Economic analysis for urbanization impact on food and processing companies use case of Ukraine ; Economics analysis for urbanization impact on food and processing companies use case of Ukraine
Without a doubt agriculture sector is vital part of modern Ukrainian economy. Agriculture is ranked 3rd largest contributor to the national GDP with approx. 17% in 2018 (compared to 14.4% in 2016) of total GDP, followed with industrial sector (26.3%) and services sector (59.3%). It should be noted that it is very promising field in terms of potential economic growth and both regional and international investment opportunities. Food products being a necessity in everyday life of every person. Food and processing industries are the large industries that are interconnected to agricultural cultivation. These industries have great potential to increase the value of agricultural products due to the added value, as not raw materials are sold but finished products that can be consumed in the domestic market and exported. Meanwhile the global process of urbanization and changes in national politics, have had their impact on Ukrainian economy. The number of urban populations is continuing to increase, while great number of work force is migrating to neighboring countries. Several studies state that number of Ukrainian workers living aboard is around 2.5 million people. In this context we plan to investigate and build general forecast model on how urbanization is impacting agricultural land use and certain factors of its impact on economic development of region. On the other hand, we have examples of modern issues, such as climate change caused by rapid urbanization and the irrational use of natural resources. The study showed that urban development requires substantial land rescue for its expansion. By examining closely spatial data of urban and suburban areas, for example that of Kyiv city, agricultural land in suburban areas is used for new construction sites and infrastructural development. Another indirect effect of urban development is ecological changes to the surrounding areas. The affected areas become much less suitable for agricultural uses, require large financial investment and high technologies to renew the soil fertility.Research work that have been conducted in this area focused mostly on financial resources, international politics, and large agricultural holdings of agricultural land use. A lot of work has been done to highlight importance of advocating open land market in Ukraine. While other researchers in their research analyzed specific crop or certain agricultural industry markets. In general, the focus of previous publications was either on the current agricultural export or land use data in Ukraine. The goal of this research paper is to find, establish connections between urbanization and agricultural land use, while focusing attention on possibilities for economic growth and development of effective land use policies. This paper will consider open land market as future possibility; however, it is relations and impact with urbanization falls outside of current research work scope.With this research we plan to describe the connection between rapid urbanization process and changes in agricultural land use from economical perspective. The author focuses his research work and economical modeling on case Ukraine. We plan to showcase changes of agricultural enterprise income, in case of population migration to large urban centers. Additionally, we will study the cases of effective land resource management, where we will study whether it is more profitable for companies to establish the new enterprise closer or inside urban areas as opposed to farmland regions. In this research we plan to highlight the major economical differences of company's startup and operations costs based on available transportation network, land resources and local agricultural specialization. The research work should introduce possible outcomes for small, medium companies, also separating those that are part of international corporate structure and local business. The research will cover whether local company can benefit from urbanization and what are its effects on individual famers earnings. One of the expected research outcomes is to describe how to increase added value of agricultural products with focus on city markets.For this study we used data mining and analytics approaches. During research work we placed great emphasis on determining, locating, and analyzing statistical data from multiple sources. Important art of the research work is identifying right data in context of our research, the one that has clear connection to urbanization process. Spatial data visualization was used to determine key urban centers in Ukraine, as well as locations of agricultural, food and processing companies. Other types of material used are official notional statistics data, European Union public reports, U.S. Department of Commerce datasheets, Kyiv city council, Municipal Enterprise "Kyivgenplan", private companies report, economists' publications, and Public cadastral map of Ukraine. Mathematical framework was used to build robust forecast model. The methodology of the study employed various mathematical tools, such as statistical analytics, polynomial and linear approximations, mathematical correlation, ratio analysis. Besides profit and utility curves were used for growth modeling and global forecast. Spatial data have been outlined as highly effective for predictions modeling and establishing connections with the existing urbanization growth models. Urbanization processes serve as catalyst for land use change and shift in economic activities . As more population migrate to urban centers, remote villages and towns shrink in size, lose work force and often local enterprise become bankrupt or shut down. There is a consequent indirect effect of urbanization on agriculture land use that is when local community become poor or bankrupt, the farmlands are rented by large agricultural holdings. Many researchers noted that agricultural holdings have no interest in development of local communities or investment in local business. Even though they employ local people, the average income of holdings farm employees is much lesser, then those farmers whose lands are in private use or those working in agricultural sector in neighboring European Union countries. The average salary is important factor when looking at land use by large companies since agricultural holdings business goals centered about exporting raw resources and they are registered as business entities in offshore countries.The scope of current research works is limited to the analyses of medium to large size food and processing companies, that operate in local Ukrainian market, with brief overview of food products export business. To build economical model the existing transport infrastructure in Ukraine and its neighboring European countries was studied and used in system analyses. Author analyzed available human resources, amount of investments, industry type and available transportation connections. As a part of research work, physical geographical placement (distance by road) of food and processing production companies relative to closest and regional urban center positions have been outlined. A large array of economical and spatial data has been processed. It was determined that parts of this data have low correlation levels, which makes it difficult to include for modeling purposes. Author made decision to make the necessary edits, generalization to simplify the initial economical model.To build a research model we will make the following assumptions and data sets. Let us use the city of Kyiv as the main market for food products, i.e. it is the largest city in Ukraine, with a huge number of food products consumers and significant financial resources. We shall label it as an urban center for this research work. It is important to note that new companies and international corporations choose to establish their business in the Kyiv or in the 50-kilometer zone from it. For modeling we will choose 12 enterprises, which are located both in the capital and in different regions of Ukraine - west, south, east and center. We rank the selected enterprises by the number of employees.In the context of our economic modeling, consider the land market, namely: the average cost of rent of 1 hectare per year, the location of the enterprise in an industrial region or in a separate settlement. Note that the production capacity of the investigated enterprises is concentrated in one production site (complex). However, the exception is the corporation "Milk Alliance" which has 5 separate production facilities, we will focus on the largest of them, located in the city of Yagotyn (others are located in Peratyn, Zolotonosha, Bashtanka).It is reported that the total area of land plots in Ukraine is 60.4 million hectares, of which 42.4 million hectares are agricultural land (32 million hectares are cultivated per year), the area of built-up land plots is 2550.4 thousand hectares. Land for industrial purposes, which includes the food industry is 224.1 thousand hectares. The cost of annual lease of land in Ukraine for 2019 population 3518 UAH/hectare per year.At the same time, the statistics by region are as follows: Kyiv - 2694 UAH per year; Kyiv region - 3474 UAH per year; Zhytomyr and region – 4000 UAH per year; Mykolaiv Oblast – 4103 UAH per year; Kharkiv and oblast – 3152 UAH per year; Odessa region – 4065 UAH per year; Lviv region - 4172 UAH per year; Donetsk oblast - 1832 UAH per year. It is planned that in 2020 the total revenues to local budgets from land rent will amount to 185,714,285 UAH per year.To understand the general picture of the relationship and economic performance of enterprises located in Kyiv and different regions of Ukraine, we shall consider Kyiv as a self-sufficient object, both in terms of products sales and production. The largest food retailers have opened more than 575 stores in Kyiv as of 2018, and more than 60 new stores are opened each year. The production of food, beverages and tobacco by Kyiv enterprises is 46.6% of the total industrial production, which employs 1,730,000 people (7.4% of total in Kyiv), and the average wage in industry is from 16,511 UAH/month in 2019. In total, there are 9069 industrial enterprises in the capital, which employ 278,863 people, the volume of products sold by industrial enterprises of Kyiv in 2019 amounted to 892,1765,46.2 thousand UAH. At the same time, there are 7351 natural persons-entrepreneurs operating in the capital (11,877 people are employed, the volume of sold products is 5,622,011.9 thousand UAH) in industry, including the volume of products sold by food industry enterprises – 125,140,998.9 thousand UAH according to 2019 data.It should be noted that in Kyiv the main industrial capacities of food and processing enterprises are concentrated in the following areas: Industrial zone " Degtyarivska Street" covers an area of 17.7 hectares; Podilsko-Kurenivskyi industrial district - 539.5 hectares, Pirogovo industrial zone - 121.9 hectares; Voskresensky industrial district - 107.2 hectares.For economic analysis we focused on comparison of three large enterprises of Ukraine, typical for the agricultural sector and food industry, one of which is in Kyiv – "Astrata", "Sandora" and "Kyivhlib". For calculations of transportation costs let's use the following data, 20 to 22 tons van will charge 27 UAH per km outside of Kyiv, while 10 tons van charges 20 UAH per km outside of Kyiv and 250 UAH per km within Kyiv.The "Astrata" corpopration, a large agricultural enterprise, has 5,470 employees, 230,000 hectares of land (aprox. 1514090000 UAH per yar for land rent), with Net profit of 12,631,155,000, Gross profit of 2,432,488,000 UAH, and a total salary expenditure of UAH 427,597,000 (average per employee 6514 UAH per month). For our research we are using one of the sugar processing factories that is part of Astrata holding, it is in Hlobyne, Poltavska oblast. The distance from Hlobyne to Kyiv center is 287 km, so it will cost 7749 UAH per large van to transport products to Kyiv.One of the largest food manufacturers in Ukraine is "Sandora". It consists of 3230 employees, total salary expenses - 630 128 thousand UAH (average per employee 16,257 UAH per month), have a land area of 1.3646 hectares (aprox. 5600 UAH per yar for land rent) and a unit cost of production - 22.66 UAH per liter of apple. Single 10-ton van will charge 10020 UAH to transport products to Kyiv (501km distance to the city center).For Kyiv study we picked "Kyivhlib", which has 1911 employees, total salary expenses – 168,227 thousand UAH (average per employee 14,019 UAH per month), have a land area of 8 hectares (aprox. 21552 UAH per yar for land rent) and the unit cost of production - 14.9 UAH per kg of rye-wheat bread. It will cost 7500 UAH to transport products within 30 km of Kyiv center by 10-ton van. Distance from the production location to the market is not always proportional to net profit. The research results have proved that it is worth examining the data from the same sub-industries companies in several regions, with focus on large cities as main market for those companies' products. ; The paper is devoted to studying the economic and social connections between the urbanization process and agricultural land use in Ukraine. It is worth noting that both urbanization and agriculture require new lands for their future development. The important part of this connection is ecology and effective use of the available resources, as well as land use in the context of urbanization. After all, the process of urbanization can have a significant negative impact on the state of land resources. The research work determines which economic factors of urbanization are the most relevant to the land use in city suburbs and agricultural regions. The article introduces the notion of economic feasibility of land use by purpose and studies cases of food and processing companies. Food and processing industries were chosen as the main research subjects since they are the most promising fields for the future economic development of each individual region and country as a whole. These industries are centered around both import and export, besides producing added value products. Cities without a doubt are the main consumers of food products and at the same time, they drain labor resources from the countryside. In this research work, we studied the global situation in Ukraine, how 21-century urbanization has affected the agricultural sector in the country. This sector has experienced rapid growth in past decades, as opposed to industrial and manufacturing sectors, and increased the national wide level of land use. While the national wide level of urbanization might not be the highest in modern history (20th to 21st century), it continues to have a wide impact on the national economy. The scope of this impact falls outside of this research work as it consists of multidimensional data and a wide range of interdependencies, including policies and regulations. Research models require a large amount of data and cases, that's why we focused on the food and processing sector in this paper. They proved to be a good test ground to study the urbanization impact patterns as well as make economical modeling more convenient. In this context, the peculiarities of land use models were studied, as food and processing industries use land resources, can be located both inside the city, suburban area, or in remote farmland region. It is evident that cities and businesses form large supply and demand of natural resources, labor, and financial investments.