Ukraine – The breadbasket of Europe

Sunflower: #1 in Europe and #2 in the world
6.3 Ukraine 4.1 Ukraine 445 Ukraine

Ukraine is one of the largest agricultural players in Europe and a major player worldwide

32.4

Ukraine

1.6

France

0.8

Romania

416

Hungary

18.4 France 12.7 Spain

Harvested area

Net export

1.5

Hungary Bulgaria

0.7 Spain 0.7 Bulgaria (mln ha) 0.6 France

372 France 324 Bulgaria (ths t) 315 Romania

Arable land

Production

(mln ha)

1.3

12.5 Poland 11.9 Germany

(mln t)

1.2 Romania

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

82
Germany Poland

Germany

39.1

France

7.0

Ukraine

14.4

France

Ukraine
Hungary

72 64

Turkey France

26.0

Germany

5.5

France

8.9

Ukraine
France Romania

Harvested area

Net export

3.2 Germany 2.3 Italy (mln ha) 2.3 Poland

4.6 Hungary 1.9 UK (mln t) 1.6 Germany
Italy Spain

Population

25.5

Ukraine

Bulgaria Turkey

62 UK 60 Italy (mln) 46 Ukraine

Production

17.8 Turkey (mln t) 17.2 UK

Source: FAPRI, Eurostat, FAO, Ukrstat, 2008 * Europe ranking does not include Russia

8

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 consumption, mln t population, bln

Wheat prices, $/t
714 709 703 Per capita wheat consumption, kg +5% 7.5 7.4 7.3 231 182 225
2009E

247 241 235

698 692 687 681 675 669 662 6.9 6.8 6.9 7.0 7.2 7.1 7.3

224
2010F 2011F 2012F 2013F 2014F

Sunflower prices, $/t
502 174 491 490 492 496

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

Europe Europe 2018 2009

2009E

2010F

2011F

2012F

2013F

2014F

Source: FAPRI 2009

9

Fertile black soils
60
Average depth of humus layer, cm

With one-third of the world’s richest black soils, Ukraine occupies a leading place in the world in terms of its proportion of high-quality fertile soils Black soils in eastern Ukraine contain valuable humus layer of approximately 60 cm which aids in the retention of soil nutrients and moisture and results in the highest productivity of any known soils worldwide

30

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 Source: Cartography USSR

Chernozems Source: USDA

10

Significant potential for productivity improvements
Wheat yield t/ha, 2008 7.1 +131% 5.6 4.7 3.6 2.3 2.3 2.4 2.8 2.9 3.0 4.1 Fertilizer use, kg per ha
UK Germany Argentina Russia Brazil India Canada USA Ukraine Poland China EU av France Germany UK France World av

8.1

8.3

Superior soil characteristics result in a low cost base for Ukraine relative to other countries Proper fertilization and adequate provision with machinery enable Ukrainian agricultural producers to enjoy significant upsides for crop yield improvements
Tractors use, units per 100 ha 311 220 215 139 116 110 101 57 27 18 12
Poland UK Germany France World av USA Canada India Ukraine

1,089 884 798 685 390 269 160 159 120 107 48
11

Source: FAPRI, Eurostat

Sunflower seed yield t/ha, 2008 +73% 1.7 1.8 1.8 1.9 2.0 2.2

2.6
Poland USA India Canada Argentina Ukraine Russia

1.4 1.1 0.8

1.5

1.6

1.6

Argentina Russia

India

Russia

Brazil

Ukraine

Canada

USA

Argentina

Poland

China

EU av

Germany

Italy

France

Source: FAPRI, FAO, Eurostat

Source: NationMaster, World Development Indicators

Storage capacity – key profitability driver of Ukrainian agriculture
Grain storage allows agribusinesses to significantly increase grain trading and profitability: The current capacity deficit exceeds 20 million tonnes, or 46% in 2009 Own storage facilities allow sales at prices with an up to 50% premium at peak season prices Ukraine wheat prices scale
180% 160% 140% 120% 100% 80%

Jul
2008 2007 harvesting

Oct

Jan

Mar

May

Lutsk

Rivno Zhytomyr Khmelnitsk

Chernigiv
Sumy

Grain storage coverage

Source: Bloomberg

Lviv Ternopil IvanoFrankivsk Uzhgorod

Kyiv
Poltava Cherkasy Vinnitsa Kyrovohrad Dnipropetrovsk Kharkiv

Ukraine sunflower prices scale
160%

Luhansk
Donetsk

54%

140% 120% 100%

Chernivts i

under 1.0 mln t storage capacity 1.0 - 2.0 mln t storage capacity over 2.0 mln t storage capacity

Zaporizhzhia Odesa Mykolaiv Kherson

80% 60%

Sep
2008 2007 harvesting

Nov

Feb

May

July

Crimea

Ukraine 2009

Source: Apk-Inform, 2009

Source: Bloomberg

12

Hidden land appreciation potential
Farmland prices in 2009, $ / ha Similar assets should sell at similar prices: The appreciation potential of Ukrainian land is a hidden value that domestic companies are likely to realise after establishment of a land market There is no legal framework in Ukraine for the private ownership of land for legal entities – they can only lease it Why will domestic companies enjoy low level land prices of approximately $200-300 per hectare? Currently Ukrainian legislation gives the pre-emptive right to the lessee to purchase the land if the owner decides to sell it (after the ban on sale is lifted) 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
800
Russia Bulgaria Australia Romania Poland New Zealand US France England Ireland

58,500 17,100

12,500 median: $8,151 6,600 3,120 3,450 4,855 9,643 11,000

Source: FAPRI, FAO, Eurostat

13

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 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

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

V

Insurance rebate

The government refunds 50% of premiums paid for insuring against crops failure

III

Crop subsidies

Farmers are paid a subsidy per hectare sown that ranges from USD10-45 per hectare depending on the crop

VI Equipment rebate

The government refunds 30% of the cost of locally-manufactured farm equipment purchased

Source: Company data

14

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