How exists and breathe the agrarian business of Ukraine

How exists and breathe the agrarian business of Ukraine

10.02.2017 Analytics

If there is a sector in which Ukraine is objectively comparable to the leaders of the world rankings, it is agriculture. According to the «Food» and «Agriculture Organization», Ukraine ranks third in the world by percentage of cropland against the total county’s area. And according to the «National Master»(global statistics portal), Ukraine occupies the 4th place by the percentage
of cropland per capita.

Agricultural sector in 2016 and trends of 2017

Ministry of Agrarian Policy and Food of Ukraine reported that the index of agricultural production in 2016 compared to the previous year was 106.1 % (109.8 % – at the agricultural enterprises and 101.5 % – at households). The increase in production was observed in 22 regions of Ukraine. Compared to the previous year, harvest of buckwheat, barley, maize, grain legumes, beets, sunflowers, soybeans, potatoes, vegetable crops has increased. However, the decrease in the wheat, fruits and berries harvest was recorded. The efficiency of livestock production at the agricultural enterprises has increased.

However, despite the fact that in recent years growth in cattle breeding and milk production volumes gradually increases, in the long term these figures are still low. This can be explained by the specific situation on the dairy market and low price proposals from purchasers buying milk from individuals, which has led to a massive reduction in the cattle stock numbers and a significant reduction in the volumes of milk processing that in 2015 were the lowest in Ukraine for the last 20 years. The state was forced to implement a number of promotional measures that would help to increase purchase prices of milk. The index of industrial food production in December 2016 as compared to December 2015 was 115.1 %. As to the oil and sugar, it amounted to 136.2 % and 116.2 % respectively. Based on the year indices, the share of the agricultural sector export in total exports of the country is 42.5 %.

Within the total export, grain crops amounted to 39.3 %, oil – 25.3 %, oilseeds – 9.7 %. The foreign trade turnover amounted to 19 638.6 million dollars and as compared to 2015 – 105.9 %. Interestingly, the first five positions among importers of the Ukrainian agricultural products occupy India (10.2 %), Egypt (8.6 %), China (6.6 %), Spain (5.4 %) and Netherlands (4.6 %). According to the year results, Ukraine is the world-leading exporter of flour. Changes to the special tax regime and the transition to a common system of taxation were of great importance
for farmers in 2016, as well as and the first stage of special VAT regime changes for the agricultural sector.

Experts point out that although for some this change will result in disaster, but so the market could filter out inefficient companies thus strengthening agricultural sector. The rise in prices of agribusiness public companies and recovery of their value. Earlier this year, the aggregate value of agricultural companies rose by 17.8 %, which is a record level since 2014. Based on the year showings, almost all companies individually and in the aggregate showed such an increase. According to information agency Agravery, all agricultural holdings in Ukraine could be sold for 3.282 billion dollars.

Shares of public holdings «Ovostar», «Kernel», «Astarta», «MHP», «Ahroliha», «Milkiland» and some others were the most expensive ones. Implementation of the planned state support to farmers is referred to by experts as a trend of 2017. If it is approved and launched in 2017, it will allow the agricultural sector to reform and grow faster. The expectation of the land moratorium cancellation and opening of the land market in Ukraine as usual for recent years remain the trend.

Historical perspective

It is difficult to talk about agriculture avoiding the issue of land and land moratorium. However, the history of Ukraine observes such a moratorium not for the first time. About a century ago, on the 29th of September 1917 the effective land ownership (belonging to landlords, church, assigned lands etc.) was abolished by a decree of the Central Council. The land became the
property of the people, and in fact, completely nationalized. Upon the disintegration of the Union, the agricultural production experienced a sharp decline due to wrong policies of the government and a significant reduction in domestic demand.

During the first decade of independence, grain production decreased by 52 %. The growth of agricultural production began since the beginning of the 2000s, and in late 2000s a rapid formation of large agricultural holdings has started because of consolidation of farms’ capitals and deteriorating financial condition of many small farms. The process of large-scale takeovers ended with the creation of many agricultural companies known today. Currently, agribusiness has become almost the only sector, which continued to grow in 2014. Despite everything, it became the first in terms of exports.

Innovations in the legal framework

In 2016, several important bills related to agribusiness were adopted. In particular, in January 2017 the Law of Ukraine «On Amendments to the Tax Code of Ukraine on improving the investment climate in Ukraine» came into force. Inter alia, it provides for the formation of a single registry of applications for VAT refunds, non-application of penalties and fines to farmers for understating their liabilities or overestimating compensations for violation of the tax credit allocation.

Besides, the process of changing the special VAT regime has started. Law «On Amendments to the Tax Code of Ukraine to balance budget revenues in 2017» was amended so that the single tax rate for the 4th group was increased, and minimum land tax rate at 0.3 % was provided for. Transitional provisions of the Budget Code were supplemented by the regulation stipulating that in 2017-2021 annual state funds allocated for support of agricultural producers will be not less than 1% of the agriculture output. In addition, it has been set out that 10% of the funds shall be used by farmers to procure agricultural machinery and equipment from national producers (in 2018 – 15 %, in the 2019-2021 – 20 %). The state budget for 2017 provides for a program for farmers support. As well, it provides automatic payment of subsidies based on tax returns.

Experts’ expectations

Experts assume that in 2017 the volume of capital investments in agriculture will increase at least 1.5 times. Export-oriented industries and, above all, the agricultural sector will be in the black. Some experts believe that in 2017 opening of the land market is possible. Others suggest the opposite. However, if the investment growth predictions prove true, it will be possible to significantly improve the investment climate and attract billions of investment. The expectation of the rise in agricultural prices in 2017 is quite strong. Respectively, this could lead to the economic progress.

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