EBRD investments in Ukrainian agro-giant MHP under investigation

The article was originally published in Euractiv.sk.

Dominated by large-scale monoculture production and centralised logistics and processing facilities, Ukraine’s agricultural production has become an easy target for the Russian aggressor. It has become clear to both national and international communities that the current methods of food production and distribution within the country and around the world must change to make food supplies more reliable and sustainable.  

The investigation into the potential harms caused by MHP’s operations should not pass unnoticed, as it can provide valuable lessons for future post-war reconstruction. It highlights the importance of compliance with environmental standards and the proper involvement of civil society, while also demonstrating the need for adaptive, sustainable and decentralised agri-food systems. 

The role of international finance in undermining local communities and global food security 

Since the Euromaidan Revolution in 2014, European and multilateral development banks have invested generously in agro-holdings owned by some of Ukraine’s wealthiest businesspeople. Among their clients are Ukraine’s agri-giants, led by MHP, one of the major industrial poultry producers in the country and Europe.   

Although the banks’ investments were hailed as supporting global food security, they have caused an imbalance in the agri-sector and injustice among local communities. Accumulating large financial, land and natural resources, these large-scale producers have become not only powerful players on the market, but have also gained significant political influence. While MHP has enjoyed state subsidies, tax avoidance and trade with the EU within the Free Trade Agreement, weak regulation in Ukraine has often translated into unchecked environmental and social problems for rural communities. 

Moreover, the massive destruction caused by the Russian invasion has revealed that, despite being ostensibly powerful, centralised, large-scale agriculture structures with long supply chains can easily fail those dependent on them. It is obvious that new governance models are needed to ensure that rural communities and the environment remain safe and benefit from developments in the sector. 

In its post-war reconstruction, Ukraine and other stakeholders should prioritise the development and maintenance of more adaptive, sustainable and decentralised agri-food systems. The green principles for Ukraine’s reconstruction developed by civil society organisations emphasise the diversification of small and medium-sized farms, sustainable solutions for agricultural production, the circular economy and a transparent and fair land market. Furthermore, agricultural development should move in sync with a new strategy for the rural development of Ukraine that aims to turn rural areas into attractive places for people to live. 

MHP’s mishaps back in the spotlight 

Since the launch of an MHP construction project in 2010, villagers from the Vinnytsia region have been complaining about the company’s rapid expansion, which has resulted in a high concentration of industrial poultry facilities in their vicinity. The locals have linked MHP’s expanding operations to existing and potential problems, including a decrease in water levels in the village’s wells and deterioration of groundwater quality, pollution of water bodies, contamination of soil and air, and damage to infrastructure due to intensive traffic from heavy vehicles on village roads. 

In 2018, after years of unresolved grievances, complainants from three villages submitted requests for dispute resolution with MHP to the accountability mechanisms of the European Bank for Reconstruction and Development (EBRD) and the International Financial Corporation (IFC). Three years later, the dialogue had produced no agreement since MHP decided to withdraw from the process. 

In October 2022, the EBRD’s independent project accountability mechanism opened an investigation to check whether the Bank had complied with its own social and environmental standards when investing in MHP’s expansion. The decision to open an investigation has put the case back in the spotlight and given the residents of Olyanytsya, Zaozerne and Kleban new hope that their voices will be heard.  

Soil, air and water pollution funded by international public finance 

Reflecting on the grievances, the assessment report that launched the investigation acknowledged the risks of pollution caused by MHP’s operations, as well as impacts on soil, air and water, and thus impacts on residents’ health. The report also took note of the increasing traffic through villages, which locals consider a major disturbance and the cause of cracks appearing on houses.  

Over the years, the communities and NGOs have had to conduct their own studies to evaluate MHP’s potential impacts on the environment, something that should have been done by the company through a proper environmental and social impact assessment before the project started. As part of these efforts, a community science initiative on water monitoring in Ukraine’s rural areas revealed in 2021 that water in wells in the three villages often exceeded safety standards for nitrates and other ammonia compounds by two to three times. Such pollution typically occurs in agricultural regions with poor management of fertilisers, manure and farming waste.  

The report also noted the lack of follow-through on mitigation measures to lower risks for the environment and local communities. For instance, the company’s initial promise to develop protective barriers made of trees around chicken facilities in Kleban has never been fulfilled.   

Lessons for banks to craft a more sustainable agri-sector 

The EBRD’s accountability mechanism will now investigate the situation and decide whether MHP projects have violated the EBRD’s environmental and social policies. If non-compliance is found, the investigators will make recommendations and the EBRD will have to propose a plan to mitigate the damage. 

Whatever the result of the investigation, the MHP case is a reminder of why international investors need to think about crafting a more sustainable future for Ukraine’s agriculture sector.