Volume 4 Issue 2 (July, 2007)

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In This Issue

Introduction
Economics and Policy of Carbon Sequestration in Agricultural Soils
Ukrainian Agriculture and Agri-Environmental Concern
Climate Change Statistics – Carbon Offsets
Websites of Interest   

Introduction
Brent Sohngen, AED Economics, Ohio State University (Sohngen.1@osu.edu)

This issue of the Ohio Environment Report examines two issues.  Oleg Kucher describes for us the agricultural and environmental situation in the country of Ukraine.  Oleg is a Ukrainian economist who has spent the past year in the Department of Agricultural, Environmental and Development Economics at Ohio State University on a Fulbright Scholarship.  Here, he has studied our environmental and conservation programs.

His article examines how the agricultural industry has responded to the dramatic changes that occurred in Ukraine after its independence in the early 1990's. These changes include privatization of former collective farms, and the adjustment to a market economy.  In addition, Oleg considers the environmental legacy of past management on agricultural lands, and other issues unique to Ukraine, such as the 1986 Chernobyl explosion.  He describes how the country is currently handling environmental issues on agricultural lands during the continuing transition to private ownership, and the continuing restructuring of the agricultural industry in Ukraine. 

The other articles in this issue consider climate change issues.  One article "Economics and Policy of Carbon Sequestration in Agricultural Soils" considers carbon sequestration in agricultural soils and policies and programs to address carbon sequestration in the US and Ohio.  The article first examines the costs of carbon sequestration and the potential payments that farmers could achieve under a $15 per tonne carbon price.  The article also discusses how carbon policies might be introduced and implemented, and current policy trends, and in particular, recent legislation that has been initiated by several members of Congress.  The final article examines "carbon offsets" which have become bigger and bigger business in recent years.

Economics and Policy of Carbon Sequestration in Agricultural Soils
Brent Sohngen, AED Economics, Ohio State University (Sohngen.1@osu.edu)

One widely discussed alternative for mitigating climate change is the storage of carbon in agricultural soils.  Soil scientists suggest that agricultural soils in the US can sequester up to 900 million tonnes CO₂ per year over the next 20 – 40 years (Lal et al., 1998).  [Note: all estimates in this article are given in the international standard, metric tonnes, where 1 metric tonne is approximately 1.1 English tons, or 2200 pounds.]  This represents around 15% of current net US emissions, estimated to be around 6.1 million tonnes CO₂ per year (see: http://www.epa.gov/climatechange/emissions/usinventoryreport.html).  Given its fairly productive agricultural soils, Ohio farmers could contribute to solving the climate change problem through soil carbon sequestration.

Estimates of the technical potential (the 900 million tonnes CO₂ estimate given above), of course, do not account for the economic costs of achieving this level of sequestration.  Soil carbon sequestration at the levels recommended by scientists will require that landowners change management of their agricultural land.  Landowners will need to switch most of their land to continuous no-till, and convert more acres into conservation areas planted in grasses or trees.  This may become very costly to landowners in an era of high crop, and especially corn, prices.  Given the traditional difficulties and yield effects associated with utilizing no-till with corn plantings, there could be substantial costs associated with increasing the carbon sequestered in soils.

The difference between the technical potential and the economic potential for carbon sequestration is shown in figure 1.  The technical potential is the quantity of carbon that scientists suggest could potentially be sequestered if everyone behaved as if carbon sequestration were the most valuable alternative on their farm.  The economic potential shows the costs of achieving different levels of this technical potential.  Costs become very high as society engages in more and more carbon sequestration.

Figure 1: Technical and economic potential for carbon sequestration in agricultural soils (adapted from McCarl and Schneider, 2001).

The implications of figure 1 tell us that carbon sequestration in agricultural soils has potential to assist in mitigating climate change, but as with anything that is good for us, it should be considered in moderation.  It would be costly policy to develop programs that try to stimulate all farmers to adopt no-tillage on all of their cropland.

So how much can we achieve economically?  Nationally, studies indicate that for $15 per tonne CO_2­, we could sequester from 30 – 200 tonnes CO₂ per year for the next 15 – 20 years (Murray et al., 2005; Lewandrowski et al., 2005).  These results imply that at maximum about half of the technical potential can be achieved for $15 per tonne CO­₂.  In addition to these national studies, several regional studies have been conducted (figure 2).  The regional studies imply that a large proportion of the carbon potential resides within the Midwestern, Mississippi Delta, and Great Plains states in the US. This result is not surprising given the preponderance of crop land in these states.

How much is $15 per tonne CO₂ worth to farmers?  Table 1 presents estimates of the value of converting from conventional tillage to no-tillage on average Ohio soils.   The annual carbon dioxide gain is shown to be around 0.75 tonnes CO₂ per acre per year.  If landowners agreed to convert to no-tillage permanently, they would be paid $8.45 per acre per year for the $15 per tonne CO_2­ price.  However, if landowners signed only a 10 year contract that then chose to till their land, they would be paid the equivalent of only $2.87 per acre per year (because they would have to pay some back when carbon is released at year 10).

Table 1 illustrates that permanent storage of carbon in soils – that is, permanent conversion to no-tillage – will attract a premium. It is worth more to society, so farmers who make this agreement should be paid more.  Farmers who do not make this agreement should be paid less.  There should be no requirement to convert permanently, just the recognition that if landowners only sign up for a limited time, they are providing a less valuable service to society than if they signed up permanently.

A different way to consider $15 per tonne CO₂ is to translate it into a carbon tax on gasoline.  Each gallon of gasoline when burned releases about 20 pounds of CO₂.  Thus, each gallon of gasoline releases 0.01 tons (English) of CO₂, or 0.009 metric tonnes.  The $15 per tonne CO₂ price is given in dollars per metric tonne, which translates into an equivalent gasoline tax of around $0.14 per gallon.  If society decides to tax gasoline $0.14 per gallon to help mitigate climate change, an equivalent action would be to pay Ohio farmers up to $8.45 per acre per year to sequester additional carbon through permanent conversions to no tillage.

Figure 2: Regional economic potential for carbon sequestration

Table 1: Estimated value of converting to no-tillage from conventional tillage on "average" Ohio soils under permanent versus short term contracts.

 How much could we achieve in Ohio?  A recent study by Choi and Sohngen (2007) indicates that Ohio farmers could sequester around 1.2 million tons CO₂ per year over the next 20 years if they were paid a carbon price of $15 per tonne CO₂.  Geographically, the distribution of the carbon sequestered is shown in figure 3.  Darker areas in the figure represent counties that are projected to have larger potential for sequestering carbon at a given price level. Counties may be darker because they currently have a low proportion of acres under no-tillage, more of the soils are economically suitable for no-tillage, or both.

Figure 3: Distribution of economic potential for carbon sequestration.  Darker areas represent regions with greater potential for carbon sequestration at a given price.

The results of the analysis above indicate that carbon sequestration in agricultural soils has potential to assist in mitigating climate change. The results of the economic studies are not as optimistic as the technical potential studies conducted by soil scientists, but they nonetheless indicate that there is broad scope for conservation and no tillage to contribute to any national policies aimed at mitigating climate change. 

Implementing Carbon Sequestration

The actual implementation of any policies or programs to sequester carbon in agricultural soils, however, will be complicated.  Unlike traditional farm outputs, which are measured fairly precisely when they are harvested and sold, soil carbon is not currently measured, and if it is measured, it is not reported and tracked.  Clearly, the best way to pay for soil carbon sequestration is to actually measure it in the soil and to pay farmers specifically for the carbon they store.  Some economists suggest that the costs of establishing carbon sequestration programs and developing measurement and monitoring protocols would waste too many resources.  There may be some legitimacy to these concerns at low carbon prices, but if carbon prices rise, these concerns become less important.

Measuring and monitoring soil carbon will entail additional costs to the system.  These costs are likely to arise in two different categories – measurement/monitoring costs and administrative/bureaucratic costs.  Antle et al. (2003) estimate measurement costs to be around $1 per tonne CO₂.  If carbon prices are $15 per tonneCO₂, this represents about 7% of the total value of the carbon.  Additional bureaucratic costs of establishing programs to keep track of the carbon and monitor it could add another $1-$2 per tonne CO₂ (Antinori and Sathaye, 2007).  This means that if carbon prices are $15 per tonne CO₂, farmers will actually only get around $11 - $12 per tonne CO₂ to the farmers.  Even if one doubles the bureaucratic costs are much higher (as is entirely possible when government sets up bureaucracy for anything) to $4 per tonne CO­_2, farmers could still fetch $9-$10 per tonne CO­₂ if carbon prices are $15 per tonne CO₂.

It is absolutely true that if carbon prices are only $4-$5 per tonne CO_2­, then farmers would obtain only miniscule amounts of money for sequestering carbon (less than $1 per tonne CO₂).  This is the current situation where we have no democratically determined carbon constraints (that is, Congress and the President acting on our behalf have not established climate policy as an important legislative agenda item). 

There is currently have a purely voluntary carbon market.  One option for firms voluntarily reducing their carbon emissions is through the Chicago Climate Exchange (see: http://www.chicagoclimatex.com/).  On this private market, large companies have voluntarily agreed to reduce their carbon emissions. They can then exchange the rights for carbon in a market.  Soil carbon sequestration is one investment companies can make to reduce their costs of meeting their voluntary reductions.  Historical prices on this market are shown in figure 4.  Prices have risen over the years, but remain fairly low, so the economics of soil carbon sequestration to individual farmers still does not look all that optimistic for individual farmers.

Figure 4: Historical carbon prices on the Chicago Climate Exchange.

Note that since this is a purely voluntary market, it would be surprising if carbon prices ever rose significantly.  Why, after all, would companies voluntarily choose to undertaken costly actions when their competitors do not?   If the US, however, chooses to undertake carbon policy, much higher carbon prices could result.  In that situation, farmers could benefit substantially, even accounting for the costs of setting up a new program and the costs of measuring and monitoring progress in the sequestration program. 

There are imperfect alternatives to actually measuring the carbon in the soil.  These alternatives would presumably reduce the precision by which we measure the carbon gains, but they could also reduce the costs of the program.  For instance, we could just pay fixed rates per acre of land entered into a no-tillage program, and then payments would be based on observing what the farmer does.  Thus, rather than actually measuring the carbon, we would just measure whether the farmer used no-tillage.  This could be cheaper, but again, we would not be certain about the size of the carbon gain we would be getting.  This is essentially the approach that the Chicago Climate Exchange has taken with the farmers enrolled in its program.  It is less precise, but perhaps more workable when the price of carbon sequestration is low.

In addition to the CCX market, numerous other trades and carbon offset activities have occurred (see "State of the Voluntary Carbon Markets 2007: Picking Up Steam" available at http://www.ecosystemmarketplace.com/).  This report suggests that the value of the voluntary market outside of CCX is larger than the CCX market. It includes a large number of internationally derived forestry and other type of carbon offset credits. 

Current Policy Directions

In this session of Congress a number of bills have been introduced to address climate policy. For an excellent analysis and discussion of these bills, see

http://www.rff.org/rff/News/Releases/2007Releases/July2007ClimateChangeBillsinCongress.cfm)

Some of these bills would allow unlimited use of agricultural and forestry carbon sequestration.  Others are silent on the issue.  Some of the bills have what is called a safety valve, which limits the price of carbon in the market.  By keeping prices artificially low, these bills may also limit the amount of carbon sequestration in agriculture.

When viewed from a distance, these bills, and the general policy discussion in Washington (and Ohio) are mostly focusing on other sectors of the economy. They are not broadly considering carbon sequestration in agricultural soils or forests.  There are several reasons for my concluding this.

First, major national environmental groups that have an important influence on policy are skeptical of carbon sequestration in agriculture and forestry.  They have numerous concerns, some of which relate to the lack of permanence in carbon sequestration (the notion that any carbon stored through no-till is emitted as soon as land is tilled), and some of which relate to measuring and monitoring issues.  But at the end of the day, their perspective can be boiled down to the notion that they view carbon emissions from industry and transportation as the main culprits of climate change, and they therefore want to direct all of the policy towards reducing those emissions.

Second, agricultural interests have not come to a consensus on what they believe about climate change.  Agricultural interests tend to be less persuaded by the science of climate change, and there is consequently less consensus among agricultural interests that there is even a need to do something about it.  This factor limits the ability of agricultural lobby groups to coalesce behind the inclusion of carbon sequestration offsets in the current suite of bills before Congress. 

Third, while there seems to be consensus in Washington now that climate change is real and something needs to be done about it, there also seems to be genuine debate emerging about the best approach.  The two potential approaches can generally be categorized as (1) Cap and trade versus (2) Industrial-energy policy.  The discussion over these two approaches and the policies that may ultimately emerge could reduce any role for carbon sequestration in climate policy.

Cap and trade policies would put limits on carbon emissions nationally, but allow flexibility (e.g., carbon offsets through carbon sequestration in agricultural soils) in meeting the targets.  Most bills in front of Congress, the recent initiative by California and the Northeastern Regional Greenhouse Gas Initiative focus on this type of policy.  Industrial-energy policy would focus heavy subsidies on research, development, and deployment of reduced CO₂ energy sources in order to solve the problem in the future.  The administration, many members of Congress, and states like Ohio are pushing this agenda.

What does this mean for carbon sequestration in agricultural soils?  Agricultural interests could gain from either policy.  Through a cap and trade policy, of course, agriculture could gain from the inclusion of offsets for carbon sequestration in soils.  Through industrial-energy policy, the role of the agricultural industry could expand in future energy markets. 

It's hard to say which direction policy makers will go at this time.  As California and other states continue to move forward on cap and trade policies, and as international negotiations over a post-Kyoto climate treaty heat up in the coming years, additional pressure will build on Congress and the President to do something.  Ohio policy makers appear to be more heavily focused on industrial-energy policy, and agricultural interests would also appear to be poised to line up more strongly behind industrial-based policy than a broader climate policy that includes caps on carbon emissions, and offset credits for carbon sequestration.

References

Antinori C. and J. Sathaye. 2007. Assessing Transaction Costs of project-based Greenhouse Gas Emissions Trading  Lawrence Berkeley National Laboratory Report. LBNL 57315

Antle, J.M., S.M. Capalbo, K. Paustian, and M.K. Ali.  2007. “Estimating the economic potential for agricultural soil carbon sequestration in the Central United States using an aggregate econometric-process simulation model.” Climatic Change.  80: 145-171.

Antle, J.M. and Capalbo, S.M., Mooney, S., Elliot E.T., and Paustian, K.H., 2003 “Spatial heterogeneity, contract design, and the efficiency of carbon sequestration policies for agriculture” Journal of Environmental Economics and Management 46:231-250

Choi, S. and B. Sohngen. 2007. The Optimal Choice of Residue Management, Crop Rotations, and Cost of Carbon Sequestration: Empirical Results in the Midwest U.S.  Working Paper, AED Economics, Ohio State University.

Lal, R., J.M. Kimble, R.F. Follett, C.V. Cole. 1998.  "The Potential of US Cropland to Sequester Carbon and Mitigate the Greenhouse Effect."  Boca Raton: CRC Press.

Lewandrowski, J., Jones, C., House, R., Peters, M., Sperow, M., Eve, M., and Paustian, K. 2004 “Economics of sequestering carbon in the U.S. agricultural sector” Technical Bulletin No. 1909 ERS, USDA, Washington DC

McCarl, B.A. and Schneider, U.A., 2001. “Greenhouse gas mitigation in U.S. agriculture and forestry” Science 294:2481-2482

Murray, B.C., B.L. Sohngen, A.J. Sommer, B.M. Depro, K.M. Jones, B.A. McCarl, D. Gillig, B. DeAngelo, and K. Andrasko. 2005. EPA-R-05-006. "Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture." Washington, D.C: U.S. Environmental Protection Agency, Office of Atmospheric Programs.

Pautsch, G.R., Kurkalova, L.A., Babcock, B.A., and Kling, C.L., 2001. “The efficiency of sequestering carbon in agricultural soils” Contemporary Economic Policy 19:123-134

UKRAINIAN AGRICULTURE AND AGRI-ENVIRONMENTAL CONCERN
Oleg Kucher, National Academy of Sciences of Ukraine (kucher.3@osu.edu, olg@univ.kiev.ua)
(The paper is prepared within Fulbright Scholar Research Program at the Ohio State University, AEDE department. The first two parts of the paper are based on the publication “Landwirtschaft, Landprivatisierung und Landadministration” Die Ukraine in Europa, 2003, with additions for the period of 2003-2006.)

Summary

This paper presents an overview of the economic conditions in Ukrainian agriculture since 1990 to the present, and highlights the main features of land privatization & farm reorganization that have had a strong impact on the environment. The review describes many major agri-environmental issues drawn from national Ukrainian datasets accompanied by a discussion of the potential implications.  The paper consists of several parts: 1) the country’s general characteristics and overview of the Ukrainian agriculture; 2) the economic situation of the Ukrainian agriculture in the 1990's to the present; 3) land reform and reorganization of the farm sector; 4) environmental situation in the Ukrainian agriculture; and 5) agri-environmental concerns and policy responses. All these parts primarily refer to the latest international and national repots, publications and cases in Ukraine before and during the recent transition period.

General Characteristics of Ukraine 

Ukraine lies in Eastern Europe (see maps at end of article), has 603,700 square kilometers (149 million acres) of land, and has a population of 46.5 million people.  The land area of Ukraine is mostly flat (95%), and ranks second in total land area in Europe to the European part of Russia, while its population is smaller only to the population of Germany, Great Britain, France, and Italy.  The country is divided into 25 regions and the Autonomous Republic of Crimea.  There are 457 cities (5 of which have a population more than 1 million people), 885 towns, and 28.6 thousand villages.

The GDP (gross domestic product) per capita in 2006 was estimated to be $7,600.  This is one of the lowest per capita income levels in Europe, but over the last 6 years, incomes in Ukraine have consistently risenT

The structure of the economy in 2006 was as follows: 42.7% of the GDP is contributed by industry (including 25% by manufacturing), 40% by services, and 17.5% by agriculture and forestry. According to the president of Ukraine V. Yushenko, Ukraine still has a deformed structure of the economy: the fuel and raw resources branches dominate and badly influenced on environment (www.president.gov.ua).

Brief Overview of Ukrainian Agriculture

More than 2/3 of land in Ukraine is used for agriculture, while 17.4 % of the land is covered by forests, 12.1% is in settlements and infrastructure facilities (e.g. built up lands, houses, roads, railways), 3.3% is unused land (e.g. open land), and 4% is covered by water.  This means that there are about 48 million hectares of agricultural land suitable for large-scale farming. More than 76% of agricultural land is used for crops.  Pasture and grazing land take up 18%, and permanent crops (such as vines) occupy about 2% of agricultural land.

An important feature of Ukrainian agriculture is that most of the farmland (half of arable land) has extremely-fertile soil - black soils with enriched humus: called “chernozem”. According to the Institute of Soil Science different types of chernozem occupy almost 60% of the territory of agricultural land in the country. These soils are well suited for large-scale cultivation of agricultural crops, including grain crops, sugar-beet (in the forest-steppe zone), long-fibred flax (in the forest zone), wheat, and sunflower (in the steppe zone). In addition, Ukraine produces potatoes, vegetables, fruits, grapes and other crops. Although cropland is good for large-scale farming, one of its main drawbacks is a high level of erosion. 

Due to its favourable climate and rich soils, Ukraine has a large agro-industry.  Agriculture employs 4.7 million people (or about 20% of the labour force of Ukraine), and makes a large contribution to GDP - more than 17% in 2006. For comparison, in the European Union, the contribution of agriculture to total economic activity is 4.6% of GDP, while in the U.S. it is only around 2%.  About 95% of food and 67% of domestic goods consumed within Ukraine are produced in Ukraine. Approximately 15 million people live in rural areas, accounting for around 1/3 of Ukrainian population.

The Economic Situation of Ukrainian Agriculture in the 1990's to Present

While Ukraine is a large agricultural country with rich natural resources, productivity lags many other European countries and the United States. For example, potential yields for wheat in some regions of Ukraine may be as high as 7 tons per hectare, but average yields are not higher than 4-5 tons per hectare. There are a number of reasons for the observed low productivity levels, with one of the most important likely being the continued transition from the previous command-administrative economy with a state-controlled, and collective model of agriculture.

With independence from the Former Soviet Union in 1991, Ukraine faced the transition period with reformation of all sectors of the economy.  Following independence, there was a large recession in the agricultural sector, with a sharp reduction in agricultural production, and GDP. Figure 1 shows the trends of changes of GDP and Gross Agricultural Product (GAP) during the transition period.   Between 1990 and 1995, there was a 37% reduction in output in the agricultural sector in Ukraine.  Output has generally risen since then, although it has not achieved previous levels.

Since the early 1990's, the share of crop output within GAP has risen consistently. In 2005 the farm sector produced $7.8 billion (unadjusted for inflation) of crops and $4.6 billion of livestock products. Crop output was 63% of total agricultural production in 2005, and livestock was 37% (fig.2).  

Being Europe’s largest agricultural producer of grain (approximately 35-40 million metric tons per year), Ukraine is world’s largest exporter of wheat and barley. Since 1990 the country has increased production of sunflower seeds. However, the output of milk, meat and sugar beet continued to decrease through 2000. Recently, outputs of major agricultural products have increased slightly (fig. 3).

The development of the last 10 years shows the considerable changes of Ukrainian agricultural structure in the farming system, and its output. Up to 1992, the main agricultural producers were "kolkhozes" and "sovkhozes" (collective and state farms). Individual households played a relatively small role in production, as they operated small plots (up to 1 hectare) as kolhoz and sovkhoz members.

Following land reform in the 1990's, the individual sector, presently recognized as private households, increased remarkably in terms of agricultural production, while agricultural output in reformed agricultural enterprises (previous collective farms), declined significantly.  From the level of 1990 the share of GAP from large-scale agricultural enterprises declined by three-fold.  At the same time the level of GAP from private households increased by 40% in 2005 (fig. 4). 

In 2006, private households provided more than 60% of GAP, including 55% of crops and 66% of livestock production. Together with private farms, which emerged in the 1990's, this private sector produced 2/3 of total GAP. The GAP of agricultural enterprises has been growing since 2004, including in private farms (11.6% of GAP of agricultural enterprises in 2006). 

At present, these emerging agricultural enterprises are the main producers of grains (wheat, barley, corn) and industrial crops such as sugar beets, sunflowers. Small-sized private farms produced vegetables, potatoes and make almost two third of the animal production. However,  the share of livestock production has significantly decreased in both sectors. The reduction is mostly explained by negative profitability in livestock (fig. 5).

While livestock production in Ukraine has not been very profitable, the situation is likely to change in the future with investments in large-scale enterprises by Danish, Polish and Ukrainian firms.  These facilities will have an average capacity of 40,000 hogs, and will likely lead to increased outputs in coming years (Attaché report: Ukraine Livestock and Products Annual, 2004).  

In conclusion, in the 1990's, Ukrainian agriculture demonstrated a significant decline of GAP up to 50%, with recovery since 2000. Output has shifted towards the private farm sector, which has experienced a significant increase in agricultural output.  These considerable changes are mainly caused by land reform and widespread farm reorganizations that have occurred in the past 20 years.

Land Reform and Reorganization of the Farm Sector

Land reform in Ukraine started in 1990. It was directed to agricultural land privatisation by transferring agricultural land from the state to private ownership.

Officially there were three stages of land reform in Ukraine:

The first stage occurred during 1991-1994.  In this stage, all land in kolhozes and sovhosez (large-scale farms) was transformed into mostly collective, and private ownership.  A small portion of the land (5%) was given to newly-emerged private farmers (2,2 million hectares). This stage was preceded by a complete land inventory.

The second stage (1994-1999) was started with the distribution of collectively owned land into shared ownership. Rural residents, mainly members of former collective enterprises received entitlements for a share of agricultural land without its allocation (but with specification of the size and value of the land share in "conditional" hectares).  In addition, a land-leasing program began whereby agricultural land that was previously held in common ownership was leased out by the new owners to farmers (mostly collective farms), in return for payment of rent. As an alternative, landowners could withdraw her/his share from the collective holding by delineating a land plot, thus creating a small private farm.

The final stage (1999- present) of land reform has involved reorganization of the farm sector, and in granting private ownership (title) on specific agricultural land plots to rural citizens.

The redistribution of the land property during 1990-2005 was determined by the intensity of the land reform in accordance with its stages (fig. 6). At present, almost 73% of the agricultural land (30.3 million ha) is in private ownership. Around 27 % of all agricultural land (11.4 million ha) remains in state ownership.  This land is used for scientific and training purposes.

The most significant changes occurred in 2000, when Ukraine’s agricultural sector was restructured. Almost 15.1 thousands of collective and state farms were transformed into new forms of agricultural enterprises.  New private corporate farms (4 thousands) emerged during this time (Z. Lerman et. al., 2006).

Presently, the agricultural farm sector can be divided into three major groups:

·         Agricultural enterprises (including limited liability companies, cooperatives, private lease enterprises, private corporate farms; average operated land ranges from 1300 to 1800 hectares).

·         Private individual farms (farmland operated by private individuals with an average of 77 hectares per farm).

·         Individual subsistence households (small household plots with up to 1 ha used for individual farming).

According to the data of the State Land Committee, in 2006 there were 20,600 agricultural enterprises and 46,500 private farms. The great variety of individual households operates on small land plots (average size of 0.5 ha).  While private individual farms in total own 3.6 million hectares of agricultural land, the agricultural large-scale enterprises control more than half of the total agricultural land (22 million ha). The average size of large-scale enterprises is larger than the average size of farms in the EU and the US.

Probably, the main result of the land reform in Ukraine is that nearly 7 million rural residents (15% of the Ukrainian population) became owners of agricultural land plots. However, the new landowners are prohibited from selling their own land because of a moratorium until 2008. This may be extended further at that time. Also, until 2015, a limit for the size of privately owned agricultural land was set at 100 hectares (247 acre per person). Another constraint of land ownership in Ukraine is that foreigners cannot own agricultural land, although foreign investors can lease agricultural land for up to 50 years.

More than half of the new owners are of retirement age or do not live in the countryside. The majority of them have neither sufficient resources to use land nor knowledge to run an independent farm. As a result, more than 2/3 of the owners lease out about 18 million ha of agricultural land. The rent payments for leased land made to the agricultural land owners totaled 2.3 billion Hryvna in 2006 (US $450 million), or 131 Hryvna per hectare (US $26) on average.

Consequently, the Ukrainian farm sector can be characterized in three ways.  First, there are many small households that are under-equipped and not commercially viable. Second, there are numerous large-scale commercial agricultural enterprises that are relatively better equipped that rely primarily on land-leases, Third, finally private individual small farmers hold and farm some land.

Over the time of land reform, there have also been changes in agricultural land use.  For example, there has been a 1.1 million hectare decrease in cropland, followed by increase in pastureland of 429,000 hectares, an increase in grazing land of 256,000 hectares, and an increase in fallow land of 419,300 hectares (table 1). The last category is mostly abandoned land.  The non-agricultural area increased by 310,000 thousand hectare over this time period (more than half of which is forest land).   While the area of arable crop land has decreased, it still maintains a large total proportion of land, especially in the eastern and southern oblasts (more than 80 % of the agricultural land).

Table 1: Area of land change in Ukraine (State Land Committee of Ukraine, 1991, 2000, 2005)

Environmental Situation in the Ukrainian agriculture

A brief overview of the environmental situation in Ukrainian agriculture (agricultural land and soil, forests, water and biodiversity) and pressure on the environment are presented in tables 2 and 3.

Soil erosion. Soil erosion is the most significant environmental issue in Ukrainian agriculture which also decreases soil fertility. It is estimated that almost 40% of agricultural land is subject to excessive erosion.

The land affected by water and wind erosion is 14.8 million ha, including moderately- and strongly eroded - 31.3%, or about 5 million ha. Some 4% of arable land is significantly eroded (1.2 million ha). The main area being affected by erosion occurs in the southern region (41.7% of agricultural land), eastern and central Steppe regions (33.1%). Researchers have estimated that on average 8-30 tons per hectare is lost yearly from tillage. The damage due to erosion is estimated to be $10 million annually (Bulygin, 2006). According to official data annual economic loss caused by erosion is more than 22 billion Hrivnas (US $4.4 billion).  It is necessary to note that the latest official data on soil inventory are available for 1996. The last overall large scale all-Ukrainian soil survey was conducted in 1957-1961, and further soil resurvey was hold until 1990.

Another major concern is loss of soil fertility. According to the State Soil Protection Technological Center "Tsentrderzhrodyuchist'" of the Ministry of Agrarian Policy of Ukraine the soil humus content decreased from 3.24% to 3.14%  for the last 10 years. It occurs mostly because of insufficient mineral and organic fertilizer use and abandon of crop-rotation practices. For example, most of farm operators abandoned the traditional crop-rotation practices, such as 1-in-7 rotation, planting sunflowers no more than once every 7 years in the same field etc. Besides, increased planting of row crops (grain, sunflower) leave soil exposed for soil losses. As a proof, started from 1990 the grain crops have increased from 45 to 63%, sunflower cultivation has increased from 5% to 15 % of sown area. It also has significant off-site impacts due to increases in water runoff and losses of sediment.

Table 2: Strengths and weaknesses of the agri-environment in Ukraine, 1990-2005

Table 3. Pressure on the environment in the Ukrainian agriculture, 1990-2005

Conservation tillage and organic farming. Conservation agriculture has been implemented in some regions in Ukraine since the 1970s. It was started from practicing the system of soil tillage without ploughing followed by application of organic harvest residues and physical and biological plant pest management. At present, the organic agriculture is mostly applied in Poltava, Cherson oblasts and western part of Ukraine, while no-tillage is widespread in Eastern part of Ukraine (Dnipropetrovsk oblast). Overall, lands with low agricultural inputs (that is under organic farming) comprised 0.96% of all arable area in Ukraine (V.Prydatko,2005). However, regulations for certification of organic products are not developed. For comparison certified organic and in-conversion area covered 5.7 million ha in EU-25 and represented 3.6 % of the utilized agricultural area in 2003. Program to support no-tillage and organic farming in Ukraine should therefore be implemented with adequate funding.

Fertilizer and pesticide consumption.  Fertilizer consumption in Ukraine declines dramatically from 4.2 million tons of nutrients in 1990 (when admittedly fertilizer was excessively and wastefully applied) to 518,000 tons in 2004. Particularly, application rates for wheat were down to 26 kg per hectare (23 lbs/acre) in 2003 from 149 kg per hectare (133 lbs/acre) in 1990. However, the trend of inorganic fertilizer application has started to increase over recent years as a response to new market opportunities (fig. 7).

Of 170 pesticides used in Ukraine, 49 are particularly harmful as highly toxic, supercumulative and stable (L. Hryniv, 1999). More than 20 % of the investigated agricultural lands are polluted by DDT, about 4 % are polluted by hexachlorine-cyclohexane (EPA report, 2003).  Pesticide consumption in agriculture pollutes surface water, ground water, and soils as well. Of the total amount of nitrogen and phosphorus applied to agricultural land, about 20% of nitrogen and 5% of phosphorus reach the water bodies with surface runoff.

The use of organic fertilizers have decreased 3 times due to the reduction in livestock output (almost 2 times). At present, organic fertilizers are used only in small quantities. New fertilizer practices, such as integrated crop management should be evolved in farming sector.

Irrigated and drained area. In the southern part of Ukraine (Kherson, Zaporozhya regions, the Crimean Republic etc.) irrigation is essential for agriculture and results in high water demand, while in northern part of the country (Volyn, Zhitomir, Chernigov regions) drainage is widespread for forage purposes. Both processes affect several millions hectares of land. For example, conversion of 1.4 million hectares into agricultural land through extensive drainage in Polessye Region (northern part) in 1960s lead to a damage of a rich wetland ecosystem and a loss of its biodiversity.

Nowadays, the registered area of irrigated and drained farmland accounts 2.2 and 2.3 million ha, respectively (State Land Committee of Ukraine, 2006).

Although large-scale land irrigation/drainage systems in Ukraine were launched in 1950's to 1970's, the present irrigation and drained systems have become out-dated. They are largely in poor condition and require upgrades and capital repair (drainage and irrigation equipment requires renovation on 20% of irrigated land and 10% of drained land).

Existing irrigation and drainage continue to exert a negative impact on the environment. As a consequence irrigated regions of southern and eastern region of Ukraine are characterized by salinization and the destruction of irrigated lands, as well as loss of wetlands and aquifers. 

Radioactive contamination. Radioactive contamination after Chernobyl disaster in May 1986 is considered to be a serious environmental problem in the northern and north-eastern part of the Ukraine, with extensive areas of agricultural land contaminated by 137 CS (Cesium-137 - contamination density over 1 Ci/km², over 37 kBq/m²). Approximately 1.1 million ha of agricultural land contaminated by 137Cs (>1 Ci/km2). For preventing its exposure on the human being it was set the exclusion zone (4000 km²), and restrictive measures on agricultural activity were provided, including exclusion from farming on 35600 ha of contaminated land (Chernobyl: Ten Years On, 2002).

Over 20 years after the Chernobyl accident the exposures on human in agriculture are mainly due to food consumption in radioactive polluted areas. However, it is difficult to establish over polluted areas, since radioactive contamination was diffused all over the country. The restrictions on the use of agricultural land are still necessary in contaminated regions.

Water pollution and other environmental issues. Agriculture is the major source of water pollution in the Ukraine. Agriculture consumes annually over 10.9 billion cubic meters of water (36.4% of total water consumption). From 1990 to 2000 the wastewater discharge from agriculture has decreased. However, the existing monitoring cannot determine the quantity of pollutants coming from diffuse agricultural pollution. Starting from 2000 the registered wastewater discharge has increased slightly.  Together with water issues agriculture provides substantial pressures on the forest, biodiversity, air and other environment in the most intensively farmed areas.

Two major reasons of agri-environmental issues in Ukraine are:

·   inappropriate farming, and

·   absence of systematic agri-environmental measures.

Inappropriate farming in Ukraine comes from the previous Soviet times when large-scale intensive ploughing was used on arable land. The previous policy was directed towards the increase of agricultural production by means of agricultural land extension. As a result, farming was developed in unsuitable areas, and on marginal and ecologically sensitive land, such as wetland, forests, dry land etc.

During the land reform these lands together with severely degraded agricultural land were not excluded from its privatization. From 5 to 8 millions hectares of degraded and low productive agricultural lands are still in use, leading to further soil degradation, loss of biodiversity and water purification.  Inappropriate farming is also explained by mismanagement, the lack of knowledge for better farming practices, shortage of technical agri-environmental equipment (f.e. farm equipment for no-till) etc.

Finally, agri-environment measures were stopped due to a lack of financial resources and the absence of new updated mechanisms for the conservation on privately owned lands. Several institutions for land management and conservation (land survey, protection etc.) have fallen into decay. Furthermore, there is no extension service able to provide comprehensive information and technical assistance to farmers.

Policy Response

The development of Ukrainian agri-environmental policy is at a relatively early stage.
Environmental policy is set out at the national level in the form of environmental strategy -“Principal Directions of State Policy of Ukraine in Environmental Protection, Use of  natural Resources, and Ensuring Environmental Safety” (1998). This law has incorporated conservation provisions for some of the environmental programs, including the current environmental programs:

·   National Program for Environmental Rehabilitation and Drinking Water Quality Improvement in the Dnipro Basin (1997);

·   The 2000-2005 National Program for the Eco-Corridor Network Development (1999);

·   National Program for Environmental Rehabilitation of the Black Sea & the Azov Sea (2001) etc.

The agricultural issues in this law are divided into separate sections. However, specific agri-environmental programs were not introduced.  Since the recent environmental policy strategy was adapted by the Ukrainian Parliament in 1998, the main attention is now turning towards the development of a Sustainable Development Strategy, which again will include the environmental concern in agriculture that included agri-environmental measures.

On the institutional level the State Land Committee of Ukraine (recently transformed to State Agency of Land Resources of Ukraine) and Ministry of Agricultural Policy of Ukraine have responsibility for developing land conservation and agri-environment policy. New environment institutions, including Soil Conservation Service are in the process of the development.

On the legislative level the Law on land protection (2003) and the Law on state control of use and protection of land (2003) include provisions to restrict improper use of land. However, there is no well-organized service for ensuring the application and monitoring of this law (Environmental Performance reviews: Ukraine, 2006).

A draft of the State Program for the Land Use and Protection in 2006–2015 was developed by the State Land Committee of Ukraine in 2004. It includes soil protection measures and government assisting in farming at the farm, village and rayon levels. However the resources to implement this program are subject to budget constraint. Better farming practices, including no-tillage and reduced tillage, need to be encouraged in order to protect agricultural land. For that reason, voluntary enrollment mechanisms and participation incentives of private landowners and operators’ involvement should be further developed to implement this program. Together with technical support and cost-sharing assistance this program would be valuable policy tool of land resource enhancement in Ukraine.

Few agri-environmental initiatives have been established in other institutions. For example, in 2003, the Ukrainian Academy of Agricultural Sciences released a Conception of Sustainable Agro-landscapes. Nevertheless, practical application and mechanisms are required for its implementation.

Recently the National Association of Agricultural Advisory Services was established, with a network of 25 centers in 24 oblasts and the Republic of Crimea.  Their activities, however, don’t include agri-environmental concerns. Training programmers and extension services are needed in the development of land conservation programs.

In line with environmental policy concern Ukraine agriculture is a significant source of environmental pollution throughout Ukraine. When comparing the size of the sector with the applicable environmental regulations in other economic sectors, the scope of the legislation appears very poor.

To sum it up, it is important to strengthen agri-environmental policy in Ukraine through providing realistic and practical agri-environmental programs and measures. There is a large potential to improve both agriculture and its environment that will result in economic efficiency and profitability. It is required to integrate the environment into the agricultural sector.

Ukraine also needs to strengthen the agricultural advisory services, particularly in the provision of agri-environmental assistance and training materials, and develop mechanisms for cost-sharing and incentives mechanisms to induce farmers provide agri-environmental measures and practices.

Conclusions

(1) Ukrainian agriculture ranges from large-scale, highly intensive agricultural production to very small households’ farming operating mainly on tiny land plots.

(2) The land reform and farm reorganization leads to further diversity in terms of land ownership, agricultural production and farm development.

(3) The transformed agricultural sector resulted in:

·   intensification of crops cultivation and gradual livestock recovery,

·   parcelization of arable land, its partial transformation in fallow.

(4) So, with land use transformation agri-environmental issues began to change in different ways that vary in scale and intensity.

(5) The decline of agricultural production during transition period consequently resulted in diminishing of nature resource use that scaled back many environmental pressures. Nevertheless, the level of present negative environmental impacts remains considerable.

(6) At present, intensive farming, lack of financial & technical resources as well as absence of practical agri-environmental measures result in land degradation and create new environmental challenges.

(7) Finally, with market development the pressure on environment in agriculture will be increased.

(8) Therefore, for Ukraine it is necessary to:

·   Develop and implement new agri-environmental policies on the private agricultural lands and strengthen their cost-effectiveness (through development of realistic and vital agri-environmental programs for farmers to reduce pressures on the environment);

·    Better integrate agri-environmental concerns in agriculture and sectoral decisions.

References

1.       Agrobiodiversity of Ukraine: Theory, Methodology, Indicators, Examples. Book 2–Kyiv: CJSC "Nichlava". 2006. – 592p., http://www.ulrmc.org.ua/services/binu/index.html 

2.       Central and Eastern European Sustainable Agriculture Network, FAO, Rome, 1999, http://www.fao.org/DOCREP/006/AD238E/ad238e0l.htm#bm21 , accessed 2007

3.       Chernobyl: Assessment of Radiological and Health Impacts 2002 Update of Chernobyl: Ten Years On, http://www.nea.fr/html/rp/chernobyl/  , accessed 2007

4.       Europe's environment: the third assessment, Environmental assessment report No 10, EEA, Copenhagen, 2003, http://reports.eea.europa.eu/environmental_assessment_report_2003_10/en, accessed 2007

5.       Environmental Performance Reviews: Ukraine (Second Review) Environmental Performance Reviews Series No. 24,  ECE/CEP/133, UN, New York and Geneva, 2007, http://www.unece.org/env/epr/studies/Ukraine_2/welcome.htm,  accessed 2007

6.       R. Mansberger et al. "Landwirtschaft, Landprivatisierung und Landadministration" Die Ukraine in Europa (Herausgegeben von J.Besters-Dilger), Buchreihe des Institutes fur den Donauraum und Mitteleuropa, 2003, p. 195-225 

7.       Report of the State Soil Protection Technological Center "Tsentrderzhrodyuchist'" of the Ministry of Agrarian Policy of Ukraine, Kyiv, 2003

8.       State Land Committee of Ukraine: Structure, Dynamics and Distribution of Land Fund in the Ukraine (as of January, 1^st). Annual Statistical Abstract. Kyiv 1999-2006.

9.       Statistical Yearbook of Ukraine for 2005/ State Statistics Committee of Ukraine, Kyiv 2006. 

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