Ukraine is one of the most promising players on the world agrarian market. Leading domestic and international agriculture specialists ceaselessly repeat this statement. With a population of 46 million, Ukraine presently produces food for 120 million people, but has the potential to feed 200-250 million people. However, despite such agrarian capacity, the perennial “granary of Europe” had to introduce export quotas for grain in 2010 to protect itself from the food crisis. Moreover, 2011 has seen considerable inflation for foodstuff: buckwheat, flour, sunflower oil, sugar, etc. The agrarian sector is also regularly bothered by corruption scandals which, according to the market participants, are aggravated by the postponement of reforms. Thus, there are many factors preventing Ukraine from becoming an agricultural giant. How does the government plan to solve them? Agrarian Policy and Food Minister Mykola PRYSIAZHNIUK spoke about this in his exclusive interview to The Day.
In your opinion, what are the priority directions in the agrarian sector in 2011?
“There are local (successfully managing the spring sowing work, and the fall harvests) and strategic questions for 2011. The latter are connected with continuing the reforms initiated in 2010 in the agrarian-industrial complex, notably finishing the land reform.
“However, when trying to find solutions to the important problems, one should understand that the agrarian economy is not subject to general economic principles, for example, that the market will regulate everything by itself. The market will regulate prices when there are goods. But in no way can it solve the issue of availability. The current situation shows it, too: an uncontrolled decrease of area for buckwheat cultivation together with natural climate factors led to food problems, which appeared not only in our country but also in neighboring Russia and Belarus.
“Therefore, to ensure food stability, the state must participate in the work of the agrarian-industrial complex through the mechanism of state orders and forecasting the agricultural structures’ cultivated areas. The ministry already estimated the optimal areas for buckwheat, rye and sugar beet. Someone can say this is an attempt of non-market interference in the field. But international experience shows that similar mechanisms are successfully used in other countries as well.”
“THE BEET CULTIVATION AREA WILL BE INCREASED BY 60, AND FOR BUCKWHEAT — BY 90 THOUSAND HECTARES”
How much will the area allotted to beet and buckwheat be increased?
“Beet cultivation area will be increased by 60,000 hectares and will constitute 565,000 hectares, and buckwheat – by 90,000 hectares, to 300,000 hectares. At the same time, the Agrarian Fund will be allotted five billion hryvnias for forward purchases of new crops. A total of 1.7 billion hryvnias were received already, and they will be distributed by March 15. The next tranche of funds, in the amount of about a billion hryvnias, will be received by mid-April, and the remaining two billion hryvnias — by early July, right before the beginning of the new grain marketing year.”
You’ve mentioned the market, goods and their prices. Currently the most burning question for most Ukrainians is the unceasing increase of prices for food products. In your opinion, why do prices for food keep growing in Ukraine, which is called one of the most promising leaders of the agrarian world?
“The price policy here doesn’t depend on leadership or size of production. For example, the US is the leader in car manufacturing. However, cars are not cheaper there than in other countries around world. The price for any product depends on many factors. The cost of the final agrarian product is first of all determined by the cost of energy spent to produce it, mineral fertilizers, means of plant protection, logistics expenses.
“Unfortunately, these constituents become more expensive every year. That is the price of food product manufacturing also grows in absolute terms. At this, comparing Ukraine with our neighbors, we have a slower growth. For instance, in Belarus butter became 25 percent more expensive. The second reason for the increase is hidden in the mechanism of product realization. Researching where a product’s added value appears, we saw that from the moment of purchase from an agricultural manufacturer of a product for, say, one hryvnia, it comes to the market with the price of 1.8-1.9 hryvnias.”
That is to decrease prices it is necessary to exclude speculators from the chain “manufacturer-intermediary-retailer”?
“Not all intermediary services are oriented toward speculation. Some of these services help the goods appear on counters much faster. But when, on Kyiv’s municipal markets, a seller of agricultural produce has to pay on average 300-400 hryvnias a day just for a workplace, it becomes clear how much produce they must sell and what extra charge they have to impose for this activity to be profitable. Therefore the local government should also work on decreasing prices, checking work requirements on markets and finding out where the excessive increases of prices occur.
“In addition, logistics should be put in order. For this the ministry already issued licenses for building six wholesale markets in the regions. Thus, in the Kyiv region the first stage of a wholesale market is being built, the Lviv oblast is at its second stage, construction just started in Donetsk oblast, and Kharkiv, Dnipropetrovsk and Kherson oblasts are at the level of preparations. Cooperation with the Ukrainian Co-op Society has been renewed — it will function as a logistical purveyor of agricultural products.”
“LICENSING FOR IMPORTED MEAT SHOULD APPEAR BY THE END OF 2011”
Perhaps that is why poultry farmers and meat producers, in the letter to the head of the state, the government and yourself, suggest the introduction of licensing or quotas on imports of meat products. Do you support their proposals on limiting meat imports by means of such instruments?
“The Ministry of Economy suggests introducing licensing for imported products. Licensing (unlike quotas) doesn’t limit supply, but requires that quality products be imported. I support the idea of importers of meat and meat group goods getting a license from the Ministry of Economy. A similar practice functioned in previous years.”
Will it be done by the end of 2011?
“This must be done by the end of 2011. But this step will not have a considerable impact on the market. [Nonetheless] I will support this initiative.”
Let’s return to price issues. You explain the food price increase by the growth of product prices and extra charges by intermediaries on the delivery of goods. Market participants also mention other factors. For example, they explain the flour price increase by the actions of the semi-public grain trading company KhlibInvestBud, which allegedly provoked the purchase price increase per ton of bread flour from 1,600 to 2,400 hryvnias.
“I doubt that the purchase price was so high. (According to the Ministry of Agrarian Policy and Food, the price increase in spring 2010 constituted 1,170 to 1,940 hryvnias per ton.) But let’s return to the history of the grain issue. When the government decided to introduce export quotas (experts and grain traders now acknowledge the correctness of such actions), a media attack began stating that agricultural producers lose 300-400 hryvnias per ton of grain. Presently the Agrarian Fund has enough grain, which is sold to the regions at 600 hryvnias below the market price. When the companies which got export quotas came to the market to buy grain for a higher price, ‘critics of the government’ changed the tune and once again said ‘they buy for too high a price!’”
“GRAIN TRADERS MUST BECOME A FINANCIAL PARTNER FOR AGRARIANS”
During the last meeting with the prime minister, foreign business expressed concern with the attempts of parliamentarians to make the state’s monopoly on the export of agrarian products legally binding. Will you support the creation of a state grain export monopolist, as is presupposed by the bill No. 8163 “On Grain and Grain Market in Ukraine”?
“The bill No. 8163 offers to allow the export of grain directly to manufacturers and traders, which by means of a forward mechanism will finance up to 50 percent of grain crops costs for the manu-facturer. Is it a monopoly? Grain traders will become financial partners for agrarians. This is not Ukrainian know-how — many successful agrarian countries work this way, like Brazil. How does the production process take place today in the Ukrainian agrarian-industrial complex? Agricultural manufacturer looks at prices, sow, harvest and store the crops, and then someone simply purchases and sells the grain. Agrarians and the state don’t have enough money to increase the amount of grain production. They need partners in this. That is why grain traders must make advances to manufacturers — this is my firm position.”
Nevertheless, what shall we do with the grain monopolist, suggested by this bill?
“The document doesn’t presuppose any individual export monopoly for the state agent. Besides, there are manufacturers and traders who will partly finance future crops.”
Indeed. But if the state wants to create its own operator, why does the bill suggest establishing its share in the company’s statutory fund at a level of 25 percent, not 100 percent?
“This question is subject to discussions, which will take place during the first and second readings. There should not be a state operator for grain export at all. If one ever appears, it should also have a commercial component. On the other hand, in my opinion, the Agrarian Fund should be given the right to sell the remnants of grain on foreign markets, provided that the domestic market doesn’t need grain intervention.”
“A FREE LAND MARKET MAY BE LAUNCHED AS EARLY AS MID-2012”
The head of state has instructed that the land market be in place by 2012. Is this realistic, for there is neither a land cadastre nor a land bank, and land has not yet been inventoried?
“Some mistakes have really been made in the land reform, but the very process seems to be too long. For this reason, with due account of previous experience, we must finish this reform quickly and effectively. Land market laws should be passed before the end of this year. Should the lawmakers work effectively, a free land market may be launched as early as mid-2012. It would be good if land mortgages and long-term leasing began to ‘work’ in 2012, too.”
Experts say that investors, especially foreign ones, will not make serious investments in the agrarian sector unless they are eligible to buy land. Do you share this fear?
“I do not think that banning legal entities from buying land will stop Western investors. Long-term leases, an alternative to purchasing, are a good instrument for successful production. But what really worries me is this: if the land market is to be opened to both individuals and legal entities, where will Ukrainian agrarian holding companies, which are now cultivating a large number of lands and producing goods, find the funds to buy out 100,000 ha of land? Nowhere. This may trigger a collapse: the state will simply destroy, with its own hands, the national agrarian holding companies that are providing a lot of revenue and create hundreds of thousands of jobs.”
How many investments does the Ukrainian agrarian sector need?
“The more investments, the better. But the main goal at the moment is that the Ukrainian agrarian sector should double its gross output of farm produce. Our academics believe this will require an estimated 100 billion hryvnias in the first stage.”
What is the current situation with the crediting of the sector?
“The state is increasing the refund of banking credits’ interest rates. The prime minister has instructed that compensation be raised from 531 million to 1.5 billion hryvnias by the first half of 2011.”
“THE SHARE OF BAD CREDITS IN THE AGRARIAN SECTOR IS 1.5 PERCENT OF THE TOTAL AMOUNT”
And what about bad credits? Earlier this year experts estimated that there were seven billion hryvnias worth of bad credits in the agrarian sector.
“Banks are not giving such signals so far. The share of bad credits in the agrarian sector is 1.5 percent of the total amount. Besides, this sector is showing the highest percentage of banking credit repayment and interest payments.”
It is very good if the state compensates for interest payments. But it is usually big agrarian holdings with a good credit history and liquid property as banking collateral that can get this refund. Small- and medium-scale farmers do not have all this. What about them?
“I agree with you. For this very reason, governors have been instructed to help small- and medium-scale farmers find a way to the bank. The government has urged regional administrations to hold joint meetings of producers and bankers, where they will find a common language.”
Do you think agrarians are prepared for their spring fieldwork?
“Winter crops have survived the winter well, 95 percent of them are in a good condition. To successfully carry out the sowing campaign, the state is going to make forward purchases and offer credit interest refunds. Besides, the government has decided to supply agrarians with 150,000 tons of 10-percent cut-price mineral fertilizers (300-400 hryvnias cheaper than the market price) and 100,000 tons of fuel. International food prices, which leading international analysts say are expected to grow, are also motivating the farmers.”
You mentioned a batch of cut-price mineral fertilizers, but why not use the mechanism of export quota setting (similarly to grain quotas) for national mineral fertilizer producers, for the price of their products has risen by more than 45 percent? This would make Ukrainian fertilizers more accessible to agrarians and make the sowing campaign easier.
“There is no question of setting quotas. But the ministry and producers are now negotiating the settlement of the price issue. There should be market-based prices for mineral fertilizers. Besides, its likely that the Agrarian Fund will purchase mineral fertilizers on a forward-contract basis. It is better to take this step in the summer, when the fertilizer price goes down significantly.”
The Ukrainian Club of Agrarian Business announced recently that the companies that supply imported seeds are unable to bring them in due to license issue problems. This may allegedly hinder the spring work in the fields.
“If the seeds are of high quality, there will be no obstacles on the border. But genetically modified seeds will not be brought in because this is prohibited by law. Ukraine should not depend on foreign breeding, for we are fully capable of providing ourselves with nationally-grown seeds. I am convinced that one must support Ukrainian science and those institutes that deal with seeds.”
