22.01.2010 09:50

Thirteen reasons why farm sector’s potential unfulfilled

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22.01.2010 09:50

Due to populism and poor government policies, the pace of development is extremely disappointing. Ukraine has recovered its reputation as the breadbasket of Europe by posting record harvests in recent years, more than 52 and 48 million tons of grain in the past two seasons, respectively. Moreover, investment into the sector has increased sharply. However, I think that the pace of development is extremely disappointing and that Ukrainian governments did everything possible with poor policies to slow it down. Had they not, Ukraine’s agriculture sector would already be generating much larger harvests and at least twice as much value as it generates today.

Why do I think so? Below are some of the reasons:

1) Every year Ukrainian governments demonstrate populist and damaging policies They try to win over voters by “heroically” fighting either high prices or low prices, in both cases hurting cash-strapped farmers instead of developing a clear and transparent market to decrease volatility;

2) As in Soviet days, Ukrainian governments keep proudly reporting high production numbers, an attempt to demonstrate their would-be successes, instead of reporting high productivity numbers. High production numbers do not necessarily mean any profit to growers;

3) Ukrainian governments have for many years banned cow slaughtering and they still keep thinking, or misleading the public, with the notion that decreasing the number of cows is a bad thing. Even when Ukraine needed perhaps 30 percent of the milk it produced, they still needed the numbers. Basically they try to preserve a number of useless unproductive animals. They consume about the same amount of feed to produce only one third of the milk that a good cow would have provided – thus wasting a lot of feed for cows, which only give you losses. Now, after more than 18 years of independence, we have reached a level when Ukraine is a milk-deficit country, and we have lost the opportunity to quickly reform the sector;

4) Ukrainian governments keep wasting billions of hryvnia on direct subsidies to growers, which do not make any difference to the most productive of them. In the end, they are accomplishing nothing more than subsidizing inefficiency. A lot less money is spent on creating a common market information system and technical information systems, which would better inform rural farmers of global and domestic market trends, allowing them to be more efficient and produce better results;

5) Ukrainian governments continue to demonstrate that they do not have a clear strategy to improve agriculture and basic infrastructure. The lack of modern infrastructure causes billions of dollars in losses;

6) Ukrainian governments keep extending the destructive agriculture land sales moratoriums, giving various reasons. They continue to defend this position as necessary to protect poor rural land owners and farmers, but their argument does not fool anyone serious. Most recently, a politically-charged parliament where parties have their eyes on the presidential election, each with its own favorite candidate, are backing candidates, again extended the moratorium. This costly position keeps at bay billions of dollars of investments into Ukraine’s agriculture, infrastructure and rural areas, keeping millions of Ukraine’s poorest citizens poor. Without an open market that establishes market prices for their land, mortgages are hard to get. And when they do lease out their land, they often don’t know the true value, and get less for it. This populist decision also weighs in heavy on Ukraine’s cash-crunched banking system, budget, gross domestic product, exports and limits new job creation;

7) Several Ukrainian governments tried to control inflation by granting support to cheap meat imports, but this accomplished nothing more than hurting development of local meat production. Thus, Ukraine exports a lot of cheap feed grains and imports expensive meat fed on Ukrainian grain;

8) The Ukrainian government tries to regulate prices for agricultural products and inputs, usually hurting producers and scaring investors away from the sector;

9) Ukrainian government has wasted many opportunities to attract foreign producers of agricultural equipment, thereby hurting competitiveness;

10) Ukrainian government creates tough conditions for foreign suppliers trying unsuccessfully to protect completely uncompetitive local producers. As a result, Ukraine has failed to attract many large players which could have already setup badly-needed research and development on the domestic market;

11) The Ukrainian government keeps supporting a lot of Soviet-style agriculture schools, but something is clearly wrong if a vast majority of graduates move on to work in other sectors. Schools provide completely outdated information, affecting efficiency of Ukrainian agribusiness and government does nothing about;

12) Ukraine wastes a lot of potential wind and biomass energy, exporting some of the bioenergy components and importing expensive oil and gas, making Ukrainian agriculture less competitive. Past governments have done nothing to change the situation;

13) Ukrainian government does not pay any attention to improving competitiveness, efficiency, quality of products and productivity. These words are commonly mentioned by government officials, but not followed up by proper action.

Despite all of these and other barriers, such as the usual corruption, red tape, tax problems, etc.… Ukrainian agribusinesses are doing quite well. But it could be so much better for both agribusinesses and the country.

Ukraine loses billions of dollars every year because of poor agriculture sector management and policy. The country’s agriculture sector could be much bigger today in output, value, even helping to diversify energy import needs amid rising natural gas prices.

The time has come for the country to catch up with missed opportunities, such as shedding its meat import needs, by becoming one of the world’s top exporters of meat and meat products. Moreover, if the right reforms are implemented, the country could in a matter of years increase its grain and oil seeds harvests by 50 percent, and become a significant exporter of dairy products and fresh produce. This could put the nation’s steel export-dependent economy on a firmer foundation.

And it can be achieved. All that is needed is to replace populism with a solid dose of political will backed by clear strategy and smart people managing.

Are any of Ukraine’s leading presidential candidates ready to back this?

Andriy Yarmak
Kyiv Post

[Note by Kyiv Post:] Andriy Yarmak is an independent agribusiness expert. He has worked on agriculture development issues in 10 world countries, serving as an adviser and independent board members for agribusinesses in Ukraine and has developed market information systems for APK-Inform, a Ukrainian agriculture consultancy. He can be reached at andriy.yarmak@gmail.com.

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