As far as Ukraine’s agrarian sector is concerned, while reforming it, particular attention should be paid to the interests of two categories – small and medium producers focused mainly on the domestic market and large export companies engaged in manufacturing of products in significant quantities and ready to supply them to the international markets.
Currently, the former produce the majority of agricultural products in Ukraine and make a significant contribution to ensuring food security of the population. The latter contribute to the development of trade relations of the state and provide large currency earnings to the state budget.
Let us start with the small and medium producers. Now, individual households, which are more than 3.5 million, produce more than a half of agricultural products in Ukraine. Moreover, they produce over 90% of potato, 85% of milk, 75% of beef, most of pork, vegetables and fruits.
Being perfectly aware of the fact that small and medium enterprises are the basis of the agrarian sector of Ukraine, at the same time, we have to admit that at present we have little possibility to render direct financial support to them. In the conditions of the defense budget, public expenditures on agriculture have been minimized.
The task of the Ministry of Agrarian Policy and Food is to seek the alternative ways of indirect support to SMEs. One of them is the development and implementation of the crop receipts project– a new financial instrument that will raise funds for development of a farm, secured by the future harvest. We started a pilot project in Poltava region, and recently we have launched it in Vinnytsia, Cherkasy, and Kharkiv regions. Some Hr 20 million has already been raised through the system of crop receipts.
The Ministry of Agrarian Policy together with the State Commission for Regulation of Financial Services Markets of Ukraine, International Company IFC, and Ukrainian insurance companies and farmers developed a new draft law on agrarian insurance, which will make the process of insurance and indemnity more transparent.
Given that the agrarian sector of Ukraine is actively diversifying the target markets, shifting from the CIS to Asia, the USA, Middle East, Europe and Africa, a priority for the entire industry, especially for small and medium producers, is the issue of compliance of the products with international quality standards and the European norms, in particular. To complete the European integration tasks, the Ministry is working on the harmonization of the national legislation in the field of agriculture and food safety in accordance with the EU requirements.
But quality is not something that can be achieved overnight. This task needs constant work with the attraction of modern technologies. World markets are very demanding for new products and new exporters. We have recently managed to access the markets of Israel for eggs and of Egypt for chicken. Saudi Arabia is going to hold an audit of Ukrainian enterprises with regard to the production of poultry.
Our potential for development of new markets is infinite. Thus, now we need to work out the quality of products. In this regard, the support of foreign governments and private investors is very important for us.
For instance, the governments of Canada and Israel are implementing a project to support fruit and vegetable farming in the southern regions of Ukraine for the total amount of 19 million Canadian dollars. The company Danone Ukraine together with the International Charitable Foundation “Community Wellbeing” (Heifer Ukraine), and the “Agricultural Advisory Service” have begun the project to create family dairy farms. The government of Canada contributes to the development of dairy cooperatives in 4 regions of Ukraine.
The mentioned initiatives promote modern methods of management in the agriculture of Ukraine and provide additional opportunities to improve product quality.
Now we turn to the most significant segment of reforms which affects all the participants of the agrarian sector. I mean the deregulation of the industry, which implies the reduction of government regulation. A lot has already been told about it. I will only mention the key figures: 14 permits (including the compulsory quarantine certificate) cancelled, 6 licenses eliminated, and more than 50 changes implemented.
This allows all the players of the domestic agricultural market to save more than 5 billion UAH, which used to be previously expended on senseless permits and certificates of quality (and I am not touching upon the corruption angle of bureaucratic procedures, which now has been abolished). In general, the logistic chain in the agricultural sector has been short-cut by 1 week.
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These reforms are particularly significant for large exporters of agricultural products. No wonder that, in the 2014/2015 marketing year, we achieved the record exports of grain – 34.8 million tons, which puts Ukraine on the third position among the world grain exporter after the U.S. and the EU. And this is just a beginning. In the current marketing year, we plan to increase grain export to 36 million tons, the amount we can supply without jeopardizing the food security of the people.
Together with the Ministry of Infrastructure, we continue to implement the project of “one-stop-shop” at the Odesa sea port. It will facilitate a prompt and centralized resolution of all infrastructure issues for domestic exporters, and further reduce time and resources spent on export operations.
Despite the fact that now every fifth Ukrainian is employed at the agricultural sector, our reforms affect the lives of absolutely everyone. After all, the products you consume, you get thanks to the efforts of local farmers.
The agricultural sector creates 14% of the GDP. The agrarian export generates about 30 million dollars of foreign exchange earnings to the state budget of Ukraine daily. The industry’s contribution to the welfare of each Ukrainian is quite significant. For this reason, we should strive to ensure that not a single dollar of foreign exchange earnings, nor a single hryvnia, got into private pockets instead of the state budget, or was lost as a result of incompetent management.
For the first time since Ukraine became independent, an audit of state-owned enterprises (SEs) subordinated to the Ministry of Agrarian Policy was conducted with the participation of independent experts from international companies as BDO, Deloitte, KPMG, Ernst&Young, PWC, Baker Tilly and Avellum. Only about 50 SEs among 471 working in the industry were nominally profitable (with the profit of 20 thousand UAH per year). But the aggregate loss of all the state enterprises of the Ministry of Agrarian Policy amounted to 3.5 billion UAH in 2014. And this could be your money.
How did the Ministry respond to revealed facts? Primarily, criminal proceedings were initiated upon the facts of financial abuse. More than 100 complaints were filed with the law enforcement authorities. Investigations are pending.
Second, it is my strong conviction that the privatization of SEs in the agricultural sector is the best way out of the situation. Public management has already proved that it can be not only ineffective but also unprofitable. The continued work of enterprises in the hands of private entrepreneurs will help to restore their normal operations and increasing revenues of the state budget.
The Ministry of Agrarian Policy carries out a competitive selection of candidates for the positions of the state agrarian enterprises’ managers. These officials would be tasked to prepare the SEs for their privatization. A record number of competitions were held: 73 already completed and 36 in process.
The list of enterprises subject for privatization in 2015 has been shaped. Under a Cabinet directive, 86 fall under the responsibility of the Ministry of Agrarian Policy. 24 out of them are restricted from privatization, as there a special resolution of the Parliament is needed. The other 62 have been transferred to the State Property Fund in the framework of the working group on privatization. The State Property Fund accepted for operation 28 out of 62, while 12 require a decision of the Cabinet of Ministers of Ukraine on privatization, and 34 were not accepted for privatization by the Fund for different reasons.
Jointly with the Fund for Innovations and Development and the State Property Fund of Ukraine, the Ministry established a joint working group to develop a unified approach to privatization of SEs. Another 15 SEs were prepared for privatization. These include Ukrspyrt, Artemsil, and the PJSC SFGCU. The proposals to the Cabinet were developed.
Another positive result of the privatization of SEs will be the separation of agricultural land shares, formerly owned by the state enterprises. Thus, up to 100,000 people will be able to obtain land parcels.
As for the issue of the land reform, I must admit that there has also been a shift. For instance, one of the most significant changes is that the minimal period for the lease of agricultural land is set at 7 years. This factor will contribute to the establishment of stable relations between landlords and tenants, it will create opportunities for long-term planning of the works at a rented plot, and foster more responsible tenants’ attitude to natural resources at their disposal.
We are not going to rest on the laurels – we will keep on deregulating the industry, continue the privatization of SEs and the legislative work towards European integration. Our main purpose is to ensure food security of the population, to provide each region with the full range of food products, and also to increase the level of Ukrainians’ welfare through the growth of activity and the development of the agricultural sector.
From time to time, we hear that the reforms are on the slow side. But let’s try to imagine that there is a locomotive with a disabled engine in front of you. And your task is to make it run from A to B. You push it once, then for the second time, and it seems that it will never move. But there comes a time when the locomotive pulls away. The locomotive moves slowly, and you find it hard to move it. But if you are heading to your target and you have a good team, you will succeed.
We managed to get all this heavy and a bit outdated agricultural apparatus moving. There is still a lot of work to do, but I am convinced that our goals are worthy of all the efforts.
