Olga VarchenkoBila Tserkva National Agrarian University

IAFE-IVRI conference on “The Common Agricultural Policy of the European Union”

5-7 December 2017, Stare Jablonki, Poland

Ukrainian agricultural market regulation instruments: their effectiveness and directions

of improvement

$ 15,5 bln/$570 mln

of Ukraine’s total landmass of Ukraine’s export in 2016 of Ukraine’s GDP in 2016

The agricultural sector covers Agricultural products accounted for Agricultural production made up

Ukraine's place on the world food market1

13

67

Production ofsunflower

seeds

Production of sunflower oil

Exportof

sunflower oil

Export of wheat

Productionof barley

Exportof barley

Exportof corn

Productionof honey Production

of wheat

Production of corn

42,7million ha

70,8% 42,5% 1,6

by 4,5% morethan in 2015

8

Exportof rapeseed

Exportof soybean

4

%

What is agribusiness in Ukraine?

UAN 277bln/$10,2 bln

Індія1,58

СНД 1,2Інші0,75

Components of production potentialA) Land

Structure of agricultural lands of Ukraine1,millionha

Pasture5,4 Hayfields

2,4

Other2,3

Аrable32,5

Structure of owners of land under the moratorium,million ha

Other stateand communal lands1,3

Land (land share)27,7

State and communalagricultural land

10,5

Unclaimed land share0,02For agricultural commodityproduction (except for landshare)1,5

42,7million ha

of the territory ofEurope

The land fund of Ukraineis

5,7%of Ukrainian

territory

Agricultural landconstitutes

70,8%of the world's reserve of

chernozem (black soil) is located

On the territory ofUkraine

28%

1.7 million ha ofagricultural land are notsubject to themoratorium

Ukraine has about23 million private landownersand land users (about 90% ofthem are individuals) andabout 4.9 million users ofstate‐owned land

In Ukraine, 2.4 million haof land are controlledby foreigners (which ismore than the area ofIsrael)¹.

The price of land in Ukraine

It is allowed•to lease units;•to exchange for anotherequivalent unit;•to inherit;

Under  the moratorium:

It is prohibited•to sell units and make anybodychange their designated purpose;•to add units to the share capital;

42,7  mill ion haof agricultural land

9 6%are subjectto the moratorium

27 mill ion  hawere distributed

6,9 million land share owners, of whom:

1,6 million – over 70 years old;

1,4 million – died,0.5 mln of whomdid not have inheritors.

The land reform lasts for25 years

The moratorium is validfor 15 years

The moratorium wasprolonged:8 times

THE COMPARISON OF THE COST OF LEASE AND PURCHASE OF LAND IN DIFFERENT COUNTRIES

THE LAND REFORM IN UKRAINE2

181,3

708,8

672,1592,2

278,9

53,7

256,2

219,4227,3

123,863,739,3

33,627,927,0

25,916,8

14,610,3

1,41,1Lithuania

Russia

Latvia 1,4Bulgaria 4,6

Estonia 5,0Poland

Spain

Germany (west)

Denmark

Italy

Luxembourg

Ireland

Belgium

Netherlands Malta

Lease cost, $/year for 1 ha Purchase cost, thousand $/ha116

The price of land lease in Ukrainevaries from 20  to 170  dollars  per hectarea year, depending on the region, the price of land.

Elements of the land market:o payment of rento purchase and sale of land leasing rightso purchase and sale of land for private households

0,6 8 10,0 5,0 0,2 5,0 4,4 0,01 16,3 44,4 0,02 4,4 60,450 30 9,9 47,0 22,0

591,5 5 300 6,1 2 900,0 330 1000,0 51,0 41,9 6,1 0,03 94,2 0,5 1,221 500,0 17 800,0

Import, k tons

Production, k tons

Export, k tons

5,0 465,9 200

Corn Wheat Potato Sugar Sunflower Milk Barley Vegetables Soybean Meat Rapeseed Eggs Oat Rye Grapes Millet Buckwheat Rice

beet seeds (other)

UKRAINIAN AGRICULTURAL PRODUCTS IN 2016

The main elements of the regulation of agricultural marketSubsidies and subsidies for the production and acquisition of resources.Decree Cabinet Cabinet of Ministers of Ukraine.Resolution of The Cabinet of Ministers of Ukraine "On Approval of the Procedure for Using the Funds Envisaged in theState Budget for Partial Compensation of the Cost of Agricultural Equipment and Domestic Equipment" provides 30 %compensation for the cost of agricultural machinery and equipment.Price regulation. In accordance with the Law of Ukraine "On State Support to Agriculture of Ukraine", the state regulatesthe wholesale prices of certain types of agricultural products, setting minimum and purchase prices.Tax incentive in the form of a fixed tax for the 4th group of payers, as well as a special regime for paying value added taxuntil 2016.Financial and lending support.On the basis of the Law of Ukraine "On the State Budget for 2017" in accordance with:o the program "Financial support of measures in the agro-industrial complex by reducing the cost of loans" provided

UAH 300 million;o the program "Granting loans to farms" – UAH 65 million.o Special support for specific courses and programs. So, in the State budget for 2017 the Ministry of Agrarian Policy has

provided expenditures on programs supporting the development of agro-industrial complex in the amount of UAN5448.1 million.

In particular:o "Financial support of measures in the agro-industrial complex" – UAH 60 million;o "State support for the development of hopping, landing of gardens, vineyards and berries, and supervision over them" –o 299.3 million USD;o "State support for animal husbandry" – UAH 170 million;o "Financial support of measures in the agro-industrial complex on terms of financial leasing" – UAH 3.8 million.o Economical subjects (entities, actors) in agriculture

After Ukraine’s entrance to WTO (World Trade Organization) there were the obligations not to exceed annually the level of aggregate measurement of support

(AMS) , which was fixed at the level of 3 043.3 million UAN.

o The right to support «de minimis» has been obtained. It’s not included in theoverall size of AMS on conditions that it doesn’t exceed 5 per cent of the costof the certain types of agricultural products and up to 5 per cent of the annualvalue of the gross agricultural production of the base period for non-productsupport programs.

o The possibilities of financing budget programs, which according to theprovisions of the Agreements on agriculture are applied to the «green box»,are not limited.

o Ukraine has no obligations to reduce domestic support which isprovided within the «yellow box» programs. The obligation only applies to thefailure to exceed the annual support level accumulated in the indicator ofaggregate domestic support.

o In 2017 5.5 billion UAH had been allocated to agriculture industry (in 2016 thecost of agricultural production is 544.2 billion USD).

Dynamics of domestic support to the agro-industrial complex at the cost of state budget and indirect support

mln UAN

3 876,3 7 175,83 061,3 1 854,8

1 792,8 1 217,4 71,80,0 550 350844,6 753,4

3 896,9 3 069,1

7 609,7 9 044,8 8 981,5

2 424,0 1 488,4 1 424,6

6 800 7 80011 800

16 300 16 70018 700 16 900

24 40050 000

15 100(прогноз)

2 200(прогноз)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

видатки загального фонду

видатки спеціального фонду (по надходженню)

непряма державна підтримка

AccumulationVAT19,8 bln UAH

fixed agricultural tax3,8 bln UAHgrant for milk, meat 0,8 blnUAH

-AccumulatinVAT46 bln UAH

fixed agricultural tax 4 blnUAH

AccumulationVAT12,9 bln UAH

flat tax of 4thgroup2,2 bln UAH

flat tax of 4thgroup2,2 bln UAH

9,9

12,8

17,0 16,714,6 15,3

5,86,3

7,58,2

6,1

3,5 3,94,2

6,5

10,48,8

10,6 11,1 11,4

17,9

19,3 18,7

26,0 26,9

30,9

38,2

42,0

2010 2011 2012 2013 2014 2015 2016

Експорт Імпорт Сальдо Частка у загальному експорті, %

Dynamics of the volume of export-import of agricultural production and its share in total export of the country

Total value added when exporting

32.2 mln.UAH

Production and export of grain (100 thousand

tons)

Total value added in the production of grain

164.9 mln.UAH

Barley (11 thousand tons)Material costs (without

depreciation) –1741 UAH / t

Added value at production -1454 UAH / t

Material costs for export –328 UAH / t

Added value in export logistics-

302 UAH / t

Wheat (23 thousand tons)

Material costs (without depreciation) –1667 UAH / t

Added value in production -

1700 UAH / tMaterial expense when

exporting -95 UAH / t

Added value in export logistics–

88 UAH / t

Corn (66 thousand tons)Material costs (without depreciation) -

1916 UAH / tAdded value at production - 1665 UAH / t

Material costs for export - 90 UAH / tAdded value in export logistics -

84 UAH / t

Milk production(260 thousand tons)

Purchase price of milk with VAT - 5336 UAH / t

Version 1

Total value added in the production and processing of grain for dairy products - 384.3 mln. UAH

The number ofadditionally createdworkstations in dairycattle breeding- 930seats

Version 2

Meat of pigs(18 thousand tons)

Purchase price of pigs withVAT (live weight) - 29617UAH / t

Total value added in theproduction and processingof grain for pig products –435.9 mln UAH

The number of additionallycreated workstations in pigbreeding - 440 seats

Options for the formation of value added (on the example of the grain-product chain)

As of January 1, 2017, in accordance with the requirements of

international standards in the food industry, the following quality

management systems are implemented:

ISO 9000 series: have been certified – 403 units, under

development and implementation – 46 units;

ISO series 14000: have been certified – 43 units, in the stage – 14

units;

HACCP: have been certified – 342 units, in the stage – 150 units;

State standard DSTU ISO 22000: have been certified – 552

units, in the stage – 128 units.

Among agricultural producers (44.9 thousand) there are up to three per cent of enterprises which

(according to expert judgment):

a) introduced Safety Systems (HACCP or DSTU ISO 22000: 2007 as a

part of the agro-food chain);

b) independently audited the production compliance with the minimum

requirements of the basic programs (ISO / TS 22002-3: 2011 The

program of obligatory previous measures for ensuring food safety.

13Vinnytsia obl.

6Volyn obl.

14Zhytomyr obl.

3Zakarpattia obl.

3Ivano‐Frankivsk obl.

36Kyiv obl.

11Kirovohrad obl.

0Luhansk obl.

11Lv iv obl.

10Poltava obl.

3Sumy obl.

318

Kharkiv obl.13Ternopil obl. Khmelnytskyi obl. 6

Cherkasy obl.

7Dnipropetrovsk obl.3

Chernivtsi obl.

12Chernihiv obl.8

Rivne obl.

7Zaporizhia obl.

17Kherson obl.

2Donetsk obl.

28Odessa obl. 5

Mykolaiv obl.8The total number of operators of organic production1

(including operators in transition)as of 01.2017

Organic productionOther

Total area and number of organic producers in Ukraine, k ha

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

164,4

239,5 240,0 242,0 242,0 249,9 270,0 270,2 270,2 270,3 272,9

393,4 400,8Average farm area, k ha

1,5 2 2,5 3 3,5Number of organic producers

31 69

69

70 72 80 92 118 121 142 155 164 175 182

2015

410421

2016

210 390

The area of organic lands in Europe in 2015, k ha

There were 390 organicproducers in Ukrainein 2016.

1 969Spain

Italy  

France  

German

y  

Poland

Russia

Romania  

Portugal

1 4931 375

1 089581

Austria 554Sweden 519

United Kingdom 496Turkey 486

Czech Republic 478Ukraine 410Greece

407385246241

ORGANIC PRODUCTION IN UKRAINE

The priority areasof the maintenance of farming:

Mechanisms which are proposed to be applied during state financial support to farms and agricultural cooperatives:

o provision of financial support on a competitive basis to farmers through a Ukrainian state fund of themaintenance of farming;

o partial compensation of the interest rate on bank loans which are borrowed in national currency;o financial support of agricultural servicing cooperatives;;o financial support of operations in the agro-industrial complex on terms of financial leasing;o government support by reducing the cost of insurance payments (bonuses);o partial reimbursement of the construction budget and reconstruction of livestock farms, complexes,

milking halls and meat-processing enterprises which are formed on a cooperative basis;o partial reimbursement for the cost of heifers, calves, cows of domestic origin and pedigree heifers,

dairy cows, breeding pigs and male pigs (class "elite"), sheep breeders, rams that were purchased forfurther reproduction

o partial compensation of the cost of agricultural machinery and equipment of domestic production;o partial compensation of the cost of landing and maintenance of perennial plantations;o provision of government guarantees for investment projects.

Financing rural development programs

Grants (co-financing) of business projects in the village:

o «green tourism»o bioenergyo organic farmingo production and processing of niche

productso handcrafts

Grant financing of consulting projects:

o management consulting services (financial, legal and other types of consulting)

o expansion and promotion of exporto support for the development of

self-regulating machineryo traceability, safety, qualityo education, extension of

the technology

Possible ways to achieve

1. Direct payments related to production:1.1. Payments for seeding of certain crops (per 1 ha)1.2. Payments depending on the amount of livestock (on the head)1.3. Payments depending on the value of realized production

Advantages:o stimulating the development of certain sectors

Challenges:o complexity of administration, control and inspections;o collection and spread of data, analysis, monitoring; o size limit within the bounds of WTO (yellow box);

Support for small-scale producers: available options

2. Direct payments which are non-connected with the production volume:

2.1. The same amount of payment to all program participantso fixed in advanceo proportionally to everyone and based on the available state budget

2.2. Depending on the area of the land in ownership / usage (but not morethan the determined amount «in one hands»)

2.3. Depending on the amount of income / sales of all products (but notmore than the determined amount «in one hands»)

Advantages:o the possibility of referring to the «green box» of the WTO;o minimal influence of manufacturers' decisions.

Challenges:o collection and spread of data, analysis, monitoring; o involvement of individuals to the program.

Thank you for attention!