as in Russia - and are reluctant to risk losing their land in default. Furthermore, many agricultural enterprises are comprised of hundreds of shareholders, whose permission would need to be obtained before the farm director could use the land as collateral.
In many cases, the best option is for a farm to attract an investor who can provide market expertise, operating capital, and collateral to enable the farm to secure loans. The potential "down side "of investor arrangements, from the farmer's perspective, is that farm directors to some extent lose control of farm operations. Often the investment company, or "holding company," insists on maintaining control over every aspect of production and essentially takes over the farm, equipment, and land. Farms are forced to enter into extended leases of five to ten years, sometimes longer, because they depend heavily on cash from the holding company.
The consensus of most observers is that already-successful farms will continue to expand as shareholders pull out of failing farms and lease their plots to stronger ones. Clearly, many farms will not survive the transition to a market economy, and high-risk farms with few liquid assets, heavy debt, bad credit history, and poor management will collapse.
The loss of State subsidies following the collapse of the Soviet Union in 1991 increased feed and production costs and reduced profitability for livestock enterprises. As prices for meat products increased, consumer demand declined, thus establishing a downward spiral that continued throughout the decade. Livestock inventories, and demand for forage, continued to shrink. The increasing inability of large agricultural enterprises (ie, former State and collective farms) to maintain livestock operations, due largely to inefficient management and farms 'inability to ensure sufficient feed supplied, resulted in increased dependence on private producers and household farms to satisfy demand for beef and pork. Furthermore, the involvement of investor groups (holding companies) in agricultural production has had an impact on livestock numbers. Many farms who entered agreements with investment firms killed off their herds because livestock is not quickly profitable and not as attractive to investors. Although the freefall in livestock inventories has slowed since 2000, a rapid recovery in beef production is unlikely. Cattle inventories are increasing on private household farms, which typically have two to three head of cattle per farm, but large industrial farms are shifting away from cattle and toward crop production and total cattle inventories continue to decrease.
5. Investment in agriculture
Investment in agriculture land in Ukraine is conducted under farmland lease agreements. Lease contracts are closed directly with pai-holders for different periods averaging at 10 years and going up to 49 years. Farmland pai lease contracts enable contractors to consolidate large fields of 50-200 hectares located close to each other for the ease of crop rotation planning, cultivation and harvesting.
Ukraine's agricultural land cannot be purchased, but lease agreements for agricultural land enable as much freedom for performing farming operations as ownership while also providing a primary right of purchase in case of the agricultural land sale moratorium lift and given that pai holders would be willing to sell off their property.
Cost of investment in Ukraine's farmlands is the lowest in Europe while it provides the highest return potential given the high soil fertility and unrealized agri-ecological potential of Ukraine's soils. The cost of investment is composed of the lease rights acquisition cost, annual lease fees and annual cultivation (actual farming operation) costs.
Land lease rights acquisition cost in 2009 has ranged from USD 120 to USD 300 per hectare depending of the region and soil quality. Lease rights are normally acquired through the transfer of corporate rights from the current lease holding company to the new owners. Lease rights can also be transferred through re-registration of land lease agreements.
Annual land lease fees are legally fixed at a minimum 3% of the land plot value level but may vary from region to region. Lease fees in 2009 have ranged from USD 25 to USD 45 per hectare. p> Agricultural land lease agreements carry a legal obligation of land cultivation which inevitably requires a lessee to perform actual farming activities. Since agricultural equipment lease is not very common in Ukraine, most farms invest in tractors, tillage equipment, seeding equipment, harvesters, etc. Capital investment into agricultural equipment in Ukraine may vary from USD 350 (locally produced equipment or mixed) to USD 800 (high-end Western equipment) per hectare.
Calculated per annum with fuel, spare parts, seeds, fertilizers, crop prot...
