Some comments on Oakland Institute's report on Ukraine

Oakland institute released a report last year about Ukraine – Walking on the West Side – that has recently been getting a lot of attention. There was a rather interesting revelation in the report that the EU Association agreement that Ukraine signed contained a clause stating that Ukraine and the EU “will cooperate to extend the use of bio-technology in the agricultural sector”. (I am quoting Oakland here and not the EU agreement, which I have not read). As the Oakland institute report highlighted this may be a way to induce Ukraine to legalize the cultivation of GMO crops, and if so, this is indeed troubling news, which would be unpopular in Ukraine. So this definitely needs to be followed up.

I want to turn now to some parts of the report that I thought were not so good. In particular, the report contained some wrong information and it also had – what I felt was – misinformed criticism of reforms, urged by the World Bank, to improve the business climate in Ukraine. For example, the report states that “in recent years 1.6 million ha have been signed over to foreign companies for agricultural purposes.” (p.4). There is a chart of these companies. The problem is that four of the largest of these companies (in terms of their land bank), totaling around 950,000 ha, are actually Ukrainian companies that are incorporated abroad. Kernel, Mryia, Sintal and MCB Agricole are Ukrainian owned and run companies. Sintal, by the way, was undergoing bankruptcy proceeding earlier in 2014 (here is somewhat dated info on Sintal’s Ukrainian owner) and MCB Agricole (or rather their Ukrainian daughter company Ukrzernprom) got eaten up by competitors already by 2013 (See this article in Russian). And of course Mryia is technical default as of August 2014. This is not to deny that foreign companies are investing in Ukrainian agriculture, but the biggest companies, such as UkrLandFarming or MHP, remain Ukrainian. Generally, it is not going well for the large agroholdings – foreign or Ukrainian – due both to the current conflict and to problems that pre-date the current conflict, so there is a real question concerning the viability of these super large farms. (This is something I am currently researching and hope to have something out soon...)

Also, I do not deny that there are “land-grabbing” concerns, particularly as the new government moves towards lifting the moratorium on agricultural land sales (something, that the previous government was also intent on doing). Nevertheless up to 2013 most land reform proposals still limited corporate ownership of agricultural land and banned foreign ownership of agricultural land. I say up to 2013, because I have not been following this issue over 2014. This issue definitely needs to be monitored, but I think that Oakland exaggerates the degree to which foreigners are taking over or are poised to take over Ukrainian farmland and the Ukrainian ag-sector. To the extent that there is a landgrab going on in Ukraine – and this question is not as clear-cut in Ukraine as it is elsewhere in the world – it is mostly Ukrainians grabbing land from Ukrainians.

Finally, Oakland has rightly drawn attention to the real pain that IMF conditionality will bring about in Ukrainian society. That being said, they appear to be critical of World Bank programs to improve the business climate, arguing that it has nothing to do with fighting corruption. They provide no backing for this assertion. In fact, businesses have been mistreated by Ukrainian officialdom – I have heard loads of stories – and the Ukrainian economy is and was over-regulated, which provided ample opportunity for corruption. Improving the business climate is to a large degree about fighting corruption and arbitrary decisions. In 2013 Transparency International declared Ukraine the most corrupt country in Europe, so there is a lot of work to do here. Of course the World Bank should be monitored and criticized when appropriate, but in this case, I think the World Bank is right. Also, there is research that indicates that corruption is actually a reason why farms are so large in Ukraine and Russia – they need to be big to have enough negotiating power to deal with national and regional governments (Here is a link to the article by Ulrich Koester). Improving the business climate in other words, if it leads to more clear regulations and less corruption, may well level the playing field helping small and medium scale farmers to compete. 

Let me just say, in conclusion, that the Oakland Institute does good work. In this particular report, they raised important points, particularly the bio-technology clause in the EU agreement. I hope they continue to report on this. But this report would have been benefited from a strong dose of Ukrainian reality, which makes all these questions more complex.

PS. There’s a lot of context about the GMO question in Ukraine missing from the report. Basically, farmers in Ukraine have been using GMO seeds for a long time despite it being illegal. According to this article (in Russian) from Zerkalo Nedeli, a third of corn, and 70% of soy grown in Ukraine is from GMO seeds. See also this article (in Russian) from Kommersant, which basically says the same thing. The previous government – the one that negotiated the EU agreement with the EU – actually tried to legalize GMO in 2013.  The question is how those GMO seeds got into Ukraine. Now that would be an interesting report to read.