Audit of USAID/Ukraine’s AgroInvest Project

Vast, fertile plains cover approximately 70 percent of Ukraine, giving it immense agricultural potential. As a leading exporter of grains and sunflower oil, Ukraine is poised to become an emerging player in global food production and security. However, the agricultural sector only operates at about a third of its production capacity, accounting for more than 10 percent of the gross domestic product and nearly 16 percent of the workforce. Ukraine's lengthy land reform process has transformed the ownership structure of agricultural lands, with the government dismantling its former collective farms and transferring many of the newly privatized land plots to the ownership of approximately 7 million rural residents. However, a long-standing moratorium on the sale of these plots has stalled the development of a land market, resulting in a leasing market where private landowners enter into medium- to long-term agreements with farmers or agricultural enterprises in exchange for low rent. This has led to a lack of incentive for farmers and agricultural enterprises to invest in productivity-boosting improvements. Small and medium-sized producers (SMPs) generate a significant portion of Ukraine's agricultural output, but their productivity is poor compared with larger, more dominant agricultural enterprises. Ukrainian financial institutions often limit credit to these producers because agriculture is inherently risky, and when credit is extended, the financial institutions charge high interest rates, typically ranging from 20 to 45 percent. This limits the ability of SMPs to modernize and expand their operations, and cooperation among SMPs remains low due to weak market infrastructure, including a lack of post-harvest handling, consolidation, and market facilities. To address these issues, USAID/Ukraine awarded Chemonics International Inc. a 5-year, $20.61 million cost-plus-fixed-fee term level of effort contract to implement the AgroInvest project. The project aimed to accelerate broad-based economic recovery in Ukraine through the establishment of a more inclusive and competitive agricultural industry. The project had several notable successes in its nearly 2 years of implementation, including suggesting revisions to Ukraine's draft law on a land market, assisting with finalizing the law on agricultural cooperation, and training representatives from partner credit unions and groups in the value chain to assess a potential agricultural borrower's creditworthiness. AgroInvest also developed tools to analyze a potential borrower's financial position and reduce the risk of default, sponsored training, field days, study tours, and workshops facilitated by partner credit unions to encourage crop diversification among their agricultural members, and developed a new type of loan for the purchase and installation of equipment necessary to establish modern greenhouses. Several cooperatives, marketing groups, and producer groups were trained in business planning, and beneficiaries said the training helped them project revenue better and make more informed decisions.