Thursday, December 05, 2013

The New Kid on Ukraine's Block

While the media has recently focused upon Ukraine division on whether to develop closer links with the European Union or remain under the influence of its neighbour Russia, many will have overlooked the entry of another nation into Ukrainian affairs. Ukraine is to become China's largest overseas farm in another land-grab.

China will plough $2.6 billion into farmland in Ukraine that will eventually become its biggest overseas agricultural project.

Under the 50-year plan, Ukraine will initially provide China with at least 100,000 hectares - an area almost the size of Hong Kong - of high-quality farmland in the eastern Dnipropetrovsk region, mainly for growing crops and raising pigs. The produce will be sold to two Chinese state-owned grain conglomerates at preferential prices. The project will eventually expand to three million hectares. the Kyiv Post called it an "unprecedented foreign investment" in Ukraine's agriculture sector.

In April 2009, China had slightly over two million hectares of farmland abroad, he said. "So three million hectares would mean a very big project." The agreement was signed in June between the Xinjiang Production and Construction Corps and KSG Agro, Ukraine's leading agricultural company, XPCC said in a statement. XPCC, also known as Bingtuan, is a quasi-military organisation established in Xinjiang in the 1950s to reclaim farmland and consolidate defences against the Soviet Union. This would make it China's biggest reported lease or purchase of farmland overseas. China has made substantial agricultural investments elsewhere, notably in South America. Beidahuang acquired 234,000 hectares to grow soya bean and corn in Argentina, while Chongqing Grain paid US$375 million for soya bean plantations in Brazil and US$1.2 billion for land in Argentina to grow soya beans, corn and cotton.

Although China's domestic grain output had grown for 10 straight years, demand for imported grain had also grown. It imported nearly 14 million tonnes of cereal and cereal flours last year, an increase of more than 150 per cent from 2011. As urbanisation speeds up, consumption has led to greater food demand and domestic grain prices have stayed above global prices.Therefore, China has been importing more and more grain. Ukraine is one of the world's top 10 wheat exporters.  Ukraine offered a number of advantages such as excellent soil and experience in international trade.

Chinese agricultural co-operation with Ukraine started in 2011, when the then vice-premier Zhang Dejiang signed a memorandum to create a model farm in Ukraine. Last year, the Export-Import Bank of China approved a US$3 billion agricultural loan to the country. A fund for joint construction projects was set up, with contributions of US$600 million expected this year. XPCC is also investing in Ukraine in other ways. It has signed a memorandum earlier this month with the Autonomous Republic of Crimea on infrastructure investments in the peninsula, including an expressway, a government housing project and a bridge across the Strait of Kerch.

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