Friday, July 18, 2008

Is Ukraine the "Bread-Baskett of Europe"?

There is an old stereotype that Ukraine is the bread-basket of Europe and some people think that a revival of Ukraine's agriculture is the key to national greatness.

Unfortunately, this stereotype is no longer true. Ukraine's agricultural output today is about the same as Poland's and only about 60% of Russia's, Germany's, France's, Italy's or Spain's agricultural output, and about 66% of Great Britain's output. And that's considering the fact that all of these countries, except for Russia, are smaller than Ukraine in land area they occupy. http://en.wikipedia.org/wiki/Image:2005gdpAgricultural.PNG

Although I must admit that Ukrainian farming is still fairly outdated and definitely could benefit from the infusion of new technology and significant capital. Perhaps Ukrainian farming output could be doubled from current levels. If that would happen, it would become the biggest farm producer in Europe. Would that be enough to call it a "breadbasket of Europe" though?

In any case, the real wealth is in the brains and in the freedom to use them, as well as in the social capital - families, churches, education, civil society (especially the non-profit sector).

In that respect, Ukraine is looking promising. Negative family trends seems to have slowed down. Churches are booming. The civil society is much more vibrant than in most of the rest of Soviet Union. The percentage of college-educated people in Ukraine is roughly equal to that of Western European countries today, although the quality of education is uneven. That number should continue to increase if Ukraine is to become very successful and college standards should continue to be increased, as they are now. The societies of the Asian nations that have become major success stories have a much higher percentage of college-educated youth. Technology in Ukraine is booming, and in several areas, such as rocketry, tank technology, stem cells research, and others, Ukraine is in leading positions in the world. But investment in basic research needs to increase significantly if this edge is to be maintained and increased in the future.

Even more importantly, another condition that is highly important to economic and cultural success is the rule of law, and it is still quite weak in Ukraine. It's important to have simple laws that are respected by everyone. Ukraine's laws are complicated and contradictory, and there are simply too many of them. By simplifying and correcting its laws, Ukraine will strengthen property rights protection, significantly decrease bureaucratic redtape, and cut out most of the corruption that continues to plague Ukrainian society.

3 comments:

  1. The role of agriculture in economic development does not, strictly speaking, revolve around the issue of being ‘Europe’s Breadbasket’. Farmers are small businessmen. If they have clear and unambiguous title to their land, they use it as security to borrow money for machinery, chemicals and other requirements (see the theories of Peruvian economist Hernando de Soto), creating demand and leading the accumulation of capital. This becomes the basis for the growth of small and medium business, the most dynamic elements of any economy.

    Much the same applies to small businesses in the city and suburbs: secure land ownership provides a basis for development and generates citizen activity within the political system, in protection of their own interests (see the histories of the US, Canada, etc).

    An agriculture based on secure land ownership is critical not just from a food supply point of view, but from the development of stable middle-class society and civic involvement.

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  2. You know you are actually quite right that it's not just about being "the breadbaskett of Europe". Ukraine needs to develop its agriculture. It's going to be one of the vehicles for Ukraine's rise as an economic power. The main reasons are:

    1. The food prices are going through the roof worldwide.

    2. The yields on farming land in Ukraine are still extremely small, compared with the rest of Western Europe. Even Russia is now ahead on how much it produces out of its land.

    Ukraine has rich land, which can potentially yield 4-5 times of its current harvest yields, due to lack of consolidation, lack of foreign investments (foreigners still not allowed to own land in Ukraine!), the depleted land - thanks to brutal Soviet heritage (brutal to the land just as much as to the people), and to the lack of farming consulting talent, as well as technology.

    I do have to disagree with you about de Soto though. I was very interested in his theories and thought they could be applied to Ukraine, but I spoke with the head of the US-Ukraine Foundation (usukraine.org) about it, and she has told me that they actually hired de Soto to do projects in Ukraine and found that he wasn't very useful.

    The main reason is probably that Ukraine and Peru have very different conditions. Land ownership is not the problem in Ukraine, because locals are free to own, buy, or sell any land they want. The problem is all the other things I have listed above!

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