[Four Years into the Russia-Ukraine War] ③ From Europe's "Breadbasket" to Drone Powerhouse... How the War Reshaped Industry

Postwar agriculture and steel output plunge
Emerging as Europe's drone mecca
Rare earth development brings both hopes and concerns

Editor's NoteAs of the 24th, it has been exactly four years since the outbreak of the war in Ukraine, and for the first time since the war began, three-way talks among the United States, Ukraine, and Russia are under way, rapidly accelerating peace negotiations. As cautious expectations emerge that a peace deal could be reached within this year, movements for postwar reconstruction and recovery projects are also gaining full momentum. At the same time, there are projections that the defense-industry-centered restructuring of Ukraine's industrial structure, triggered by the world's first full-scale drone warfare fought on Ukrainian soil, will bring major changes to the global defense sector. This article takes a multifaceted look at the situation in Ukraine, which stands at a crossroads of massive change that will begin after the war ends.

Reuters and Yonhap News Agency

Ukraine's industrial structure has also undergone drastic changes since the war. Until the outbreak of the war, Ukraine was such a major global grain exporter that it was called the "breadbasket of Europe," but it is now being referred to as Europe's "defense Silicon Valley." Drones, which in the early stages of the war were supplied mainly by the United States and Europe, have now been transformed into one of Ukraine's key export items. After the war, rare earth mining development, an area of great interest to the U.S. government, is also expected to grow into another pillar of industry.

Rapid shift from agricultural and steel powerhouse to defense nation

Since the war began in 2022, the fastest-growing sector in Ukraine has been the defense industry. According to the Wall Street Journal (WSJ), Ukraine's domestic weapons production reached 35 billion dollars (about 51 trillion won) last year. This is 35 times the 1 billion dollars recorded in 2022. It also exceeded half of Ukraine's annual exports of 68.1 billion dollars in 2021, the year immediately before the war.

Wheat fields in Donetsk Oblast in eastern Ukraine. AFP, Yonhap News Agency

By contrast, Ukraine's traditional mainstay industries of agriculture and steel have suffered heavy damage from the war. According to the Ukrainian Ministry of Agrarian Policy and Food, the country's grain production last year is estimated at 56 million tons (t), a 34.8% plunge from 86 million t in 2021. Ukraine's grain output fell to 53 million t in 2022 and has since failed to recover above the 50 million t level. More than 30% of all farmland has been destroyed since the war, and with 20% of the national territory occupied by Russia, a recovery in production has become difficult.

Steel production has declined even more sharply than grain output. According to data from the World Steel Association (WSA) and the State Statistics Service of Ukraine, the country's steel production last year stood at 7.4 million t, roughly one-third of the 21.4 million t recorded in 2021. Steel output plunged after Mariupol, a key steel-producing area where numerous steel mills were concentrated, was destroyed by Russian airstrikes and then captured, and as iron ore regions such as Donetsk, Kursk, and Kherson were seized by Russia.

Drones: from U.S. and European aid supplies to core export item

The photos are not related to any specific statements in the article. Getty Images Bank

Drones, which have emerged as a centerpiece of the global defense industry through the war in Ukraine, have become Ukraine's new flagship export product. In the early phase of the war, Ukraine received most of its drones from the United States and Europe as military aid, but it has since transformed into the largest drone producer in Europe.

According to the Kyiv Independent, a local Ukrainian media outlet, Ukraine produced 4 million drones last year. The country is aiming to produce 7 million units this year. This represents an explosive increase from 2022, when annual drone output at the onset of the war was only around 1,200 units. The number of drone manufacturers in Ukraine, which stood at just seven before the war, had grown to more than 500 by last year.

Currently, the only countries producing military drones in the millions of units per year are China, Russia, and Ukraine. According to CNN, U.S. drone production is around 100,000 units per year, and the United States plans to increase this to 1 million units going forward.

The Ukrainian government is seeking to establish drone export hubs across Europe and export drones to European countries. At a press conference on the 8th, President Volodymyr Zelensky said, "We plan to set up drone export hubs at 10 locations across Europe, including the three Baltic states and the Nordic region, within this year," adding, "From the middle of this month, production of drones using Ukrainian technology will begin in Germany, and we are already operating production lines in the United Kingdom."

Rare earth bonanza in Ukraine that provoked Trump... "Development will not be easy"

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Another sector expected to become a major industry for Ukraine after the war is rare earth mining. The U.S. government is paying close attention to the development of Ukraine's rare earth deposits as part of its efforts to counter China's weaponization of rare earths.

The U.S. Geological Survey (USGS) estimates the value of Ukraine's rare earth reserves at 500 billion dollars (about 725 trillion won). Development of Ukraine's rare earth mines initially began to be prepared after the European Union (EU) signed a minerals agreement with Ukraine in 2014, but the process was completely halted following Russia's invasion of Ukraine in 2022.

Currently, the United States and Ukraine have agreed to pursue joint development under a rare earth minerals agreement signed last April. According to CNBC, on the 12th of last month, the Ukrainian government, under that agreement with the United States, granted a U.S. company the development rights to the Dobra lithium mine located in central Ukraine. Full-scale development of rare earth mines by U.S. companies is expected to begin after the war ends. Among Ukraine's rare earth resources, the one that particularly interests the United States is lithium, a critical material for producing electric vehicle batteries. Ukraine is believed to hold about 500,000 t of lithium, the largest deposit in Europe.

However, large-scale development is expected to face significant difficulties because a substantial portion of Ukraine's rare earth deposits lies in Russian-occupied areas. According to the British newspaper The Independent, about 53% of Ukraine's rare earth mineral resources are located in four regions currently occupied by Russia: Luhansk, Donetsk, Zaporizhzhia, and Kherson. The Russian government claims that rare earth deposits worth 350 billion dollars lie within the territories it occupies.