A recent sequence of events has brought the fragility of the world food system into sharp focus: First the pandemic, then Russia’s war on Ukraine, and the consequent shifts in global patterns of agricultural trade. The Middle East and Africa have been hit the hardest. As prices for imported food staples soar, the people in these regions, heavily dependent on Ukraine’s food exports, are being pushed further into food insecurity.
The current system for food production in Ukraine, based on large-scale monoculture production and centralised logistics and processing, lacks resilience and is highly vulnerable to external threats. The World Bank and other international financiers have played a controversial role in the development of Ukraine’s agribusinesses. Historically, they have promoted reforms in the agricultural and land sectors that have led to long-term environmental impacts, the centralisation of financial and natural resources, and the subsequent shift of the whole country towards large-scale intensive production (see Observer Spring 2023). Agriculture remains a priority for the International Finance Corporation (IFC), the World Bank’s private sector lending arm, which plans to invest $1.5 billion in Ukraine’s banking, agriculture and infrastructure sectors as part of reconstruction efforts.
Take the case of Myronivsky Hliboproduct (MHP), Ukraine’s and Europe’s largest poultry producer. Despite complaints from local communities about the negative environmental impact of MHP’s operations, international development banks have shown a consistent eagerness to pour money into MHP. The ongoing investigation by the independent complaints offices of the European Bank for Reconstruction and Development (EBRD) and the IFC poses a reputational risk for both institutions. Moreover, the IFC is considering a new loan to MHP.
The World Bank and other international financiers have played a controversial role in the development of Ukraine’s agribusinesses
As reconstruction beckons, a new approach is needed
Investments must be used strategically to achieve a deeper qualitative transformation of the sector as Ukraine has ambitions to become an equal part of the EU family. EU institutions, public investors and civil society must come together to explore ways of rebuilding and reorienting the country’s agricultural system. Putting small farmers, transparency and sustainability at the heart of these efforts should be at the top of any agenda. Decarbonised and decentralised production that can adapt to climate change would be less vulnerable and more resilient, both for Ukraine and for global food security.
The second Ukraine Rapid Damage and Needs Assessment – jointly undertaken by the World Bank, the Government of Ukraine, the European Commission and the United Nations – estimates that the reconstruction and recovery needs for agricultural production in Ukraine will be $29.7 billion from 2024 to 2033. However, the assessment recognises its own limitations in calculating long-term indirect losses to the sector, such as soil cover degradation and pollution caused by military action. Thus, experience and financing would be needed to restore damaged land and the agricultural revival of de-occupied territories in Ukraine.
Moreover, each new day of the war is deepening long-term consequences for agricultural production and rural livelihoods. For the reconstruction and further development of liberated territories to be successful, Ukraine must ensure rural and agricultural viability.
Firstly, rural areas – despite having the highest level of poverty in Ukraine – serve as workplaces for 80 per cent of all agricultural workers, including informal employees. That’s why levelling the playing field when it comes to accessing natural and financial resources, knowledge and information technologies for small- and medium-sized producers in the agricultural sector is essential.
Secondly, measures aimed at mitigating and adapting to climate change are urgently needed. Over the last decade, prior to the full-scale war, out of all the sectors in Ukraine, agriculture exhibited the sharpest upward trend in the growth of greenhouse gas emissions, increasing by almost 30 per cent. Additionally, the winter wheat yield in Ukraine’s steppe zone is one of the most volatile globally, demonstrating the severe impacts of climate change.
Finally, ensuring transparency of the land market is another important consideration. The land market has been functional throughout the war. However, due to martial law, it is difficult to assess the concentration of land ownership and the level of public monitoring involved. Effective state regulation and data transparency need to be prioritised in the second phase of Ukraine’s land market reform, which is due to begin in 2024.
Although many might expect production to return to pre-war levels and even increase, the recovery of the sector should go beyond simply chasing growth targets at all costs. International financial institutions should focus on ensuring liquidity for smaller farms, guaranteeing environmentally sustainable investments and a transparent land market for the recovery of the agricultural sector.