Oksana Radchenko
National Scientific Center
"Institute of Agrarian Economics", Ukraine
E-mail: oxanarad@ukr.net
Maryana Matveyeva
Stepan Gzhytskyi National
University of Veterinary Medicine and Biotechnologies, Ukraine
E-mail: mmplviv71@gmail.com
Hanna Holovanova
Petro Vasylenko Kharkiv
National Technical University of Agriculture, Ukraine
E-mail: golovanovaae.2003@gmail.com
Kateryna Makhyboroda
National University of Life
and Environmental Sciences of Ukraine, Ukraine
E-mail: vdovenko.katya@ukr.net
Yuliia Haibura
State Agrarian and Engineering
University in Podilya, Ukraine
E-mail: hayburay@gmail.com
Submission: 8/13/2020
Revision: 8/26/2020
Accept: 9/10/2020
ABSTRACT
The aim of the article is to study the information support of the institutional field and state regulation of agricultural development of Ukraine through the analysis of current strategies and tools and programs of state support. The relevance of the study is due to the significant increase in the role of state support for key sectors of the economy in a systemic crisis caused by the coronavirus pandemic COVID-19 and restrictive quarantine measures. Limitation of budget funds implies an urgent need for their most rational use, identifying trends and areas of which this study is devoted. The research methodology is based on comparative analysis, economic and mathematical modeling, methods of assessing the effectiveness of budget programs, the use of analytical surveys, statistics on self-assessment of agribusiness and data from independent news agencies on the effectiveness of government regulation. The information base is the regulatory framework for state support of the agricultural sector, analytical studies on budget support for the agricultural sector and budget expenditures for agricultural development were based on official data from the State Statistics Service of Ukraine and the Ministry of Economy, Trade and Agriculture of Ukraine. The study analyses some components of the Strategy for the development of the agricultural sector of Ukraine, the Concept of development of farms and agricultural cooperation for 2018-2020, the project and the place of state support in its regulation. The dynamics of state support for 2016-2019 is shown, the main factors of influence are characterized and the dynamics of state support of the agricultural sector of Ukraine evaluated according to the OECD (Organization of economic cooperation and development) methodology is given. An analysis of the expenditures of the State Budget of Ukraine in 2020 on agricultural and rural development is carried out. The given research can be used at formation of current programs of budgetary support of branch, development of concepts of sustainable development of separate forms of managing – farms and peasant farms, adjustment of strategic plans, formation of their key indicators for monitoring and for increase methodological bases and principles of state regulation and other institutional factors of agricultural finance.
Keywords: Information support; Budgetary financing; Agricultural sector; Institutions; Ukraine; State support programs; Indicators of OECD agricultural support; Systemic crisis
1.
INTRODUCTION
State
agricultural support provides a system of measures aimed at reproducing the
material and technical base, achieving the required level of profitability,
support for social and environmental programs.
Since
the market orientation of the economy, it has undergone significant changes,
but the basic principle of budget financing according to the list of many
different measures has been preserved. In the conditions of the chosen vector
of European integration, especially after accession to the WTO, the state
support policy strives for the strategies adopted by the EU CAP.
In
addition, state support, following the abolition of special corporate tax
regimes in Ukraine, has faced a predominance of direct support methods with low
funding and skilful manipulation of the agrarian lobby of large enterprises in
the distribution of budget funds in their favour. Based on these trends, there
is a need to make a scientific generalization of the achievements and challenges
of state policy to support agriculture in Ukraine.
An
important component of the effectiveness of this area of public administration
is its information support. According to the Law on Basic Principles of
Information Society Development in Ukraine (2007) certain legal bases have been
formed: a number of normative legal acts have been adopted, which, in
particular, regulate public relations on creation of electronic information
resources, protection of intellectual property rights, introduction of electronic
document management, information protection.
It
is noted that the efficiency of the use of financial, material, human resources
aimed at informatization, introduction of information
and communication technologies (hereinafter - ICT) in the social and economic
sphere, in particular in agriculture, is low; there is a lag in the
introduction of e-business technologies, electronic exchanges and auctions,
e-depositories, the use of non-cash payments for goods and services, etc. The
main directions of information support development in the framework of our
study provide for the introduction of a system of indicators of information
society development in Ukraine with appropriate changes in the system of state
statistical surveys in accordance with international standards and methodology
and their annual publication.
We
see that the study of state support should be carried out through the theories
of institutions, which are one of the most methodologically productive areas of
economic theory in the study of the content, ways and mechanism of
implementation of systemic transformations. In addition, such analysis of
economic systems determines the entry into the plane of active
interdisciplinary interaction with other social sciences and involvement in the
study of a wider range of variables that are not purely economic in nature, but
determine the implementation of economic processes and economic development – historical, social, legal and political, etc. As
we considered earlier (SEMENYSHENA; RADCHENKO, 2020; RADCHENKO; TULUSH, 2020;
SEMENYSHENA; RADCHENKO, 2011; RADCHENKO, 2017; RADCHENKO; LAZUTINA, 2017;
RADCHENKO, 2019; RADCHENKO; MELNYCHUK, 2019), today state regulation is carried
out by through a holistic system of tools: pricing policy, budget support through
the mechanisms of budget financing and preferential taxation, credit support,
insurance promotion, etc., which together constitute the institutional aspects.
In
the context of the systemic crisis caused by the pandemic of coronavirus
COVID-19 and restrictive quarantine measures, the role of state support for the
most important sectors of the economy is growing significantly. Limited budget
funds imply an urgent need for their most rational use, identifying trends and
directions of which this study is devoted.
2.
LITERATURE REVIEW
Scientists,
experts and practitioners of Ukraine study the state support of agriculture, in
particular: Borodina and Kyryziuk
(2008), Prokopa and Borodina
(2016), Moldavan (2016), Demianenko and Sabluk (2011), Dibrova and Halushko (2006), Oliynyk and Kalashnikov (2014), Laiko (1998), Lupenko (2012) and
others.
Information
support of public policy management as a communication aspect of the
interaction of society, business and the state is developed within the system,
where integration is possible through information and cognitive, with
integration through the mental abilities of people modules.
Lyiniov (2015) notes that public administration in general
and its information (information and analytical) support is influenced in
modern conditions by the following factors: geopolitical processes, primarily
globalization as an integration process; informatization;
democratization and development of civil society; progress in the field of
management and technologies of information activity, etc. That is why
information services must have appropriate communication capabilities,
organizational and staffing structure, as well as a system of protection
against manipulative influences and other threats to information (information
and psychological) security.
The
above-mentioned researchers have generally identified the main advantages and
disadvantages of the current mechanism, develop appropriate strategies and
concepts, but the problem is so multifaceted that it requires constant scientific
monitoring to organize a sound practice of state support management in Ukraine.
Zhalilo (2009) points to the theoretical and practical
aspects of the formation and implementation of economic strategy of the state
in terms of ensuring its maximum effectiveness, examining the relationship of
economic strategy of the state with the objective macroeconomic laws and
motivation of major economic actors and indicates a significant increase
institutional factors of efficiency of economic strategies of all levels in the
conditions of fast economic growth.
These
researchers determined that the main problems of state support for agriculture
in Ukraine are: lack of trust in the state by farmers; insufficient level of
impact of budget support measures on the development of domestic agriculture.
This is due to the fact that budget support programs in Ukraine suffer from
constant underfunding; as well as the rules for allocating budget funds for the
respective program grants are usually approved on an annual basis and often
change from year to year (i.e. agricultural producers often do not receive
support when they urgently need it).
The
scientist Ostapenko (2015) also found that the
functioning of the agro-industrial complex in Ukraine is based on a subsidized
approach, which is focused on self-sufficiency and increase production. The
existing system of tax benefits combined with non-transparent budget support is
unable to stimulate the transition of most agricultural enterprises to highly
efficient management methods based on modern equipment and technologies that
provide a high level of productivity of all resources on a sustainable basis.
At the same time, a significant imbalance between tax revenues from
agro-industrial enterprises and budget expenditures (both direct, in the form
of subsidies and indirect, in the form of underpayment of tax revenues) in
favour of the latter, lead to tax burden transfer to other sectors of the
national economy.
Directly
for the agricultural sector, the communication function has certain features
described by Semenyshena (2011). Researchers have
recognized that the use of information space and information technology by
public authorities becomes a direct factor in economic growth, social and
political stability and the development of democratic principles in government.
Soloviov et al.
(2015) note that important aspects of information and analytical support of
sustainable development policy are the advance identification of threats and
risks to sustainable development and forecast development. This requires a
transition to prognostic forms of activity, not just a statement of facts
(acquaintance with primary information), but a systematic approach to solving
the problem in general based on a combination of intellectual abilities of
staff of information and analytical units (management) with the functionality
of modern information and telecommunications systems.
Foreign
researchers also analyze government support,
comparing the budget for agriculture by the capabilities of countries and in
the conditions of the European Union, in particular: Zawisza,
Prus and Beben (2019), Milojevi and Určić
(2017), Heinemann and Weiss (2018), Călin, Izvoranu and Todirica (2020), Matthews (2016), Scown, Brady and Nicholas (2020) who and others.
The
aim of this paper has been to determine Zawisza, Prus and Beben (2019) the
prospects for the development of agricultural family farms. With that in mind,
an important aspect has been to diagnose the opinions of the farmers on the key
sources of income, benefiting from the CAP support, the recent investment
projects completed, opinions on changes in the operation of agriculture after
the integration with the EU, its impact on the development potential of the
farms under study as well as plans for the farms. The survey research has
demonstrated that a great majority of the respondents were living mostly from
agricultural production, only some used other support than direct payments.
Milojevi and Určić
(2017) investigated that financing for agricultural development is one of the basic
tasks of a condition of economic growth of any country. Focusing on the
financial institution budgets may be present level of need and the possibility
of meeting the basic social needs, with the aim of establishing and functioning
of agriculture as primary branch of the economy in the Republic of Serbia.
Using statistical methods present the causal relationships between the elements
of financing agriculture and their main financial strongholds, the economic
power of the state, with reference to the agricultural sector of the Republic
of Serbia.
The European
Commission’s proposals for the post-2020 Common Agricultural Policy (CAP) are
under discussion, and these cautious reform ideas have set the parameters for
upcoming negotiations. CAP will continue to have a two-pillar structure of
direct payments and rural development, with a seven-year budget of €365
billion. As before, almost three-quarters of the budget - €265 billion - is
reserved for direct payments to farmers. However, ‘European added value’ must
be urgently applied to CAP, say Heinemann and Weiss (2018), who have developed a
series of recommendations to justify direct payments in their latest report for
EconPol.
EU producers are highly
dependent on public support Matthews (2016). The EU average share of direct
payments in agricultural factor income in 2010-2013 stood at 28%. However, this
masked considerable differences between member states, ranging from 15% or less
in Cyprus, Lithuania, Malta, the Netherlands and Romania to more than 40% in
Ireland, Luxembourg, Slovakia and Sweden. These differences reflect the
specialization of member states in different sectors as well as differences in
the historical basis of payments. Taking all subsidies into account, total
public support from the EU budget in agricultural income reached 40% of
agricultural income on average in the EU.
Scown, Brady and Nicholas (2020), we analyzed the
distribution of €59.4 billion of 2015 CAP payments and show that current CAP
spending exacerbates income inequality within agriculture, while little funding
supports climate-friendly and biodiverse farming regions. More than €24 billion
of 2015 CAP direct payments went to regions where average farm incomes are
already above the EU median income. A further €2.5 billion in rural development
payments went to primarily urban areas.
Călin, Izvoranu
and Todirica (2020) studying the effects of
globalization would be meaningless if we did not focus on studying it on the most important sector,
namely the agricultural sector. In an international scenario marked by uncertainty and anticipation
after, the European Union pays particular attention to the application of a
territory of effective policies in response to increased competition in
markets, and represents an interesting tool for government intervention in
development rural area in a defined area of quality products. In this direction
in the last years, the European Union has authorized state aid for implementation
supply chain contracts, as well as the sector for the purpose promoting and
modernizing agriculture, as well as technological development enterprises.
The development of farms in terms of state support is thus the basis of
agricultural policy. It is necessary to summarize the best European experience
for Ukraine.
The purpose of the study is to analyse the achievements
and identify the main threats to the development of state support for
agriculture in Ukraine through an institutional analysis of its structure and
dynamics.
3.
METHODOLOGY
Methodological
tools of the study include: identification of the problem situation that
necessitates the study. It is obvious that in the conditions of the crisis the
distribution of budgetary resources on the main branches of the economy will
change, and it is necessary to predict them; the definition of the object and
subject of research is within the framework of state regulation of financial
resources for agricultural entrepreneurship, so the object is the relationship
of resource allocation, and the subject – budget funding and its structure. The
study states a structural (logical) analysis of the object of budget funding;
working hypotheses about priority directions of distribution of budgetary funds
of the agrarian budget of Ukraine and connection of this process with
international tendencies are put forward.
The
theoretical level of research is related to the analysis of facts, with the
penetration into the essence of the studied phenomena, their cognition
according to the following criteria: the sequence of use of the method;
subordination to the achievement of the practical goal – the improvement of
state budget support programs. The main general scientific methods of cognition
within the institutional theory of public administration of economic sectors
are used.
4.
RESULTS
4.1.
State support for the agricultural
sector in Ukraine
State support for the agricultural
sector is provided in areas that guarantee food security and sustainable rural
development. Thus, the main objectives of the 10-year European plan for Ukraine
(2017) – building a favorable investment environment and supporting economic
growth, which is planned to attract 50 billion euros by 2027. Directly, a
project “Accelerating Investment in Agriculture of Ukraine” (2019) is provided
for the agricultural sector.
Among the pre-defined agricultural
components of the project: harmonization of Ukrainian legislation with EU
requirements, improvement of the state support system for agriculture,
stimulation of diversification of agricultural production, rural development,
strengthening food security capacity, solving logistics issues, improving land
use, improving water management resources, improving access to agricultural
resources, improving access to financial resources and risk management tools.
The Ministry of Agrarian Policy has
developed the Strategy “The only comprehensive strategy and action plan for the
development of agriculture and rural areas in Ukraine for 2015-2020” (2014),
which identifies three key priorities for reforming the sector: approximation
of legislation to EU standards and deregulation; increasing the competitiveness
of agriculture; as well as rural development and environmental protection.
Among the many goals of state support and taxation in the field of agriculture
include: revision and improvement of the system of state support for
agricultural producers and reduction of administrative pressure by simplifying
the taxation system of the industry.
NSC “Institute of Agrarian
Economics” outlines the strategic directions of agricultural development
(2012), etc. Accordingly, more or less public funds are allocated for these
purposes or institutional regulation measures are developed, as in accordance
with the requirements of international organizations (WTO, IMF), member states
have clear requirements for governance in the field of agriculture.
During the period 2016-2018, the
actual state support of the industry amounted to UAH 10.429 billion (Table 1). State support
programs for agricultural producers have been relatively sustainable.
Table 1: State of financing of
state support for the development of the agricultural sector in 2016-2019, UAH mln
|
program /direction |
In fact 2016 |
In fact 2017 |
In fact 2018 |
Plan for 2019 |
Made on 11.2019 |
2019, % plan |
|
2801030 cheaper loans |
280 |
295 |
266 |
127 |
104 |
81.89 |
|
2801230 support for the development of farmers |
- |
- |
203 |
800 |
230 |
40.21 |
|
2801350 support for the development of horticulture |
- |
299 |
394 |
400 |
120 |
39.74 |
|
2801460 loans to
farmers |
- |
- |
- |
200 |
140 |
77.78 |
|
2801540 support for
the livestock industry |
30 |
166 |
2390 |
3500 |
1600 |
56.62 |
|
2801580 support for
commodity producers, etc. |
- |
4134 |
912 |
882 |
640 |
90.52 |
|
other programs |
286 |
471 |
303 |
415 |
- |
- |
|
Total by region: |
596 |
5365 |
4468 |
6324 |
2834 |
60.11 |
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
Currently, there are programs:
support for activities in the agro-industrial complex by reducing the cost of
loans; support for farm development; support for the development of hop
growing, establishment of young gardens, vineyards and berries; providing loans
to farms; support for livestock, storage and processing of agricultural
products, aquaculture; financial support for agricultural producers. Within
these programs there are targeted areas, for example, financial support for
farmers includes measures: partial compensation for seed costs, compensation
for costs associated with agricultural advisory services, support for
agricultural service cooperatives, partial compensation for purchased
agricultural machinery and equipment of domestic production, budget per
hectare, cheaper loans and repayment of accounts payable.
In 2019, UAH 5.9 billion is provided
for state support programs for the agro-industrial complex, which is UAH 1.7
billion more than in 2018. As of the beginning of 2020, funding for state
support programs has been fulfilled by 48% of the annual plan and 60% of the
plan for the period.
The state of funding, as in 2018, is
unsatisfactory. Despite the fact that there are clearly insufficient funds
planned, even within the limits of at least 1% of the gross output of the
industry initiated by the former Ministry of Agrarian Policy, the allocated
funding is not used properly. According to the above data, the plan for 2019
was implemented only under the program of providing loans to farms.
According to the “Information and
analytical portal of the AIC of Ukraine” (2019), farmers received UAH 104
million to compensate for interest on loans, the largest amounts of which were
received by farmers in Vinnitsa, Cherkasy and Kyiv regions. Preferential loans
worth over UAH 4 billion were attracted.
The most important program, state
support for livestock, storage and processing of agricultural products,
aquaculture (fish) UAH 3.5 billion is provided by the budget for 2019,
implemented by 46% (in 2018, UAH 3.5 billion was spent). In the field of animal
husbandry, according to the “Information and analytical portal of the AIC of
Ukraine” (2019), the receipt of documents for obtaining a subsidy for the
maintenance of cows, which received more than 1.000 applications, the total amount of funding for which is UAH 700.0
million. The grant is provided twice a year and has already been used by 885
business entities to keep 307.000 cows.
During this period, UAH 640 million
was allocated within the program of partial compensation from the state budget
for the cost of purchased agricultural machinery and equipment of domestic
production. If earlier the program included less than 800 items of machinery
and equipment, now - more than 12.5 thousand. By September, the program was
used by almost 3 thousand farmers who purchased 5,104 units of machinery and
equipment worth a total of 1.6 billion UAH.
In addition, according to the
Financial support for the development of agricultural enterprises at the
expense of local budgets for the first quarter of 2019 (2019) for 2019 in
accordance with the adopted regional programs to support the development of
agro-industrial enterprises it is planned to allocate UAH 262.5 million, which
is UAH 54.6 million more than in 2018 (UAH 207.9 million). In the first quarter
of this year, UAH 34.3 million was actually financed, only 13.1% of demand.
Thus, the presented state programs
to support agriculture at the end of 2019 are characterized by significant
underfunding. Although the budget manager guarantees that the situation with
state support will be resolved by the end of the year, the budget will receive
the necessary revenues and the programs announced by the government will be
funded, state support not only effective consumer demand for products and
prevention of unprofitable producers. According to the data, the livestock
industry is in the lead in the structure of expenditures - almost 60%, followed
by financial support for producers (a program to reduce the cost of purchasing
domestic equipment) - 15% and support for farmers - 13.5%.
In turn, according to the Accounting
Chamber “On the results of the audit of the effectiveness of the exercise of
powers by public authorities in terms of completeness and timeliness of payment
of taxes by economic entities in agriculture”: report (2018) state of
settlements with the state budget sub of agricultural facilities for the
relevant period (from 2016 to the first half of 2018) is as follows: UAH 39.713
billion was paid to the state budget (3.7 times more than budget agricultural
expenditures), including UAH 37.742 billion VAT, UAH 1.741 billion of income
tax and UAH 0.230 billion of export duty, the share of which in the total state
budget revenues increased from 0.96% to 8.4% for the analyses period.
Thus, the presented state programs
to support agriculture at the end of 2019 are characterized by significant
underfunding. Although the budget manager guarantees that the situation with
state support will be resolved by the end of the year, the budget will receive
the necessary revenues and the programs announced by the government will be
funded, state support not only effective consumer demand for products and
prevention of unprofitable producers.
4.2.
Institutional risks of state support
and regulation of the agricultural sector in Ukraine
The agricultural sector of Ukraine
operates in conditions of uncertainty related to the government’s actions
regarding state support, as well as tax legislation, customs regulation of
export-import operations. In addition, in the context of European integration,
there are institutional risks due to restrictions in financial and credit,
environmental protection, land use, etc., related to the requirements of
Ukraine's foreign partners. Exporting and importing countries are quite closely
linked, and therefore the income of the sector is affected by events in other
countries. It is the institutional risks that caused the negative importance of
state support in Ukraine, determined according to the OECD methodology of
Agricultural Policy Monitoring and Evaluation 2018 (2019), (Table 2).
Table 2: Assessment of
state support for agriculture in Ukraine according to the OECD methodology,
2015-2017, UAH mln
|
Indicators |
2015-2017 |
2015 |
2016 |
2017 |
|
Production cost |
26848 |
25701 |
26354 |
28488 |
|
Cost of products consumed |
15876 |
16042 |
16171 |
15415 |
|
Aggregate Support Assessment (PSE) |
-2112 |
-2016 |
-2278 |
-2043 |
|
(% PSE) |
-7.7 |
-7.5 |
-8.5 |
-7.1 |
|
Product support |
-2720 |
-3129 |
-2799 |
-2234 |
|
Market price support |
-2720 |
-3129 |
-2799 |
-2234 |
|
Resource support |
547 |
930 |
521 |
191 |
|
Nominal protection factor. % NРC |
0.90 |
0.88 |
0.90 |
0.92 |
|
Nominal support ratio. % NAC |
0.93 |
0.93 |
0.92 |
0.93 |
|
General Services Support Assessment (GSSE) |
121 |
115 |
110 |
139 |
|
Customer Support Assessment (CSE) |
1701 |
1813 |
1903 |
1387 |
|
Aggregate Support to Agriculture (TSE) |
-1991 |
-1901 |
-2168 |
-1904 |
|
(TSE% of GDP) |
-2.0 |
-2.1 |
-2.3 |
-1.8 |
Source: author’s calculations based on: The
State Statistics Service of Ukraine. Retrieved from: http://ukrstat.gov.ua;
European plan for Ukraine. Available at:
https://g8fip1kplyr33r3krz5b97d1-wpengine.netdna-ssl.com/wp-content/uploads/2017/11/Presentation-EuropeanPlanUkraineupdate.pdf
Aggregate assessment of percentage
support (% PSE) characterizes the cost of transfers to producers to the total
effective cost of production. According to an OECD report, PSE has remained
negative in Ukraine over the past five years due to the difference between
domestic and world prices for exported products, which is a kind of implicit
taxation of the sector.
The nominal protection coefficient
(NPC), defined as the ratio of domestic to world prices below 1, means that
Ukraine's agriculture is not supported, moreover, it serves as a source of
indirect taxation in favor of consumers. Nominal aid coefficient (NAC), as the
ratio of funds actually received by producers to world prices, is an index of
national prices to world prices and is almost identical to the protection rate.
In general, the state of the
domestic agro-industrial complex is increasingly contrasting with the changes
inherent in the developed world, where agriculture is confidently transforming
from a traditionally subsidized industry to a self-sufficient powerful
industry, which is one of the driving forces of social and economic growth, the
primary area of application of scientific and technological progress. This
confirms, according to SIRENKO’S research (2010), that the measures of state
regulation implemented in the agro-industrial sphere of Ukraine remain
insufficiently effective and need to be reviewed in the context of the most
important areas of economic modernization.
OECD advice includes actively using
the preferences provided by free trade agreements with the EU and Canada,
investing in transport infrastructure and logistics, introducing a land market
and ensuring adequate access to agricultural credit.
The move towards European
integration takes into account the fact that the EU CAP is moving from purely
agricultural support to support for sustainable rural development. For Ukraine,
until recently, rural development was seen as a component of non-productive
allocations to agriculture, as sectoral and territorial factors were integrated
in Ukraine's agricultural economy (RADCHENKO, 2017; RADCHENKO; LAZUTINA, 2017).
Therefore, taking into account the
experience of EU countries, where agricultural policy combines elements of
regulatory market, price, foreign trade and structural policy, most domestic
scholars note that state support for agricultural development and sustainable development
of rural areas of Ukraine are close but not identical tasks and therefore
position as a strategic direction equal priority of state support for the
development of agrarian business and rural areas.
In particular, the new political and
economic realities of our time have significantly influenced the management and
regulation of the agricultural sector. The key issue being discussed at various
levels is the opening of the land market (The World Bank, 2020). From its
solution and legislative design depends on the further development of
agricultural production, the efficiency of agriculture and the national
economy, the state of foreign trade balance, rural development, welfare, etc.
According to the Ministry of
Economic Development, Trade and Agriculture (MDET) of Ukraine, the Ministry for
Development of Economy, Trade and Agriculture of Ukraine (2020) has declared
goals that: Ukrainians do not lose the ban on disposing of their property;
receive safe goods and services; have a legal job; receive more income from
state property management; do not overpay for services and goods; get better
export conditions; protected from the abuse of monopolists.
The effectiveness of these plans
depends on their financial base, according to which the relevant ministry plans
that Ukrainians live in a state that is supposed to manage public finances;
taxpayers have a lower tax burden and spend much less time on their
administration; bona fide exporters and importers and citizens of Ukraine have
transparent, simple and predictable rules of customs control and customs
clearance, while their economic interests and interests in terms of equality of
competitive conditions are protected; businesses and citizens have access to
much cheaper financial resources; taxpayers' debt service costs are declining.
In anticipation of the opening of
the land market, in the draft State Budget-20 to support producers in the
program code 1201040 was laid UAH 4.4 billion, which was supposed to be used to
compensate for the rates for the purchase of agricultural land. The interest
rate on loans for the purchase of agricultural land in Ukraine after the
opening of the land market will be within 3-5% per annum, and the rest of the
interest on loans will be reimbursed by the state.
The Agrarian Committee of the Verkhovna Rada (2020) proposed to maintain the amount of
support for the agro-industrial complex at 1% of GDP for 2020, which is UAH 8.4
billion, of which UAH 4.4 billion will be allocated to the program to reduce
the cost of loans related to purchase of land, and the remaining UAH 4 billion
to be allocated to sectoral programs.
Accordingly, before the adoption of
the Law on the State Budget-20 Law on the State Budget of Ukraine for 2020
(2019), the Parliament previously on November 13, 2019 supported the Law on
Land Market, which is expected to open on October 1, 2020, which provides for a
rule On January 1, 2024, the purchase of land by legal entities whose
beneficial owners are foreigners and stateless persons is not allowed. However,
in the adopted State Budget 2020 this program is absent, and the amount close
to it is included in the program of financial support of commodity producers.
Funds for state support to
agricultural producers are aggregated under one program (code 1201150) in the
amount of UAH 4 billion, but in the accompanying materials there are no
explanations on the use of such funds (in particular, on the areas of such
support), excluding expenditures UAH 4.4 billion to reduce the cost of loans to
agricultural producers for the purchase of agricultural land.
Directions, volumes and managers of
budget expenditures for agricultural development in the State Budget-20 are
presented. Approved programs and funding are shown in Table 3.
Table 3: Distribution of planned expenditures
of the State Budget of Ukraine for 2020 in terms of financing of agricultural
and rural development, thousand UAH
|
|
Costs by destination |
General Fund |
Special Fund |
Total |
|||||||||
|
1 |
433130.0 |
149100.0 |
4481029.5 |
||||||||||
|
2 |
Together agricultural sector services |
|
|
|
|||||||||
|
3 |
Together. other service costs |
2781858.2 |
2006419.8 |
4788278.0 |
|||||||||
|
4 |
Total agricultural development costs (1 + 2
+ 3) |
7218950.8 |
2232589.0 |
9451539.3 |
|||||||||
|
5 |
Together lending |
71773.00 |
- |
71773.0 |
|||||||||
|
6 |
General financing of agricultural
development (4 + 5) |
7290723.80 |
2232589 |
9523312.3 |
Source: Law on the State Budget of Ukraine for
2020 Electronic resource. URL: http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=66853
Expenditures on agriculture for 2020 (group 1,
table 3) are grouped by programs: financial support of measures in the agro-industrial
complex, the costs of the Agrarian Fund are associated with a set of measures
for storage, transportation, processing and export of state price regulation of
state intervention fund, financial support of agricultural producers,
organization and regulation of institutions in the agro-industrial complex and
ensuring the activities of the Agrarian Fund, the formation of the authorized
capital of the Partial Credit Guarantee Fund. In terms of volume, these
expenditures amount to UAH 4.332 billion for the general fund (96.7%), UAH
0.149 billion for the special fund, and a total of UAH 4.481 billion (47% of
total agricultural development expenditures).
Expenditures on agricultural
services (group 2, table 3) include programs: scientific and scientific-technical
activities in the field of agro-industrial complex development, standardization
and certification of agricultural products, advanced training of
agro-industrial complex specialists, research, applied scientific and
scientific-technical developments, implementation works under the state target
programs and the state order, preparation of scientific shots and financial
support of development of a scientific infrastructure in the field of economic
development, liquidation and ecological rehabilitation of the enterprise “Solotvynskyi salt mine”. In terms of volume, they amount to
UAH 105.16 million for the general fund, UAH 77.07 million for the special
fund, and a total of UAH 182.231 million. These programs were financed in
previous budgets, and their share in the structure of agricultural development
expenditures is 2%.
Expenditures on agricultural
services in other ministries (group 3, Table 3) are financed by the following
programs: land reform, land inventory and updating the cartographic basis of
the State Land Cadaster, anti-epizootic measures and participation in the
International Epizootic Bureau, organization and regulation of institutions in
the system State Service of Ukraine for Food Safety and Consumer Protection,
measures to build border inspection posts and improve access of agricultural
SMEs to export markets, accelerate investment in agriculture of Ukraine,
implementation of measures to support research farms. Funding for them is
calculated 4.738 billion UAH, in the structure of 56.8% is the general fund.
Their share in agricultural development expenditures is 50%.
When planning the State Budget-20
for the implementation of measures for land reform, the funds of the general
fund in the amount of UAH 76.1 million are taken into account, which, in
particular, provides for the maintenance and operation, including
administration, of the State Land Cadaster, its technical and technological
support, as well as the conversion of materials of the State Fund of land
management documentation into electronic (digital) form, which will ensure the
smooth operation of the State Land Cadaster. Expenditures from the general fund
of the state budget in the amount of UAH 430.6 million are envisaged for
conducting the land inventory and updating the cartographic basis of the State
Land Cadaster, which will provide an opportunity to assess the land fund of
Ukraine.
The Accelerated Investment in
Agriculture Program of Ukraine includes funds approved by the World Bank's
Board of Executive Directors for a $ 200 million loan for the implementation of
the Program based on the results of accelerating private investment in
agriculture. The program aims to empower small and medium-sized enterprises in
the agricultural sector.
The program aims to strengthen the
competitiveness, diversification and development of agriculture by increasing
the efficiency and targeting of industry support policies, improving
transparency and efficiency of state-owned agricultural land, as well as expanding
access of agricultural SMEs to export markets. In the structure of expenditures
by group of expenditures on agricultural services in other ministries, they
account for 13%.
The World Bank has estimated at $
500 million the amount needed to partially guarantee farmers' land costs. The
opening of the land market can bring Ukraine's economy up to $ 1.5 billion
annually, plus 1.5% to GDP growth. A moratorium on land sales is a major
obstacle to attracting investment to Ukraine, according to The World Bank (2020).
In the area of lending to
agriculture, there are programs for lending to farms and financial support for
measures in the agro-industrial complex on the terms of financial leasing in
the amount of UAH 72 million. In the structure of financing agricultural
development, they account for 0.8%.
As Table 3 shows, funding for
individual agricultural support programs will be provided from a special fund.
In particular, the special fund will include: formation of the state reserve
seed fund, organization and regulation of institutions in the system of the
State Service of Ukraine for Food Safety and Consumer Protection, project
“Acceleration of private investment in agriculture of Ukraine”, financial
support of measures in the agro-industrial complex on the terms of financial
leasing, etc.
In Article 13 of the Law on the
State Budget of Ukraine 2020 establishes that the sources of formation of the
special fund of the State Budget of Ukraine for 2020 in terms of lending are
revenues specified in part three of Article 30 of the Budget Code of Ukraine,
as well as the following revenues: 1) repayment of budget loans products under
the state order (contract) of 1994-1997; 2) return of funds provided for
financial support of measures in the agro-industrial complex on the terms of
financial leasing, as well as the purchase of breeding heifers and cows,
domestic machinery and equipment for the agro-industrial complex, followed by
their sale to agricultural enterprises on financial leasing.
As for the budget funding of the
industry, due to the pandemic, it has undergone some changes, although it has
not affected the planned volumes. The systemic crisis, which affected all
countries, had a significant impact on financial flows in the agricultural
sector. In particular, FAO economists (To feed everyone and not starve to death,
2020) note that if we summarize a small intermediate result, the advantage will
be in those countries that produce everything necessary to fully provide their
populations with food and are not very dependent on imports or exports.
As researched by Radchenko
and Tulush (2020), the European Union has developed
“green stripes” to ensure the flow of products. The government's crisis aid
package for farmers includes private storage assistance (PSA) measures in the
dairy and meat sectors, authorization of market self-organization by operators
in the affected sectors, and flexibility for fruit and vegetables, wine and
some other market support programs according to data “Supporting the
agriculture and food sectors amid Coronavirus” (Coronavirus, 2020). Measures
and financing of direct programs to support the CAP (EU Common Agricultural
Policy) are given in Table 4.
Table 4: Direct support to farmers and rural areas
according to the decision of the EU CAP in the context of the COVID-19 pandemic
|
Volumes |
Areas of support |
|
€
200.000 loans
or guarantees for operating costs |
Flexibility
in the use of financial instruments in rural development. Farmers and other
rural development beneficiaries will be able to take advantage of loans or
guarantees to cover operating costs of up to € 200.000 on favourable terms, such as low interest rates or favourable payment
schedules |
|
70%
and 85% advances
for CAP payments |
Higher
payment advances. To increase farmers' cash flows, the Commission will
increase advances on direct payments (from 50% to 70%) and some rural
development payments (from 75% to 85%). Farmers will start receiving these
advances from mid-October |
|
Up
to 120.000 euros for state aid |
Possible
higher state aid for farmers and food businesses under the Commission's time
frame for state aid, farmers can now receive a maximum aid of € 100.000 per farm. Food and marketing companies can
receive a maximum of € 800.000. This amount can be replenished with the help of
de minimis. This type of national support, specific to the agricultural sector, may
be granted without the prior approval of the Commission and has a maximum
amount of 20.000 (and € 25.000
in some cases). Thanks to the new rules, EU countries can now help farmers
with state aid of up to €
120.000 (or € 125.000) |
Source: Coronavirus: Commission announces
exceptional measures to support the agri-food sector
(2020); Supporting the agriculture and food sectors amid Coronavirus (2020)
EU countries and farmers face
practical difficulties in meeting certain requirements under the CAP, and the
Commission seeks to assist through a number of specific measures: extension of
the deadline for submitting applications for state aid (extended until
15.06.2020); fewer farm inspections; postponement of annual reports. As part of
the development of rural areas of the CAP, similar measures were taken,
included in the investment initiative to respond to the coronavirus.
President Trump has instructed the
US Department of Agriculture to develop a $ 19 billion CFAP emergency
assistance program to provide critical support to our farmers and ranchers, to
maintain the integrity of our food supply chain. The US Department of
Agriculture plans to allocate an additional $ 873.3 million to purchase various
types of agricultural products from food banks. The use of these funds will be
determined by industry demand, USDA agricultural market analysis and needs (Coronavirus:
Commission announces exceptional measures to support the agri-food
sector, 2020).
Following in the footsteps of the
EU, the Government has adopted a package of tax benefits for businesses in the
law No. 3220 “Law on Amendments to the Tax Code of Ukraine and Other Laws of
Ukraine on Support of Taxpayers for the Period of Measures to Prevent the
Occurrence and Spread of Coronavirus Disease (COVID-19)” (2020). In particular,
a number of amendments were made to the Tax Code of Ukraine and other laws: the
amount of income for single tax payers was increased; medicines and medical
devices for combating coronavirus are exempt from VAT; tenants are temporarily
exempt from land fees and real estate tax; the business is exempt from certain
penalties; a moratorium on certain types of inspections has been introduced,
etc.
Filling the budgets for cities of
regional significance and large, in terms of land tax (tax holidays pay from
March 1 to April 30, 2020) is not critical, and for rural areas it is almost
the only stable source of income. Village budgets have been hit - they will not
receive UAH 4 billion in two months, which must be compensated by other funds.
That is, it should be borne in mind that the abolition of land fees will have a
negative impact on filling local budgets, and the abolition of mandatory
payment of SSC - on the Pension Fund's shortfall, and forced reduction of
business activity during quarantine will lead to significant budget losses.
The new version of the state budget
for 2020 does not provide for a reduction in expenditures aimed at supporting
the agro-industrial complex. But this is subject to IMF loans. Farmers are now
in dire need of government support because spending has risen sharply as the
dollar has risen.
As the budget provides for UAH 4.2
billion to support the sector in 2020, support programs should be expanded,
co-financed and simplified (within the framework of access to finance for all
players, not individual companies). Debts for budget support in 2019 must also
be repaid.
The formation of a strategy for
state support for the development of agricultural production in Ukraine
requires the state to solve a set of interrelated institutional tasks, which
provides for Ostapenko (2015):
· creation of normative and legal
framework and legislative settlement of the main economic problems of the
industry;
· providing budget support for the
development of long-term lending, introduction of advanced technical means and
technologies by agricultural producers due to cheaper interest rates on loans
to banks and development of financial leasing, partial compensation to
producers for the purchase of complex agricultural machinery and livestock;
· tax incentives for the development
of highly efficient environmentally friendly industries;
· budget financing of measures for the
development of selection and seed production, protection of plants and animals,
increasing the genetic potential of livestock productivity, accelerated
creation of an appropriate fodder base, improving soil fertility, development of
agricultural land reclamation;
· expanding the availability of
information resources for agricultural producers with real innovation potential
by promoting their cooperation with state academic and industry scientific and
research institutes.
Thus, based on the methodology of the
theory of institutionalism within the strategy of state support there is an
opportunity to: 1) identify and manage the development of the agricultural
sector through the mechanism of state support; 2) to develop models and mechanisms
of agricultural development with an optimal combination of industries and forms
of management; 3) to forecast the results of the implementation of sectoral
reforms and their impact on food security; 4) to develop algorithms for the
implementation of systemic reforms in the field of state support of the
agricultural sector.
5.
CONCLUSIONS
Research has confirmed that
information support of public administration in terms of formation and
distribution of the agricultural budget is important for the efficient use of
funds.
a) Analysis of budget support programs
for 2019 shows that the structure of expenditures is led by the livestock
industry, which accounts for almost 60% of the agricultural budget, and
significant funds are allocated for financial support of producers in terms of
domestic machinery and support for farmers in various areas - 15 %
respectively. In the dynamics of a number of recent years, agricultural budget
expenditures are growing, in particular from UAH 0.596 billion in 2016 to
almost UAH 5.908 billion in the 2019 project (10 times). It was possible to
structure the directions of budget allocations, directing them mainly to
support small business in strategically important areas for society. That is,
the dynamics of expenditures in terms of funds is quite positive, regulated as
an annual percentage of gross output of the industry, which indicates certain
achievements of government support policy. Some problem is the “manual”
distribution of funds, when more than half of the state support is received by
one or two agricultural holdings.
b) However, if we evaluate the budget
support according to the OECD methodology, it turns out that against the
background of European agricultural funding, Ukraine not only does not support
agriculture, but also practices implicit taxation of the industry, as the
difference in domestic and external prices for agricultural products is
capacious, and it is embedded in the assessment of the effectiveness of public
policy. In addition, since the abolition of preferential taxation, which has
played the role of indirect state support since 1998, the industry has not
received much more money than is financed from the budget. That is why in this
area it is necessary for Ukraine to move towards the standards of the EU SAP
and to separate measures to support the agricultural sector and rural areas
then the funds will be used more efficiently.
c) The current state of Ukraine's
development implies that reforms are needed in order to create an investment
and attractive, globally competitive country. Among the priorities are
recognized the following: the introduction of market circulation of
agricultural land, which by increasing economic competition will increase the
efficiency and productivity of agricultural land use; further policy of
deregulation of the economy, to strengthen market competition.
It is established that the State
Budget-20 is at the same time the successor of a larger number of programs that
operated in 2017-2019 and develops new areas. The government abandoned several
well-established budget programs to support agricultural development, including
horticultural support, a separate livestock development program, and a general
reduction in the cost of borrowed resources, instead offering a financial
support program for farmers in the draft budget. The most significant program
of financial support of agricultural producers in the amount of UAH 4 billion
has not been disclosed in terms of support.
If we consider the agricultural
support programs of the relevant ministry, the State Budget-20 provides UAH 4.5
billion, which is 23.7% less than in 2019, but 9.8% more than in 2018. Taking
into account the already confirmed efficiency of the minimum amount of funding
of at least 1% of GDP, the funds should be twice as much, up to UAH 8.4 billion.
And taking into account all agricultural development programs, including other
ministries and financing of services for the sector, the level of support can
be estimated at UAH 9.5 billion, which meets the stated criteria for the share
of budget expenditures in the agricultural sector.
d) 4. In addition, it is planned to
create tools to launch a full-fledged land market from 2020 that will allow
small and medium-sized agricultural producers to obtain cheap credit resources
for the purchase of agricultural land. Thus, UAH 4 billion has been set aside
in the budget for financial support of agricultural producers, and UAH 240
million for the formation of the authorized capital of the Partial Credit
Guarantee Fund.
e) Maintaining the balance of the
Ukrainian agricultural sector during the systemic crisis will occur when:
producers will receive support through access to finance, including cheap
loans; will be able to actually benefit from a deferral or moratorium on
certain types of taxes during quarantine; will receive equal conditions for all
entrepreneurs (both small and large) in terms of state support. A three-month
tax holidays in the form of exemption from paying the single tax of the fourth
group, as well as support in terms of reducing the SSC for the quarantine
period would help farmers.
f) From foreign experience, Ukraine can
follow the principles of state support for the most vulnerable areas of the
agricultural economy, as well as support for small business and rural
development.
g) In many state support measures, the
achievements are formed in the areas of budget support, close to WTO
requirements, the challenges are insufficient funding, ill-conceived mechanisms
for implementing certain programs, support for those forms of management that
do not need it most, controllability of the allocation of funds and producers'
distrust of government programs.
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