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12 March 2018, 16:51

Agrarian Industry Prospects for 2018

It is hard to overestimate the role of the agrarian industry in Ukraine’s economy as currently the share of the agrarian industrial complex in the GDP is about 14% and it represents a stable source of the budget revenues.

While maintaining high standing, the national agrarian industry has good potential for rapid growth and development. Thus, for the potential not to remain just a potential, the Ukrainian government has assigned a considerable amount of budget subsidies for the agrarian business by adopting the Law of Ukraine “On the 2018 State Budget”.

Thus, according to the new draft budget, UAH6.8 billion is planned to support rapid development of the agricultural industry. This amount considerably exceeds the same in the 2017 budget, but is much less than the one the domestic agricultural industry actually needs.

The budget developers say the said amount is not final as there is opportunity to increase it by taxation of agricultural land that is in “shadow” turnover and by obliteration of illegal trafficking of excisable alcoholic drinks. According to expert preliminary evaluation, such measures would allow attracting approximately UAH2 million to cover the needs of the agrarian business. Moreover, the government has planned to reduce credit programs cost for farmers and to allocate considerable budget funds to finance livestock farming. About UAH1 billion is planned for supporting farm enterprises to raise their productivity and impact on the economy. Development of farm enterprises and “deoligarchisation” of the agrarian industrial complex is not the last issue in today’s agenda of Ukrainian government. Thus, in May, the government approved the Concept of Development of Farm Enterprises and Cooperative Farming for 2018-2020. According to the concept, financial aid will be provided for farm enterprises by direct subsidies in livestock farming, gardening, vine growing, organic production and agricultural products processing; loans cost-cutting; agricultural insurance; aid at the launch of farming, etc. It would be naïve to expect these funds to dramatically change the situation in the national agricultural sector. Along with high-quality legislative initiatives, however, such measures would definitely have positive impact.

Discussing opportunities in the agricultural sector in 2018, the matter of opening market of agricultural land is to be obligatory mentioned. The 2018 draft budget proposes to implement nation-wide (all-Ukrainian) money value estimation of agricultural land within the entire territory of the country at the same time. It would inevitably bring the issue of moratorium on agricultural land sale to the political forefront.

The issue of banning the moratorium has been a matter of heated debates for almost 15 years now. IMF pays special attention to the matter, as it strongly believes that the land market in Ukraine should be liberalized, including sale of agrarian land. Whether the government prolongs the moratorium for the next year or not, however, is hard to predict. The only thing that can be stated unequivocally: the land market in Ukraine shall appear! So, it is only a matter of time whether we see it in 2018, or later.

It is worth paying attention to a phenomena that has affected the country in 2017 – illegal takeover (raiding). It is 2017 that saw outrage of raiding that became extremely spread. But it should not continue in this way. Unpunished takeover attacks destroy image of the Ukrainian state on the international scene and farmers’ belief that the government can protect them. Besides, would foreign investors be interested to invest in any business that can be taken over any minute? Sure, not. The experts have repeatedly stressed that the government’s Strategy intended to enhance management mechanism in the field of use and protection of agricultural land, public property and their disposal as of 07 June 2017 contains not a word about efficient protection of the agrarian industrial complex against raiding.

Today, business owners have to stand up for protection of their businesses all by themselves. The only existing mechanism enabling them to counteract “inventive invaders” is to unite their efforts within a certain region to protect their businesses. Special focus should be set on engagement of fully trained militarized units by the legal owners of agrarian businesses for protection. Although the said goes beyond legal regulation, in many cases, however, it is the only efficient protection measure left to fight against raiding.

It is evident that in the state with the rule of law the phenomena when militarized units are engaged in corporate disputes settlement should be eliminated, and the state machinery should ensure peace of mind for the farmers and confidence in future without illegal takeovers.

Therefore, 2018 would definitely become the year of changes in legislation and institutional transformation aimed at prohibiting and avoidance of criminal raiding attacks in the agricultural business. In its turn, now, ALEXANDROV&PARTNERS conduct due diligence of agricultural enterprises to identify existing risks of probable illegal takeover and based on that takes efficient anti-raiding measures in the operation of the enterprises. We believe that only by uniting efforts of authorized state bodies, experienced lawyers, and responsible agrarians we can manage to eliminate illegal takeovers from the agenda of the agricultural business.

Organic production is an important trend in development of the national agricultural sector that will spread further on.

The experts of the Ministry of Agrarian Policy and Food of Ukraine estimate that in the early 2018 the domestic organic products market will be worth of EUR25 million and will show not less than 15% annual growth. But organic market development requires clear rules to be put forward. Thus, taking into account European experience, we need to regulate production, marking, and turnover of organic products, and the procedure of organic production certification.

It is why the draft law “On General Principles and Requirements to Organic Production, Turnover and Marking of Organic Products” has been submitted for consideration in the Verkhovna Rada (parliament), such law to provide for rapid growth of Ukrainian organic products market.

In 2018, 10-15% decrease in national grain export has been forecasted, as following international trends, Ukraine will reduce planted acreage for grain crops. Reduction of planted acreage along with unfavorable weather conditions would have negative impact on the yield of crops. It is worth considering considerable loss in crops during their transportation, as agrologistics in Ukraine is far from being perfectly arranged. Therefore, in 2018 diversification of agrologistics is to be carried out, and issues related to export batches of crops transportation, their delivery to sea ports and their transshipment should be resolved.

In view of the technological revolution we are living through now, the future of the agrarian industrial complex is impossible without development and application of various software and technologies. Modern agrarian is not a farmer operating with a shovel, but a technically trained specialist understanding how to minimize his costs due to smart solutions. Thus, for example, availability of software enables monitoring of the yield volumes collected that make any theft impossible.

The practice shows that the farmers realize necessity of advanced technologies in their businesses but they have not reached the level yet to develop such technologies themselves. It is why technical specialists need to be engaged in development of software. 

At the same time, the agrarian business cost will not be measured by hectares any longer. It is exactly the quantity and quality of IP and IT solutions used that would be crucial for successful business operation. Considering that the legislation is evidently lagging behind the technological development, there are numerous gaps available for unfair competitors. The key preconditions for successful business will be setting up quality barriers and developing reliable strategy for protection of intellectual property rights and IT-infrastructure against any claim by third parties.

Having gained practical experience, ALEXANDROV&PARTNERS may refer to one more recent interesting trend. Unstable economic situation in the country and slow rates of investment climate enhancement hinders steady increase in the number of potential foreign investors. And it is despite of a number of measures the Cabinet of Ministers of Ukraine took over the previous year to reduce the number of normative by-laws regulating business. This work is in progress. Ukraine’s rating in Doing Business grows slowly but steadily, with its 76th position for today. Therefore, we have all reasons to hope that positive momentum in investments in Ukrainian agrarian business will continue in 2018.

Thus, in general 2018 is expected to be successful for the agrarian sector. The government support – financial as well as legislative – to the agrarian industrial complex shall provide for positive dynamics in development of agricultural production. It is worth keeping in mind, however, that for successful sustainable development of the agrarian sector under conditions of globalization of economy, the public policy should be aimed at the steady growth of investment attractiveness of the agrarian industrial complex. Ukraine should introduce new technologies, modernize technical equipment for agricultural sector, and ensure reliable protection of smart solutions. These are the conditions under which we can produce quality products and be strong players in the international agricultural market.

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