The Agro-Food Section of the Ukraine: Analysis of Transition by Means of the Global Commodity Chain Approach

Helanterae, A. (2003). The Agro-Food Section of the Ukraine: Analysis of Transition by Means of the Global Commodity Chain Approach. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-03-055

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Abstract

The Ukrainian agro-food sector encountered a difficult transformation in the 1990s. The production of agriculture decreased to approximately a half in the 1990s. The same holds for the food processing industry. This study concentrates at the chain of various economic agents, the cooperation of which is required until the primary agricultural production is brought to the stage of final consumption in the food industry. These agents of the agro-food value chain were not, however, in equal bargaining positions when they had to adapt by restructuring during the previous decade of transition.

This report fulfills three tasks. First, it describes and analyses the basic changes that have taken in the agro-food sector of Ukraine. Second, it introduces the global commodity chain (GCC) approach into studying the agro-food sector of the countries of the former Soviet Union (FSU). The major concept of the approach, like producer-driven and buyer-driven dichotomy, chain governance and upgrading, are reviewed. Third, the study focuses on four value chains of the agro-food sector: sugar, sunflower, grain and dairy.

The report restricts its focus on the first nine years of independence, i.e. 1992-2000 and, in particular, on the second half of the 1990s. The material of the report was initially conducted during a research project on the recent development and future prospects of the Ukrainian agro-food sector financed by the Ministry of Trade and Industry of Finland in 2001.

One of the conclusions of this report is that a dual food market emerged in the 1990s and especially the traditional value chain -large farms, large processing companies and retail trade - found it very hard to adapt. This study explains what agents of the chain have been more likely to become governors dominating the chain. The fundamental change of the agro-food sector was that new governing structures emerged gradually in the 1990s. Food processing enterprises and enterprise structures from outside the agro-food sector possessed several critical assets to overcome the inadequacies of transition economies. For example, these governors of the chain possessed access to capital and that was very important because the banking system was not working properly. On the contrary, one important reason for the unfavorable position of farms in the value chain was that they were not able to use land as a collateral, which denied the access to capital.

The GCC approach proved to be a suitable analytical framework for analyzing the agro-food sector of Ukraine. One of the conclusions of the study is that the GCC approach can explain the differences in the performances of the different agents of the food chain. In addition, the constructed view of the Ukrainian agro-food sector established in the report contributes to the discussion about the GCC approach in general.

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