Agribusiness Under Pressure

The Ukrainian agrarian sector has long been a backbone of the country’s economy, but wartime realities have forced it into a rapid and often turbulent transformation. Investment activity remains resilient, with mergers and acquisitions growing despite heightened risks, as investors adapt to shifting valuations, logistical challenges, and restricted capital flows. At the same time, technological innovation—from AI-driven due diligence to satellite monitoring—is reshaping how deals are structured and risks are assessed. Yet, alongside new opportunities, the sector faces mounting corporate disputes, tax conflicts, and regulatory uncertainty, all amplified by the pressures of war. In this conversation, Anatoliy Kosovan, managing partner at Kosovan Legal Group, reflects on these developments and shares his perspective on the future of Ukraine’s agribusiness landscape.

Olga Usenko (O. U.): How would you characterize the current landscape of M&A in the Ukrainian agrarian sector? How have M&A trends in agriculture evolved under the influence of wartime conditions?

Anatoliy Kosovan (A. K.): I would say that the Ukrainian agri-M&A market has become noticeably more active. We are seeing a steady increase in demand for the acquisition of agricultural companies, which naturally translates into a growing number of related client inquiries. Of course, the war has left its mark, and the agri-M&A landscape continues to evolve under its influence.

For example, demand for assets in the western regions of the country has increased significantly, which in turn has driven up their valuations. In addition, currency restrictions imposed during martial law are encouraging investors to seek opportunities for capital deployment inside Ukraine, as the ability to repatriate funds abroad has remained heavily constrained for the fourth consecutive year. As a result, we are receiving more approaches from non-core investors entering the agricultural sector. Increased buyer interest inevitably pushes up asset prices, which in turn drives some investors to look for opportunities at lower valuations — although such businesses often come with challenges.

This year, for instance, we have conducted due diligence and structured complex transactions involving companies with exceptionally high debt burdens and issues such as reforestation requirements on agricultural land. We have also handled cases where target companies were already in bankruptcy proceedings or had their assets frozen under court orders. Naturally, such deals are structurally complex and require careful consideration of numerous factors, as they carry heightened risks for buyers—risks that, in essence, form part of the “price” for acquiring assets below market value.

At the same time, these transactions present their own challenges for legal advisers. They demand a multidisciplinary approach, combining expertise from various practice areas within a single project to analyze the full scope of risks, develop an optimal roadmap, and structure the transaction in a way that minimizes exposure for the client.

O.U.: To what extent does technological advancement affect legal support and due diligence in agricultural M&A deals?

A.K.: Technological change has had a substantial impact on certain procedures related to M&A. We have, for example, automated specific elements of the pre-acquisition due diligence process. A significant portion of our work in analyzing land assets is now conducted via API access to the State Register of Property Rights, with the retrieved data subsequently structured into a format that is optimized for analysis. This has both streamlined the process and accelerated it considerably.

We have also developed an AI-powered tool that significantly speeds up our review of lease agreements by cross-referencing contractual terms with registry data. Given that we quite often need to analyze thousands of agreements across multiple target companies, the application of artificial intelligence has become a major efficiency driver for our team.

In addition, the use of satellite imagery and modern geospatial technologies enables us to provide clients with real-time maps showing the condition of the fields belonging to target companies, whether those fields are actively cultivated, and the density and configuration of land plots. Collectively, these tools not only shorten due diligence timelines but also give investors a far deeper understanding of the actual state of the assets—insights that can, in turn, have a material impact on valuation.

O.U.: Why has there been a rise in the number of corporate disputes within the agrarian sector in recent years?

A.K.: Based on our experience, there are several reasons for the rise in corporate disputes within the agrarian sector. First and foremost is generational change. It is no secret that a significant number of agricultural companies were established in the 1990s, and their founders are now often of advanced age.

In the past year alone, we have been approached on three separate occasions with such matters, and in every single case we observed that the corporate structure of the business was not designed to ensure seamless succession or the smooth transfer of management. This lack of preparation frequently gives rise to disputes among heirs over control of the business.

The situation becomes even more complex where the deceased shareholder had business partners or controlled multiple companies, creating additional layers of potential conflict.

O.U.: How does the current level of corporate governance in small and mid-sized agrarian businesses affect conflict resolution?

A.K.: An underdeveloped system of corporate governance in small and mid-sized agrarian businesses creates unnecessary obstacles in both of the scenarios described earlier. In most cases, business partners do not have shareholders’ agreements in place to regulate their arrangements. This means there is no formal record of when and how a partner may exit the business, when and in what amount dividends should be distributed or profits reinvested, how disputes and conflicts of interest should be resolved, or even what the company’s strategic direction should be.

In one of our cases, the official ownership structure recorded in the corporate documents of a group of companies did not match the actual arrangement agreed between the partners, which, unfortunately, had been entirely verbal. In another, one of the partners in several agribusinesses also acted as the sole director. This did not promote balance or objectivity in decision-making, and after he died it left the company without management and without the legal ability to appoint a new director—placing it effectively on the brink of bankruptcy. In all these cases, we were able to find solutions, but objectively speaking, they required certain concessions from our clients. These situations could have been avoided entirely had the businesses and their partners been prepared for such “black swan” events.

The problem is so widespread that the overwhelming majority of our clients—often owning multiple businesses with several partners—have never even considered entering into a shareholders’ agreement or developing crisis management processes. At some point, we decided to address this by raising awareness within the Ukrainian agribusiness sector about the accessible and essential tools that can help mitigate these risks. We have, within our capabilities, been actively engaged in educational efforts on potential pitfalls, drafting shareholders’ agreements, establishing principles for robust and controlled crisis management, developing strategies for seamless succession, and even conducting training sessions for clients.

O.U.: How has the war affected the ability or willingness of parties to fulfill contractual obligations?

A.K.: The war has often created objective grounds for contractual defaults. Examples include disruptions to logistics, the destruction of crops, and the loss of storage facilities. We regularly see news reports of missile strikes on port infrastructure and farms. All of this naturally impacts the ability of parties to fulfil their obligations.

At the same time, we have also encountered numerous cases where martial law has been used as a pretext for non-performance. Volatility on the grain market has always existed, and in the past, price fluctuations alone sometimes served as a reason for breaching contracts. However, over the past four years, we have increasingly seen unfounded references to wartime risks cited as justification for failing to honor agreements.

O.U.: What are the dominant causes of contractual disputes in the agrarian sector today?

A.K.: The primary driver of such disputes remains bad-faith conduct by parties. The current market is a seller’s market, where producers effectively dictate prices and terms. Significant price fluctuations and the inability to accurately forecast them often place traders in a position where they are objectively unable—or unwilling, due to the risk of substantial losses—to perform their contractual obligations.

In one recent client matter, the stated reason for a contractual default was the absence of the commodity on the market. The grain in question had been grown and harvested by agricultural producers, but they chose not to sell it during the season, instead holding it back in anticipation of higher prices. As a result, our client was unable to purchase the required volume at the planned price and, therefore, could not fulfil contractual commitments.

Agricultural producers themselves also approach us with similar issues. In recent cases, these arose from buyers manipulating price calculation formulas in a way that resulted in substantial underpricing. In another example, a buyer assessed the quality of delivered grain significantly below its actual level, aiming to either reject the purchase or to justify a steep price reduction.

Ultimately, the underlying factor in all these situations is the market price, which the trader had forecast incorrectly when concluding a contract months ahead of delivery.

O.U.: What are the most common types of tax disputes affecting agribusinesses today? How has the fiscal pressure exerted by the state and driven by war-related budget deficits altered tax audit and enforcement practices?

A.K.: Tax disputes currently represent one of the largest areas of our firm’s practice. The most frequent issues brought to us by clients involve the reimbursement of VAT from the state budget. The growing budget deficit has a direct impact on what we are seeing in this area. When funds are in short supply, it becomes increasingly difficult for the state to meet its obligations, which in turn has led to heightened pressure from the tax authorities and a surge in negative decisions regarding VAT refunds.

Another common issue involves the refusal to confirm the eligibility of agricultural producers for the unified agricultural tax (Group 4). This particular tax regime imposes a significantly lighter burden on businesses compared to corporate income tax, and consequently results in lower revenues for the state budget. As a result, disputes over its confirmation have become more frequent.

O.U.: Could you elaborate on disputes related to VAT refunds and the status of payers of the single tax in Group 4?

A.K.: Since the start of the full-scale invasion, many agricultural producers have begun exporting independently and, as a result, have encountered significant difficulties in securing VAT refunds. Moreover, the approach taken by the tax authorities has been far from consistent: within the existing legal framework, they continue to find new grounds to deny VAT reimbursement. To be fair, taxpayers themselves often provide the basis for such decisions through procedural or documentation errors.

That said, one recent client matter surprised even us. Due to minor inaccuracies in a tax declaration, the tax authority, instead of issuing a standard refusal without liability, unjustifiably deprived one of the client’s companies of the right to claim more than UAH 6 million in VAT refunds altogether. Even more concerning was the client’s stating that the same situation had arisen across all of his agribusinesses.

As for disputes over the unified agricultural tax (Group 4) status, the greatest challenge in such cases is time. For example, last year a client came to us after receiving a negative decision from the tax authority. We had to explain that we had only until the end of the calendar year to confirm his status as a Group 4 taxpayer in both the first instance and appellate courts. Otherwise, he would pay the unified agricultural tax for the entire year and, without a favorable court ruling, would also be obliged to pay corporate income tax at the year end. The client entrusted us with the matter, and we met his expectations—though, given the pace of proceedings in the Ukrainian court system, doing so required a considerable amount of effort on our part.

O.U.: How have military actions influenced the ability of Ukrainian agribusinesses to export products?

A.K.: For a long time, the greatest challenge was the blockade of Ukraine’s seaports. Alternative land and river transport routes simply could not handle the required volumes. This issue has now largely been addressed by Ukraine’s defence forces, and the ports of Odesa and Chornomorsk are currently operational for carrying out exports.

Another ongoing challenge is air defence, which, for understandable reasons, remains insufficient. As a result, port infrastructure continues to suffer regular damage from missile strikes.

We have also recently seen the European Commission reintroduce quotas on the export of Ukrainian agricultural products, which reduces the sector’s export potential to Europe. Consequently, agribusinesses are once again being forced to seek out—and in some cases, rebuild—alternative sales markets

O.U.: Do Ukrainian agribusinesses feel supported by the government in today’s crisis environment?

A.K.: We do not work directly with state aid programmes, but I am aware of the fact that agricultural producers do receive such support. Ukraine’s defence forces also continue to fulfil their protective role. That said, there remain numerous issues that have only intensified during the war.

One example is legislative instability. This year, for instance, the rules for exporting agricultural products were changed yet again, which caused substantial losses for one of our major grain-trading clients. Due to the blocking of a tax invoice, the client in question was forced to pay demurrage, as without the invoice being unblocked and the company removed from the “high-risk taxpayer” list, it had no legal ability to complete export formalities.

It would also be prudent for the state to address issues of tax burdens and the performance of credit obligations for agribusinesses whose facilities are located in the temporarily-occupied territories or active combat zones. And, of course, there is the previously mentioned pressure on businesses from regulatory and fiscal authorities. While we are able to assist our clients in effectively addressing some of these problems, changes to legislation remain entirely beyond our influence.