m and processing equipment in Ukraine is estimated at $ 5-10 billion, with an annual supply of $ 1-2 billion worth of farm equipment. p> Experts estimate the current level of physical depreciation of agricultural machinery and equipment at 70-80 percent, compared to 55-60 percent in 1999. Approximately 40 percent of tractors are 15-25 years old. The need to replace basic farm machinery is becoming critical. p> There are about 40 manufacturers of agricultural machinery in Ukraine, which still supply a significant part of Ukraine agricultural machinery, in particular, ploughs, harrows, cultivators, seeders and sprayers. Production facilities at most agricultural machinery plants are currently being utilized at levels ranging from 15 to 30 percent. The price of domestically produced agricultural machinery is not cheap, because of inefficient and outdated manufacturing technologies. All this makes local machinery less attractive for agricultural companies.
Western European firms actively operate in the Ukrainian market. They understand that despite the obstacles to doing business in Ukraine, the potential for hard currency agribusiness exports is great. US agricultural machinery has a good reputation in Ukraine. The list of US manufacturers includes AGCO Corporation, Massey Ferguson, John Deere, Caterpillar, and Case/New Holland. They offer a full range of equipment and parts, including spare parts, for cultivating, growing, harvesting and transporting, as well as equipment for livestock production. While U.S. machinery is well represented in Ukraine, there are still good opportunities for US companies to enter the Ukrainian agricultural machinery market. Existing critical demand for reconditioned (used) machinery is worth mentioning as well.
4. Problems of this sector of economy
The production of grain and oilseed crops is dominated by large agricultural enterprises that were established when Ukraine's agricultural sector was restructured in April, 2000. (In contrast, nearly 90 percent of the country's vegetables and virtually all of the potatoes are grown on private household plots.) State and collective farms were dismantled and farm property was divided among the farm workers in the form of land shares. Most new shareholders leased their land back to newly-formed private agricultural associations, under the leadership of a director who was frequently, but not always, the manager of the former State farm. Consolidation of small farms into larger and more viable enterprises has been the prevailing trend, similar to what took place in Russia several years earlier. (For a brief discussion of Ukraine's agricultural restructuring, see June 2001 report.) The conversion to a more market-oriented environment has progressed relatively well according to most observers. Many farms are succeeding, under shrewd leadership, in spite of fluctuating grain prices and constraints on the availability of credit. The transition of Ukraine's agricultural sector from a command economy to a more market-oriented system has introduced the element of fiscal responsibility, and farm managers are striving to make their enterprises as efficient as possible. Decisions on crop selection, fertilizer application, harvest method, grain storage, and all other aspects of farm management are made with an eye toward boosting farm profit. Ukraine agriculture is going through a winnowing process whereby unprofitable, usually smaller farms will either collapse or join more successful farms.
Most farms are able to receive credit, but interest rates and collateral demands are high. Since many farms are already heavily in debt to banks or suppliers of fertilizer and plant-protection chemicals, and since agricultural loans are not guaranteed by the government, banks are largely unwilling to make long-term loans. Most credit is extended in the form of seasonal loans (six to ten months) used almost exclusively for the purchase of fertilizer and plant protection chemicals. Commercial interest rates typically range from 25 to 30 percent. The State provides assistance to farms by paying 50 percent of the interest on agricultural loans. Banks typically require 200 to 300 percent collateral, depending on the farm's credit history and the risk level. Future crop usually serves as collateral, but collateral can also be offered in the form of livestock, farm machinery, or the personal property of the farm director. Under current legislation, land cannot be used as collateral. Farms 'difficulty in obtaining anything other than short-term, high-interest loans places severe constraints on their ability to invest in long-term capital improvements, such as agricultural machinery or storage facilities. Using land as collateral would enable farms to receive longer-term loans, but many farm directors remain leery of the Ukrainian banking system - which is not yet as stable ...
