farms differed from each other in the size of their reaction to the onset of the conflict in 2022 ( _β1 - β2_ ) or subsequent adaptation ( _γ1 - γ2_ ) and differences in the level of adaptation by small ( _γ1 - β1_ ) and large ( _γ2 - β2_ ) farms. The results suggest that although output market participation did not differ between the two groups, small farmers’ value of output per hectare decreased marginally less than that of large farms in both the first year (by 7% versus 10%) and the second year (by 12.5% versus 16%) of the war. Although part of this was compensated by an increase in input cost that was about 35% larger for small as compared to large farms, this translated into a slightly less pronounced drop in profits for 2022 (by US$110) and 2023 relative to 2022 (by US$63). The modest size of these differences as well as the descriptive statistics reported earlier suggest that Ukrainian farmers failed to capitalize on the diversification opportunities that were inherent in the relative price changes triggered by the war. Identifying barriers to doing so and ways to reduce them would be relevant.

# **5. Conclusion and policy implications**

The effects of conflict may be felt in areas not directly affected by military activity, and their nature and magnitude may change over time. To account for these factors in analyzing the economic impact of the war in Ukraine, we combined remotely sensed and farm survey evidence. We showed that freely available satellite imagery allows constructing a measure of conflict at high levels of spatial and temporal granularity that is more suitable for quantifying the intensity of the effects of the conflict on agriculture than existing alternatives. We employed regression analysis that linked this variable to a 2019–23 VC-level panel of area cultivated with winter and summer crops for the entire territory of Ukraine (including areas beyond Ukrainian control). This allowed us to analyze separately the direct (due to damage to a specific field) and indirect economywide effects of the conflict on area cultivated with agricultural crops. The economywide effects dominated initially, but their relative importance declined, whereas the direct impacts persisted and even increased in size over time.

Data on prices and actual production decisions from public sources and a farm survey in areas that were not directly affected by the conflict showed that although the direct and indirect effects of the war on cropped area are highly significant statistically, conflict-induced changes in transport costs—attributable to the closure of seaborne export routes and damage to physical infrastructure—have economically more important and far-reaching effects on agricultural profitability. Although such large changes in relative prices can provide an opportunity for diversification in a less volatile environment, the data show no evidence of a shift toward higher value crops even among small farmers, suggesting that even in areas not directly affected by the war, such shifts remained limited. Efforts to identify and remove technical, financial, or market-related constraints to farm-level diversification could be an important way to increase farmers’ resilience to the negative impacts of the war.

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