Oksana
Radchenko
National
Scientific Center "Institute of Agrarian Economics", Ukraine
E-mail: nikolas68.72@mail.ru
Inna
Tsvihun
State
Agrarian and Engineering University in Podilya, Ukraine
E-mail: innatsv@ukr.net
Iryna
Yasinetska
State
Agrarian and Engineering University in Podilya, Ukraine
E-mail: pro-navch@pdatu.edu.ia
Liubov
Budniak
State
Agrarian and Engineering University in Podilya, Ukraine
E-mail: budnyak.luba@gmail.com
Submission: 12/24/2019
Accept: 1/7/2020
ABSTRACT
The study of financial balance is carried out in order to determine the supply and demand of financial resources for the agricultural sector and is to take into account the factors shaping the economic relations of the personified forms of capital movement. The balance of demand and supply of financial resources institutionally combines the resources of agricultural producers, credit institutions, financial institutions and the state and functionally it involves a set of the functions performed by financial regulation to achieve the goals of agricultural production. Since the concept of balance lies in the plane of financial and credit infrastructure, it is a system of normatively defined institutional and functional elements that form, regulate, mediate and develop financial relations and ensure the functioning of the agricultural sector by creating the resource potential of economic entities to carry out production on a permanent or extended basis. The methodological basis for the formation of the financial balance of the agricultural sector is enriched by new phenomena of domestic and foreign practice. Improving the methods of its formation and functioning is the basis for achieving sustainable long-term development of the agricultural sector and providing it with sufficient financial resources. On this way, it is necessary to take into account both domestic and international experience. If the volume of potential financial resources of the agricultural sector in 2017 amounted to about 1024 billion UAH (37 billion US dollars), then for the period up to 2020 it is predicted that it can grow annually by no less than 215 billion UAH (15-20%) in the next 3-5 years and by the end of 2020 against the level of 2015 will increase by 2.5 times. Sustainable agrarian development requires strategic planning of financial resources for a variety of their sources and state regulation of this process.
Keywords: Methodology; Balance; Financial Resources; Agricultural Production; Information Support
1.
INTRODUCTION
Ukrainian legislation establishes
the category “balance of financial resources” as a comprehensive forecast
calculation, which displays the amount of generated financial resources and
their use in all sectors of the state's economy. The method of its calculation
was approved by the order of the Ministry of Economy No. 49/76/117 of April 18,
1996 (LUPENKO; MESEL-VESELIAK, 2012).
It is the basis for making
management decisions on the effectiveness of the use of all types of financial
resources, attracting additional investment sources, serves as an informational
and analytical basis for the development and substantiation of the financial
policy of the state. Balance indicators are calculated in close relationship
with macroeconomic and social indicators. The forecast balance of financial
resources is an integral part of the State Program of economic and social
development of the country.
The forecast balance of financial
resources is compiled by the relevant Ministry of Finance on the basis of
data from sectoral ministries and state executive bodies. That aspect of the
industry is the aim of our study. The resources of enterprises and
organizations belong to the income of the Balance according to p. 2.4 in the
mentioned Method (LUPENKO; MESEL-VESELIAK, 2012), which
“consist of the profit remaining at their disposal, depreciation deductions,
contributions of enterprises and organizations for road works and second
incomes; to expenses”, according to p. 3.3. “Expenses of enterprises and
organizations at the expense of own resources” – “expenses of enterprises and
organizations in the balance of financial resources within the limits of profit
remaining at their disposal”. Since the Methodology was developed in 1996, some
of its aspects require revision and refinement, it can be implemented within
the framework of expanding the informational role of data analysis and
clarifying the method of balancing financial resources on the example of the
agricultural industry.
In addition, the balance of
financial resources is a category of financial statements of enterprises, since
it includes the Balance form, in which all resources are represented in the
cash gauge. The purpose of the form is an assessment of the structure of the
enterprise’s resources, their liquidity and solvency, forecasting future
borrowing needs, assessment and forecasting changes in economic resources,
which the enterprise is likely to monitor in the future.
Information support and analysis of
the formation of the financial balance of the agricultural sector is carried
out in the plane of application of the established methodology of standard
procedures for determining the amount of resources involved in servicing the
financial support of strategies and concepts for the development of the
agricultural sector, at least for the period of their operation. It is used to
make informed management decisions related to the allocation of financial
resources through: budget support; taxation system; investments; financial
performance of agricultural enterprises; savings of the rural population;
international financial assistance and so on.
Since the notion of balance is
connected with financial policy and infrastructure, it enters the system of
regulatory and institutional elements that form, regulate, mediate and develop
financial relations and ensure the functioning of the economy, research and
analysis of its methodology on the example of the economic sectors, in
particular the agricultural sector and relevant scientific task.
2.
RESEARCH RESULTS AND DISCUSSION
Famous Ukrainian scientists, such
as: Demianenko and Lupenko
(2012), Hudz (2015), Malik and Sabluk
(14), Trusova (2017), Portna
(2017), Korniychuk (2015), Shabatura
(2015) and others have made a significant contribution to solving the problems
of agrarian finance, their structure, sources and valuation methods.
The scientists' studies allowed
forming a stable categorical apparatus for agrarian finance, which basically
their determination on the aggregate of financial resources and incomes of
economic entities (state, industry, enterprises) reflecting the availability
and allocation of funds.
Foreign researchers of this subject
are such scientists as: Clapp (2014), Gertler (1992), Kytzia, Faist and Baccini (2004), Schut, Klerkx
and Rodenburg (2015). They investigated various
aspects of the problem of financial balance and regulation of resources in the
agricultural sector.
Scientists have established that the
resources of activity are represented in the financial balance, by their types,
composition and functional role in the process of reproduction of gross output
on the one hand and they are represented by the sources of their formation on
the other hand. In turn, the structure of the financial balance is the most
informative form that allows you to make management decisions at the state
level, as it allows you to get objective information about the industry;
determine the degree of security of their own funds; to establish, due to what
articles the greatest changes took place; to assess the financial condition of
the agricultural sector.
In developed countries, as noted by Gertler (1992), the economic conditions governing financial
opportunities are investigated, and the structure of the financial balance
depends on endogenous factors, even a small change of which has a significant
effect on volumes. International institutions and governments develop
structural, financial, and management strategies that aim to expand the state’s
authority in regulating the volume of agricultural financial resources.
Therefore, the current needs of the
sustainable development of Ukraine require a more capacious assessment of
financial resources, the peculiarities of the formation of their balance, as
well as taking into account the conditions for definition and implementation.
3.
GENERAL
METHODOLOGICAL APPROACHES.
In accordance with the order of the
Ministry of Economy No. 49/76/117 of April 18, 1996 (LUPENKO; MESEL-VESELIAK,
2012), the balance of financial resources is drawn up in the prescribed form
and includes the corresponding main sections, which we supplemented with lower
levels of balance for the industry and industry enterprises (Table 1).
Table 1: The method of forming a balance
of financial resources
By income: |
By expenditure: |
NATIONWIDE |
|
1.
Budget revenues; 2.
Long-term loans for economic development; 3.
Resources of enterprises and organizations; 4.
Resources of extra-budgetary funds; 5.
Funds of foreign investors; 6. Other sources (loans of the National Bank,
issuance of securities, financial assistance of international financial
organizations, etc.) |
1.
Budget expenditures; 2.
The costs of implementing national programs for the development of the
national economy at the expense of long-term loans; 3.
The costs of enterprises and organizations at the expense of their own
resources; 4. Expenditures of extra-budgetary funds (without
budget funds). |
INDUSTRY |
|
1.
Budget resources for the agricultural sector and local budgets for rural
development; 2.
Long-term credit resources for the industry; 3.
Resources of agricultural enterprises; 4.
Funds of foreign investors for the development of agriculture and rural
areas; 5. Other sources |
1.
Budget expenditures for industry and rural development; 2.
Expenses for the implementation of industry development programs through
long-term loans; 3.
Expenses of industry enterprises at the expense of their own resources; 4. Other expenditures |
INDUSTRY ENTERPRISES |
|
1.
Profit (after paying the tax); 2.
Depreciation; 3.
State support of individual enterprises; 4. Other funds |
Expenses
of enterprises are due to: own
funds long-term
loans other
sources |
Source: Lupenko
and Mesel-Veseliak (2012)
Based on the list of incomes and
expenses of the balance of financial resources, their low level is formed by
the enterprises of the industry. The bulk of the industry’s resources is formed
depending on their quantity and financial condition.
Thus, the number of business
entities in the agrarian is given in Table. 2. As for small businesses, their
share in the total number of the Ukrainian economy is 17% for small and 12% for
micro enterprises. The agricultural sector is below the level of trade and
services sectors in the overall structure of small business.
Table 2: Number of Ukrainian enterprises
by types of economic activity in 2017
Sectors |
Total, units |
Large |
Medium |
Small |
Micro |
||||
units |
% |
units |
% |
units |
% |
units |
% |
||
Total |
338256 |
399 |
0.1 |
14937 |
4.4 |
322920 |
95.5 |
278102 |
82.2 |
Agriculture |
50115 |
18 |
0.0 |
2383 |
4.8 |
47714 |
95.2 |
42512 |
84.8 |
Industry |
42026 |
215 |
0.5 |
4745 |
11.3 |
37066 |
88.2 |
27970 |
66.6 |
Building |
27468 |
4 |
0.0 |
791 |
2.9 |
26673 |
97.1 |
22458 |
81.8 |
Trade; Repairs |
89538 |
129 |
0.1 |
2837 |
3.2 |
86572 |
96.7 |
76235 |
85.1 |
Transport |
15252 |
19 |
0.1 |
1093 |
7.2 |
14140 |
92.7 |
11464 |
75.2 |
Source: author’s calculations based on: The
State Statistics Service of Ukraine. Retrieved from: http://ukrstat.gov.ua
The niche occupied by the subjects
of small agrarian business (small and micro enterprises) is quite capacious -
95.2% of the total amount. According to the conducted studies of the dynamics
and structure of the added value of agricultural enterprises (Table 3), it was
found that in 2012 their share was 28.1%, and in 2017 it was already 48.5%, and
created added value increased 4.5 times.
Table 3: Dynamics and structure of value
added agricultural enterprises of Ukraine, million UAH
Years |
Total |
Large |
Medium |
Small |
Micro |
||||
volumes |
% |
volumes |
% |
volumes |
% |
volumes |
% |
||
2012 |
74407.2 |
10491.4 |
14.1 |
43007.4 |
57.8 |
20908.4 |
28.1 |
4910.9 |
6.6 |
2013 |
69669.9 |
9893.1 |
14.2 |
34207.9 |
49.1 |
25568.9 |
36.7 |
7803.0 |
11.2 |
2014 |
125464.1 |
15683.0 |
12.5 |
59846.4 |
47.7 |
49934.7 |
39.8 |
20325.2 |
16.2 |
2015 |
183874.4 |
32361.9 |
17.6 |
94143.7 |
51.2 |
57368.8 |
31.2 |
15445.4 |
8.4 |
2016 |
186933.1 |
19814.9 |
10.6 |
96644.4 |
51.7 |
70473.8 |
37.7 |
21871.2 |
11.7 |
2017 |
195447.8 |
8780.8 |
4.5 |
91920.6 |
47.1 |
94746.4 |
48.5 |
37310.3 |
19.1 |
Source: author’s calculations based on: The
State Statistics Service of Ukraine. Retrieved from: http://ukrstat.gov.ua
The upward trend in the share of
added value depends on government policy of supporting it, primarily in the
agrarian sector, which and is manifested in direct and indirect state support,
credit programs, international assistance, etc.
The structure of the financial
balance of agricultural enterprises is shown in Table 4. Added value during the
analyzed period was formed with the help of those resources.
Table 4: Balance structure of agricultural
enterprises of Ukraine, %
Years |
Assets |
Liabilities |
||||||||
Non-current |
current |
capital |
Long-term
liabilities |
Current
liabilities |
||||||
Total |
Small |
Total |
Small |
Total |
Small |
Total |
Small |
Total |
Small |
|
2012 |
36.8 |
45.3 |
63.2 |
54.7 |
53.6 |
56.8 |
12.7 |
15.0 |
33.7 |
28.1 |
2013 |
37.7 |
39.6 |
62.3 |
60.4 |
50.1 |
52.0 |
13.7 |
11.8 |
36.2 |
35.4 |
2014 |
31.5 |
31.3 |
68.5 |
68.7 |
42.0 |
42.5 |
16.1 |
13.1 |
41.9 |
44.8 |
2015 |
25.0 |
21.1 |
75.0 |
78.9 |
40.2 |
36.0 |
9.9 |
8.1 |
49.9 |
55.9 |
2016 |
14.2 |
8.0 |
85.8 |
92.0 |
24.1 |
13.9 |
4.0 |
1.9 |
71.9 |
84.2 |
2017 |
29.9 |
30.2 |
70.1 |
69.4 |
47.9 |
46.7 |
6.5 |
5.1 |
45.7 |
47.9 |
Source: author’s calculations based on: The
State Statistics Service of Ukraine (http://ukrstat.gov.ua)
If in 2012 the non-current assets of
small enterprises accounted for 45.3% of the balance, then they were 30.2% in
2017. For the same enterprises, the share of current assets in 2017 was 69.4%.
The share of own capital decreased from 56.8% to 46.7%, long-term liabilities
reduced sharply, from 15% to 5.1%, and current rose from 28.1% to 47.8%.
Primarily, financial resources are generated from outside sources, but the
share of short-term loans does not exceed 16% of current liabilities for this
period.
Some scholars take into account
significant factors and conditions to assess the financial balance: take into
account the indicators and criteria that determine the effectiveness of
financial flows; foresee the orientation of indicators on solving problems of
calculating the balance; adhere to consistency in the collection, synthesis and
analysis of the information base; provide for marketing research to obtain
reasonable results in the analysis process (HUDZ, 2015). The main financial
indicators are given in Table 5.
Table 5: The financial state of the Ukrainian
agricultural enterprises for 2012-2017
Main financial indicators |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
Net
profit, UAH million |
26787.2 |
14984.5 |
21481.3 |
102849.1 |
90613.2 |
68858.5 |
Profitability
of activity,% |
21.7 |
11.3 |
20.6 |
41.7 |
32.4 |
22.4 |
Source: author’s calculations based on: The
State Statistics Service of Ukraine (http://ukrstat.gov.ua)
According to our previous research (PORTNA, 2017; RADCHENKO,
2018; SCHUT, 2015) in terms of the composition and structure of the
financial potential of the agrarian sector, it has been established that its
dynamics have tended to increase in the last three years, but have lost ground
in 2017. The growth was due to the factors determining the general state of the
economy. The size of each individual type of balance structure depends on a
combination of factors, among which are the magnitude and trends in
macroeconomic development indicators (GDP, inflation rate), the state budget,
the balance of payments, the legislative and regulatory framework, the level of
solvency of market counterparties, the effectiveness of social and economic
policy, the impact of the global financial system, etc. For the agricultural
sector these are growth indices of agricultural production, prices for sales of
products of the industry, state of profit before tax, etc.
From the sources available for
analysis (Figure 1), it was determined that the structure of financial
resources of the agricultural sector, which the market offers, the largest
share is taken up by the company's own resources - 90% in 2017 and 70% in 2012,
and state, market and investment resources are insignificant even in aggregate.
The reason for this is the fact that it is the own resources that are taken
into account in the financial reporting system, and for other factors - the
State Statistics Committee is formed mainly by the calculation method.
The
growth of balance sheet indicators since 2015 occurs mainly due to price and
inflationary factors, an increase in profit with constant production volumes.
The current trend of increasing the share of borrowed resources in liabilities
and current assets in the asset balance from 2012 to 2017.
The
resources offered by the financial and credit infrastructure for the
agricultural sector of Ukraine in 2012 amounted to 27% of their own capital,
decreasing over years to 15% in 2017 year.
Figure 1: Dynamics of the structure of
financial resources of the agricultural sector for 2012-2017, %
Source: author’s calculations based on: (The
State Fiscal Service of Ukraine), Retrieved from: http://sfs.gov.ua/;
The State Treasury of Ukraine. Retrieved from:
http://www.treasury.gov.ua/main/uk/index; The State Statistics Service of
Ukraine. Retrieved from: http://ukrstat.gov.ua.
The
dynamics of individual indicators of the formation of the financial potential
of the agricultural sector for 2012-2017 is given in Table 6.
Table 6: Dynamics of indicators of the
financial potential of the agricultural sector for 2012-2017, billion UAH
Indicators |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
Attracted Bank Loans |
36.5 |
43.5 |
55.3 |
48.4 |
55.4 |
60.5 |
Budget Financing |
4.30 |
3.61 |
2.64 |
0.52 |
0.60 |
5.80 |
Insurance Premiums |
0.13 |
0.14 |
0.07 |
0.08 |
0.16 |
0.20 |
Enterprise Resources |
276.7 |
313.1 |
390.6 |
685.8 |
1537.3 |
911.6 |
Source: author’s calculations based on: The
State Fiscal Service of Ukraine. Retrieved from: http://sfs.gov.ua/; The State
Treasury of Ukraine. Retrieved from: http://www.treasury.gov.ua/main/uk/index;
The State Statistics Service of Ukraine. Retrieved from: http://ukrstat.gov.ua
If
in 2017 the amount of financial potential of the agricultural sector amounted
to about 1024 billion UAH (37 billion US dollars), then for the period up to
2020 it is expected to grow to 1915 billion UAH (68 billion US dollars), or
83%. That is, it is assumed that it can grow annually by no less than 215
billion UAH (15-20%) in the next 3-5 years and by the end of 2020. Against the
2015 level, it will increase 2.5 times. The potential of rural development in
2017 reached almost 45 billion US dollars and up to 2020 and it is expected to
grow by 76% or to 80 billion US dollars (PORTNA, 2017).
Kytzia et al have developed an advanced analysis method
(EE-MFA). The aim of this analysis is to study the causal relationships of the
production chain to create a model of material, energy and cash flows as the
basis for a multi-criteria evaluation of strategies to improve resource use
efficiency, classifying strategies by impact potential (KYTZIA; FAIST; BACCINI, 2004).
Schut et al. (2015) offer an assessment of agricultural
innovation systems for RAAIS — a diagnostic tool that analyzes complex
agricultural problems and innovative capacity of the industry through: an
integrated analysis of technological, social and cultural, economic,
institutional, and political aspects; interaction of different levels
(national, regional, local) takes into account the interests of the parties
(farmers, government). In the end, the need to strengthen the state regulation
in this area in the works of Clapp (2014) is justified by the fact that private
capital does not invest in agriculture without state guarantees and support and
this creates
the need for government regulation of private finances.
The
given data concern only the enterprises of the agrarian business that make up
the financial statements. But commodity farms remain without attention. One of
the most difficult is the problem of financial support for the rural population
and in the first place, lending to the development of personal subsidiary
farms. Lack of financial resources has a negative effect on all categories of
agrarian business, but it is the latter that suffer most from the lack of
funding, since banks do not work with this segment as full-fledged borrowers.
Thus,
the methodological basis for the formation of the financial balance of the
agrarian sector is enriched by new phenomena of domestic and foreign practice.
Improving the methodology of its formation and functioning is the basis for
achieving sustainable long-term development of the agricultural sector and
providing it with sufficient financial resources. In this way, it is necessary
to take into account both domestic and international experience.
4.
CONCLUSIONS
So,
the system of forming a financial balance goes beyond the mechanical
consolidation of financial statements of agricultural enterprises and also
includes the resources of such entities as the state, the financial market
(banks, business support funds (including international), insurance and leasing
companies) etc. Currently, it has been significantly expanded with new terms
and categories and goes beyond the Methodological Recommendations for the
Formation of Financial Balance (1996). In addition, industry specifics are
vaguely described in this document. In this study, we opened them up more
deeply.
Analysis
of the state of agrarian enterprises shows that they mainly work at the expense
of their own resources, the share of which is still not sufficient for expanded
reproduction. Limited own financial resources necessitates increased access to
external resources, the development of both bank and partner lending forms.
It
has been established that the existing structure of the financial balance of
the industry is not optimal, but unbalanced. The insufficient level of
financial resources of the industry to ensure sustainable development has been
established, since the balance is not coordinated in vertical and horizontal
structures. It provides the solution of the tasks of strategic development,
provided for the concept and strategy of development of agriculture and rural
areas only by 60-65% to the real need of financial resources. At the same time,
the used sources of financial resources do not directly affect profitability
indicators, since ensuring the profitable production of agricultural products
depends on the price situation and restraining the growth of production costs,
including inflationary ones. This factor must be considered when expanding the
method of forming a balance.
It
is necessary to expand the sources of financial resources in the conditions of
state regulation, namely, to stimulate the participation of banks, non-bank
financial institutions and institutional investors in expanding their
participation in the development of the financial balance system; the
development and improvement of the regulatory and legal framework for the
protection of the economic interests of farms by providing specific credit
products; target support. A very promising area maybe an increase in lending
through government guarantees.
Weighty
problem is formed at the intersection of this study. It is the most important
conclusion of our research: How do the financial balance, financial resources
and financial potential of the agricultural sector compare with each other?
Approaches to solving this problem are the important areas for our further
researches.
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