You're reading: Business Sense: Government is eating hand that feeds it

With Ukraine’s harvest down after being hit by poor weather, the authorities are using unofficial controls to prevent grain from being exported.

The result of this treacherous policy is easy to predict – just as easy as it was to foresee its high cost for the nation in previous years.

Cash-strapped farmers are again being forced to sell their crop at lower prices so that the government can go into local elections in October chanting the same old political slogan: “Bread prices will not increase.”

As a result, agricultural producers, who represent the poorest part of the population – incomes in the agriculture sector are officially the lowest – will once again have to pick up the bill for the government’s longstanding populism.

Ukraine will once again lose its position on the global grain market and reaffirm its reputation as an unstable country. This, in turn, will curb investments. Most damaging, farmers will lose a few billion hryvnias, which they could have re-invested into new technologies and more efficient production for the future.

Bakeries are already being pressured to keep bread prices stable. This will result in lower salaries or salaries unpaid and no new investments in the industry.

I am very surprised how many people actually react positively to the government’s naive slogans and promises to keep bread prices affordable.

The average Ukrainian consumes about 110 kilograms of bread annually, which at a price of Hr 3 per kilogram costs each Ukrainian Hr 275 annually. If the price of bread went up by 20 percent, it would cost each consumer about Hr 55 more per year (Hr 0.15 per day).

Thus, politicians are ready to sacrifice the country’s image, the well-being of the agriculture sector and the livelihood of the poorest country people for 15 kopecks per day.

This error is being repeated across the country’s economy by the current authorities, which have inherited the Soviet mentality that the words “business” has a rather negative connotation.

Very few people in the country realize that it is not the government giving them money – it is business that feeds them and the government is only re-distributing what’s produced by business. Ukrainian governments have always been very poor distributors of wealth as they have usually kept a major share it for their own needs.

But that’s not my point. My point is that the new government is actually doing everything possible to kill the last business survivors.

Ukraine’s investment climate, already amongst the world’s worst, is getting even worse.

Unfortunately, there is very little people actually know about what’s happening due to political fatigue and because the ruling coalition backing President Viktor Yanukovych has actually been very effective in taking full control over everything – starting at the parliament, stretching further the courts and media airwaves.

The worst thing is that the government is not trying to attract more businesses into Ukraine. It continues trying to squeeze more out of what’s there already, but after years of such abuse, and following last year’s recession, it’s hardly possible for the private sector to cough up any more.

Banks are now overloaded with money but they have a hard time finding good companies to lend money to. Small businesses have just realized that they need to pay twice as much as they did in taxes – just before the much talked about and anticipated but disastrous tax code is approved.

I wonder what next to expect from our government. This year, they can get some more money out of businesses – making them pay more taxes – but next year there will be much less to squeeze out.

The whole situation reminds me of the wise words I heard recently from a friend of mine. He said: “If you have a pig but no more money for feed, you better eat your pig.”

That’s exactly what I think the government is doing. After abusing and mismanaging the farm for years, they are out of feed. Now they have decided to eat the only thing left – businesses. It sounds like a dead end to me.

Andriy Yarmak is an independent agribusiness expert. He has worked on agriculture development issues in 10 countries, serving as an adviser and independent board members for agribusinesses in Ukraine and has developed market information systems for APK-Inform, a Ukrainian agriculture consultancy. He can be reached at [email protected].