Out for Summer, Episode 2: how public banks support an unsustainable farming giant in Ukraine, ignoring communities’ rights

MHP is a vertically-integrated group of more than 20 companies which controls the whole cycle from grain and fodder production, through breeding, poultry production and meat processing, to the distribution and sale of its products. The giant company is a leader in the country and is controlled by Ukraine’s fifth wealthiest man – oligarch Yuriy Kosyuk.

MHP has received huge support from public banks including the EBRD, the EIB and the International Finance Corporation (IFC), for a total amount of USD 564 million. On December 1, 2014 the EIB signed a EUR 85 million worth loan EUR 85 million with MHP to construct two grain-storage facilities, a fodder-processing plant and a sunflower-crushing plant in the Vinnytsia region in Ukraine[1].

In the Vinnytsia region the company possesses several other facilities besides the grain-storage – for example a breeder farm, a hatchery, rearing zones with broiler houses, a slaughter house and waste treatment facilities. The company boasts of its position as the biggest meat producer and one of the biggest grain producers in Ukraine, with a land bank of nearly 400,000 hectares in 12 regions of the country[2]. MHP is currently planning a big expansion that would see its operations double by 2018, and for this to happen the company needs additional land especially in the region near Ladyzhyn.

But MHP’s activities have been highly controversial. Though the company does create jobs and produce cheap poultry, it also causes serious concerns among local communities. Among the issues that worry the locals stand out the general lack of transparency and accountability that characterizes the company’s activities, the intense pressure on individual owners to lease their land, as well as the inadequate Environmental Impact Assessment carried out on its projects. Furthermore, the company’s refusal to engage in an open dialogue with the local population has repeatedly been pointed out.

In Ulianivka and Bilousivla, for example, people described how the company, failing to get agreement when approaching the community as a whole, systematically pressured land owners individually to sign the leases.

The communities living near MHP’s Vinnytsia complex, which is the largest chicken farm in Europe, also lamented that landowners were put heavily under pressure to lease their land to the company on contracts lasting half a century.

In the Cherkasy region, the expansion of a project by a MHP’s subsidiary – which would bring about a million chickens on the lands surrounding a village – has raised the concern of the local population. The potential impacts on soils, water and the overwhelming odour are an unacceptable prospect for many villagers. But to date the citizens’ concerns do not count much to MHP.

The confrontation between the company and the local opposition groups has led to repression and several violent attacks against activists[3]. But the company denies any involvement.

NGOs like Bankwatch and its Ukrainian member group NECU have exposed the situation to the international and European lenders backing the company. They claim that MHP does not comply with international standards and best practices in terms of stakeholder engagement, land acquisition and community consultations.

But the company is considered by the banks as a good source of employment and support to food security in Ukraine and, even though the company benefited from more than half a billion dollars of public loans, they refuse to take responsibility for the company’s wrongdoing.

In a reply to concerns such as poor social screening and pressure on land acquisition, the EIB declared that it is not responsible for the wider activities of the company nor for how it deals with local population:

'During the appraisal the EIB project team concluded that, due to its technical characteristics, its geographical isolation from other investment elements of the promoter and its offtaker basis, the project financed by the EIB (ie. a series of silos and elevators, a sunflower crushing and oil extraction unit and the fodder plant including logistical, environmental and utility services) was certainly part of the chicken meat production and commercialisation value chain investment, but could not be considered as integrated (in the sense of the EIA (2011/92 EU) or IE (2010/75 EU) Directives) with other investments of the promoter or other investors happening, or due to happen in the wider Vinnytsia region. EIB due diligence has therefore concentrated in the environmental and social impacts of the project plant rather than the wider activities of the promoter in the region or country.'[4]

The EIB’s conclusion is worrisome from the point of view local people and civil society. Indeed, the company is abusing people’s basic rights to decide over the environment they live in and is putting pressure on farmers to lease their land even if they have already explicitly refused to do so.

In such cases the EIB, as a development bank, should take into consideration the overall social impact and conduct of the company. Especially because in the long run individual investments contribute to the overall corporate expansion strategy. Where legislation does not sufficiently protect people’s rights, public lenders should push for more inclusive and sustainable business practices. Meaningful public consultations, an environmentally responsible behaviour, respect of labour rights and public access to planning documents are essential to ensure that industrial development does not come at the expense of local communities.

[1] MHP Agri-Food Reference: 20120184http://www.eib.org/projects/pipeline/2012/20120184.htm
[2] See the report from CEE Bankwatch Network ‘Black Earth’, September 2015 http://bankwatch.org/sites/default/files/BlackEarth-UAagri.pdf
[3] ‘Briefing: Problematic MHP expansion in Ukraine with EBRD support’ http://bankwatch.org/sites/default/files/briefing-EBRD-MHPUkraine-01Feb2016.pdf
‘The problems with MHP’s expansion in Ukraine’, 11-12 May 2016 http://bankwatch.org/sites/default/files/briefing-EBRD-MHP-expansion-10May2016.pdf
[4] E-mail from the EIB: Ukraine: project 20120184 / MHP’s environmental and social performance, November 11, 2015