The business community of the European Business Association (EBA) is convinced that the provisions of bill No. 4277 on the introduction of state regulation of grain prices contradict the norms of the current legislation and the development strategy of the state as a whole.
“Draft law No. 277 proposes that the government set a minimum price for grain transactions in the domestic market. However, the mechanism for setting the minimum price is unclear because the level of profitability of producers differs significantly depending on the area, weather conditions, region and production characteristics, the calculation methodology – respectively,” the EBA said on its website.
According to the report, in practice, this may mean that producers in one region will potentially operate on the verge of profitability, and those in another region earn super-profits. “Besides, given the export orientation of the industry, the price formula in the domestic market is based primarily on world prices. Therefore, price regulation can potentially have an overall negative economic effect,” the report says.
“The question remains of how the minimum price will consider the factor of logistics costs. After all, if the minimum price for farmers located far from processing facilities is formed without considering the cost of storage and transportation of grain, they could potentially lose their market and suffer losses. In addition, it is not clear how the minimum price will consider the quality of grain and seeds, in particular, moisture, weediness, and other indicators of quality and safety,” the report states.
“It should be noted that for more than ten years the state has gradually abandoned the policy of price regulation, which is a relic of Soviet times. Price restrictions have proven ineffective because they do not reflect real market conditions and have negative consequences for both producers and consumers,” Irina Dushnik, the EBA Grain and Oilseed Committee Executive Director, said.
“According to market experts, the experience of previous years and administrative intervention in pricing in the agricultural sector have led to lower profitability and minimum profitability of producers. Price regulation distorted competition and allowed less efficient, but more cost-effective businesses to stay in business. State pricing also had a negative impact on the investment attractiveness of producers of those goods for which prices were regulated, as it limited the return on investment. Therefore, this often prevented the modernization of production,” the EBA added.
