They started coming into Ukraine in April of this year: 650 brand new, bright and shiny green John Deere tractors, each one of them headed to the Ukrainian heartland to help rescue the country's woefully under-equipped farmers.
The tractors had been bought on credit from the U.S. government's Eximbank by the Ukrainian state enterprise Ukr-agrotekhservis. The deal was guaranteed by the Ukrainian government.
On paper, it looked like a good deal for both sides: the American side had its coveted government guarantee to insure its investment; Ukraine had a fresh batch of modern tractors to send to its struggling farms.
In practice, it has been a different story. While all the tractors have made it to Ukraine, 80 percent of them remain stuck in warehouses, casualties of the government's refusal to release the machines to debt-ridden farms until they settle their accounts with the state.
The story exemplifies yet again how government intervention in Ukraine's agricultural sector – particularly in the form of government loan guarantees – can contribute to the sector's extensive woes.
The episode began earlier this year when Ukragrotekhservis negotiated an agreement with Eximbank to buy the entire load of 650 Deere tractors on credit for $89.6 million. The credit was to be paid off over five years, at 6 percent annualized interest. Ukragrotekh-servis hand-picked the farms that would receive the tractors, and worked out separate crediting arrangements with those farms.
When the tractors began arriving in April, they were supposed to go directly to the farms. It didn't happen that way, because many of those self-same farms picked to receive the tractors already had mountainous debts to the state.
Odessa-based Metalservice is one company that did not receive its tractors, despite having paid in full for 30 of them, according to company director Valentin Dusheiko.
Metalservice appears to be paying for the inabilty of smaller farms to pay for their tractors. An angry Dusheiko says the government should have surmised all along that smaller firms would have trouble paying for the expensive tractors.
'It's quite problematic today for many farms to guarantee they will come up with $160,000 (the approximate price of one tractor), even taking into account the value of their property,' he said.
One of the Soviet Union's legacies to Ukraine was more than 500,000 tractors that would make better museum pieces than plowing devices. About half of these tractors are out of order at a given time, while those that do work suffer from poor maintenance, fuel shortages and plain antiquity.
Just one John Deere tractor can substantially improve productivity on a Ukrainian farm. 'One John Deere tractor can substitute for 10 Soviet tractors in the field,' one technician told the Post, adding that Soviet tractors consume three times more diesel. Fuel efficiency is especially significant for Ukrainian farms, many of which pay in grain for fuel from the state because they cannot afford to pay in cash.
If Ukraine is ever to right its terribly inefficient agriculture sector, it must find a way to get new tractors – not to mention a host of other modern inputs – to its farms. Realizing this, the government has in the past guaranteed direct input loans with cash. While this system has worked to get some inputs over here, many now argue that the government guarantees have only made the problem worse.
The Deere fiasco is a case in point. In October, the Ukrainian government will find itself making the first of their guaranteed payments for the tractors to Eximbank. 'That payment must come right out of the state budget,' a specialist with the Ministry of Agriculture confirmed, speaking to the agency Ukrainian News.
The payments are a stiff price to pay for a load of tractors that have yet to see action in Ukrainian fields.
The one-sidedness of the deal has not escaped local media. Many newspapers have pilloried Ukragrotekhservice and the government in general for their handling of the deal.
'How could the state structure purchase such a quantity of machinery without checking it with the farmers if they can buy it?' a Den newspaper editorial wondered. 'How could the government guarantee this deal with (our ) budget money?'
Volodymyr Kulhavy, the head of Ukragrotekhservice's supplies department, doesn't try to skirt the blame for the fiasco. 'Yes, it's Ukragrotekhservice's fault that it brought these tractors to Ukraine,' Kulhavy said.
Specifically, he explained, the government's failure to amend a scheme of state orders dating from the seventies has led to the current problems. Under the archaic system, Ukragrotekhservice itself selects which farms receive tractors. 'It was an ideal scheme [in Soviet times]… but it has proven no longer viable,' Kulhavy says.
Like any good problem, this one begets a solution. The solution the government has come up with is a familiar one to watchers of Ukrainian agriculture: forcing the farms to pay for the tractors with their crops. 'It's the only possible solution now,' said Kulhavy.
Unfortunately, that is a short term solution, at best – and one that does little to enable farms to pay for tractors in the future. It essentially proposes to solve a problem that resulted from excessive government interference with a solution that is just as obstructionist.
Peter Sochan, the senior policy coordinator at The Citizens Network for Foreign Affairs, is among those that argues Ukraine should be taking a more long-term approach to the problem – one that minimizes the role of the government.
Sochan says government guarantees contribute to the suppression of private initiative. Because farmers have gotten used to not paying their debts, Sochan says, they have become passive.
'It's a continuation of the planning system,' Sochan says. 'But now they are trying to do it in the market economy.' For example, he notes, the state does not use market criteria in choosing which farms will receive tractors. As a result, the tractors end up earmarked to hopelessly bankrupt farms with no chance of paying for them.
Another looming problem is that the government itself can no longer afford to pay off farms' input credits when the farms themselves fail to pay. This reality is leading input suppliers to pull the plug on Ukraine's already diminished supply of Western inputs – leaving Ukrainian farms in even more of a predicament.
