment, without simultaneously supporting domestic manufacturers, will lead to extremely negative consequences. “The relevant minister, Oleksii Pavlenko, has promised to stimulate domestic agricultural machinery production: to develop and adopt regulatory legal acts and align his policy with the needs of domestic machine-building. I hope the government keeps its word,” he adds.
Ambitious plans to manufacture agricultural machinery in Ukraine together with global leaders are announced year after year by the leadership of the Ministry of Agrarian Policy, but so far these intentions remain just that – intentions. Meanwhile, farmers note that government support for their technical equipment is becoming increasingly relevant. As UCAB general director Taras Vysotskyi clarified, there is currently no active support programme in Ukraine for agricultural producers’ technical equipment, “although this is necessary to ensure the development of the country’s agricultural sector as a whole.” What’s more, market participants note that over 70% of the equipment currently in farmers’ hands does not meet modern requirements.
Meanwhile, the Ministry of Agrarian Policy says that the Law of Ukraine “On the State Budget of Ukraine for 2015” provides for spending on programmes such as equipment purchases on financial-leasing terms through the “Ukragroleasing” National Joint Stock Company – that’s UAH 54 million (special fund) – and lending to farm enterprises – UAH 25.6 million. That means farmers can get an interest-free loan for a term of five years, including for purchasing agricultural machinery, the ministry adds. And there’s one more programme – financial support for measures in the agro-industrial complex – UAH 300 million, which provides for compensating the interest rates on commercial bank loans taken out by agricultural producers, including for purchasing agricultural machinery.
At the same time, in practice, the situation is not so rosy, and farmers are already braced for a market slowdown. In particular, Oleh Prykhodko forecasts that this year’s decline in the agricultural machinery market could exceed the figures seen during the 2008–2009 crisis years.
In place of an epilogue
According to statistics from Ukraine’s Ministry of Agrarian Policy and Food, equipment imports totalled $599 million in 2014, versus more than $1 billion in 2013. A notable decline has come in the tractor and combine harvester segments, which serve as a kind of indicator of the overall market situation. So, in 2014, 16,901 tractors were imported for $207.5 million; in 2013 – 20,226 units for $400.4 million; 882 combine harvesters were imported in 2014 for $91 million, versus 1,377 units for $161.5 million in 2013. According to data from the agro-industrial development departments of regional state administrations, agricultural producers purchased machinery and equipment worth UAH 4.8 billion in 2014, compared to UAH 6.8 billion in 2013.
Alla Stryzheus,
specially for ASA ASTRA LLC
alla.stryzheus@gmail.com
