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Rosy Outlook for Ukraine Land Investment

As soft commodity watchers well know, grain prices reached record highs last year and as a consequence, agricultural land investment, including Ukraine land, also soared. And according to the OECD-FAO Agricultural Outlook 2009-2018, this win-win situation is expected to continue at least for the next decade.

As highlighted in the OECD-FAO Agricultural Outlook, "real commodity prices over the 2009-2018 period are projected to remain at, or above, the 1997-2006 average". The reasons given in the Outlook for the expected high prices for soft commodities are renewed food demand from developing countries - the changing diet in China and India are the main drivers here - and the emerging biofuel markets, led by Brazil. Another factor underlying the consistent push on soft commodities is the relentless population growth of 150 people per minute, an acceleration rate that the current agricultural land cannot sustain.

According to OECD-FAO, the issue of food security is high on the political agenda. Helping Africa feed itself featured as a top priority at the recent G8 summit in Italy and the first ever G8 Agriculture Ministerial Summit was held in April this year. In the words of a recent FT article, "after a year worrying about the piggy bank, the world economy is turning its attention to the cupboard".

The Agricultural Outlook includes research carried out by FAO showing that food production needs to increase by more than 40% by 2030 and by a massive 70% by 2050, compared to the average current levels. Given the huge demand for more food, the availability of agricultural land is a major worldwide concern. The OECD-FAO report that the world currently has 1.4 billion hectares under crops, but that there is "substantial additional land available for use in agriculture". Areas where the additional 1.6 billion hectares are situated include Brazil, Russia, Ukraine and some African countries. After the demise of the USSR in 1991, a significant proportion of Ukraine's rich agricultural land fell into disuse with the subsequent decrease in grain production. However, the demand for more food has meant that investor interest in Ukraine agricultural land has been high. Institutional funds (for example, Morgan Stanley) have bought large tracts of land in Ukraine. With prices far lower than many other countries, investment in Ukraine land is cheap.

Farm technology is currently under major improvement in Ukraine where agricultural land yields are fast catching up with their potential. While yields in Western Europe are expected to increase at just fractional rates, those in Ukraine are predicted to soar as better land practices are implemented. The FAO suggests that Ukraine's unique combination of excellent soil quality and good climatic conditions should lead to a significant increase in yields over the next decade.

While the OECD-FAO Agricultural Outlook is cautious about the world's economic future, the report paints a rosy picture for agricultural markets as it expects "real commodity prices to remain above historical averages". By extension, those investing in Ukraine land can also expect a rosy outlook.

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