Ups and downs of the Ukrainian agro-industrial complex in 2017

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APK-Inform

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The period of New Year holidays has already ended, and the market gradually restored its working rates. Many market participants started drawing plans for the following 6-12 months. APK-Inform decided to sum up the last year results, in order to specify the current year plans.

Economy of Ukraine: expectations and reality

The government budget for 2017 provided the growth of economy of Ukraine at the level of 3%. But in six months, the Government worsened the figures to 1.8%, due to breaking up relations with enterprises at the uncontrolled territories in the east of the country. However, at the end of the year the forecast of the GDP growth in Ukraine improved to 2%. The expected inflation rate on a year-on-year basis totaled 8.1%. In October 2017, the National Bank forecasted the growth of the country's economy at 2.2%, specifying that the indicator could become slightly lower due to the lower harvested volumes of late grains and technical crops compared with the expected volumes. According to preliminary figures, the GDP of Ukraine in 2017 grew slightly more than 2% (2.3% in 2016). According to the State Statistics Service, in the 1st quarter the growth of the real gross domestic product totaled 2.5%, in the II quarter – 2.3%, and in the III quarter – 2.1%, compared with the same periods in 2016. As for inflation processes, the National Bank failed to keep the consumer price index at the level expected in the Government. Thus, in 2017 the inflation in Ukraine totaled 13.7% year-on-year. According to experts, active recovery of the consumer demand of Ukrainians, due to increasing of the minimum subsistence level, social benefits, as well as the minimum official wage, became the major reasons for such development.

Leading Ukrainian and international economists agreed that last year Ukraine somewhat reduced in the rating of investment attractive countries. According to the Executive Director at The Bleyzer Foundation, Oleg Ustenko, in 2017 the inflow of foreign direct investments decreased in 4 times compared with the previous historical maximum – to 2.5 bln USD. Without real reforms, the Government will not be able to correct the situation in the nearest future.

A fresh start

On December 7, 273 people`s deputies voted for adoption of the draft law #7000 "On the State budget for 2018".

According to the document, the budget revenues for 2018 will total 917.9 bln UAH, the charges – 991.7 bln UAH, the maximum limit of the state budget deficit was set at 80.6 bln UAH, or 2.4% of the GDP, the volume of the government debt was set at 1999.3 bln UAH, or 60% of the GDP. The GDP growth of Ukraine was provided at the level of 3%, the forecasted level of inflation in 2018 totals 9%.

The state budget provided 7.3 bln UAH for development of the agro-industrial complex of Ukraine in 2018.

In particular, in order to improve the financial condition of agro-industrial enterprises and increase the production rates of competitive agricultural products in 2018, the Government kept the mechanism of partial compensation of interest rates on bank loans to enterprises of the agro-industrial complex. So, the fund under the budget program "Financial support of measures in the agro-industrial complex on easing of credits" will receive 66 mln UAH for such expenses. In order to increase the competitiveness of farms and strengthen their material and technical base in 2018, the fund under the budget program "Financial support for development of farms" will receive 1 bln UAH.

In order to ensure the proper quality of objects of the public price regulation in the public intervention fund, improvement of the management flexibility in 2018, the special fund under the budget program "Expenses of the Agrarian Fund, related to the storage, transportation, processing and exports measures of objects of the public price regulation in the public intervention fund" will receive 52.2mln UAH.

The state budget reduced its expenses for the budget support of agricultural commodity producers by 2 bln UAH, but increased the budget support of the livestock industry by 1.7 bln UAH. Thus, the budget program "State support of the livestock industry" will receive 4 bln UAH from the government budget, whereas the budget program "Financial support of agricultural commodity producers" – 945 mln UAH.

The budget program "Realization of the land reform" will receive 452.8 mln UAH from the state budget.

In order to ensure a stable epizootic situation in the country for 2018, the budget program "Animal epidemic countermeasures activities and participation in the International Epizootic Bureau (IEB)" will receive 687.195 mln UAH from the state budget.

 

The Ministry without a minister

In May 2017, the Minister of Agrarian Policy and Food of Ukraine, Taras Kutovyi resigned after working more than a year in the position (since April 2016). According to T.Kutovyi, his decision was caused by his plans to return to business after 5 years in the political sphere. However, many politicians expressed their opinion that the Minister resigned because of disagreement with the land reform proposed by the Government. Anyway, for more than half a year the First Deputy Minister of Agrarian Policy and Food, Maksym Martynyuk was the unofficial head of the department. We should also stress another Deputy Minister, in October 2017 the Vice-President of the farmers' association, Viktor Sheremeta was appointed to a new position of the Deputy Minister of Agrarian Policy and Food on the farm development issues.

Harvest-2017

According to preliminary calculations of the Ministry of Agrarian Policy, in 2017 the production of grains and pulses in Ukraine was expected at the level of 62.3 mln tonnes in registered weight, with the average yield at 4.28 t/ha, as opposed to the record harvest in the previous year – 64 mln tonnes. In particular, the expected harvest of wheat totaled 26.1 mln tonnes, which almost corresponded to the last year figures. At the same time, the harvest of corn totaled 25.2 mln tonnes, and barley – 8.3 mln tonnes, down more than 10% compared with the harvest volumes in 2016. Barley harvest volumes decreased, due to 12% reduction of the planted areas under the grain, while the corn areas increased by 5%. However, the weather conditions had a negative impact on the grain areas, which declined its yield figures by more than 14%. Also, the harvest of rye totaled 497.4 thsd tonnes, oats – 478.7 thsd tonnes, buckwheat – 180.3 thsd tonnes, millet – 83.3 thsd tonnes, and rice – 70.2 thsd tonnes.

According to the quality analysis of Ukrainian grains of the harvest-2017 by the company Cotecna Ukraine, the protein content in wheat and barley almost varied at the previous year level. According to the European quality standards, the level of protein in wheat of the harvest-2017 totaled 12.03%, against 12.21% in the harvest-2016, barley – 10.51%, against 10.48%, respectively. According to the goods shipment statistics, in July-October period the qualitative indices of new crop wheat did not differ much compared with the previous year figures, and satisfied the contract requirements, as well as the quality of barley, experts explained.

In addition, last year the production of sunflower seed totaled 11.6 mln tonnes, soybeans – 3.8 mln tonnes, and rapeseed – 2.2 mln tonnes.

Possible records in the harvest-2018?

It is too early to forecast whether Ukraine to be able to harvest a record harvest of grains in 2018, because a lot of factors can affect the fields at any stage of cultivation. However, to date it is possible to note some expansion of the planted areas under winter crops, and favourable weather conditions, which add more ammunition to agrarians. According to the State Statistics Service of Ukraine, in the current year all categories of agricultural households of the country provided the planting campaign of winter crops for grain and green fodder throughout the areas of 8.324 mln ha, up 2.6% compared with 2016. So, the country planted winter grains throughout 7.265 mln ha (up 1.3%), including wheat – 6.274 mln ha (up 2.8%), triticale – 16 thsd ha (up 5.6%), rye – 149.4 thsd ha (down 11.9%), and barley – 825.5 thsd ha (down 6.4%). According to the Ministry of Agrarian Policy, sprouts of winter crops in Ukraine appeared throughout almost all planted areas, and as of January 5, 86% of the areas were in good and satisfactory condition.

In addition, the planted areas of winter rapeseed for the harvest-2018 totaled 1.01 mln ha, up 12.3% compared with the previous year areas. It should be noted that Ukraine mainly increased the planted areas under rapeseed due to expansion of the reporting areas in agricultural enterprises by 12.8%, to 955.5 thsd ha, whereas households of the population decreased the areas by 10.6%, to 14.7 thsd ha. The sprouts of winter rapeseed appeared throughout 983.7 thsd ha (97%) from the general planted areas, including 89% of the areas (873.2 thsd ha) in good and satisfactory condition.

According to the Ukrainian Hydrometeorological Center, the current climate changes in Ukraine, which came with abnormally warm winters, can positively affect the agricultural industry, because in such conditions even late planted winter crops continue its vegetation processes.

And the most interesting...

2017 for Ukrainian agrarians began with the decision of the Government to cancel the VAT special regime, which has successfully worked in the country since 1998. As an alternative, the Cabinet of Ministers of Ukraine approved a decree #83 dd. 8.02.17 which approved the procedure of distribution of budget grants for development of agricultural commodity producers and stimulation of agricultural production in 2017. The so-called "VAT quasi-accumulation" mechanism provided full payment of the VAT sum by agrarians, which was generated by the subsidized activities, to the state budget with the following return of its part in the form of a budget grant in automatic mode. The state budget-2017 provided 4 bln UAH for the reporting purposes. However, many experts still argue about the effectiveness of "VAT quasi-accumulation" mechanism, because only large-scale holdings received some benefits in opinion of experts.

Also, the Verkhovna Rada of Ukraine decided to cancel the VAT refund for the exports of sunflower seed, soybeans and rapeseed since March 1, 2018. But representatives of specialized associations and Ministries together with deputies managed to achieve a compromise solution. Thus, the officials kept compensation of the export VAT for sunflower seed, and postponed the planned imposition of the standard for soybeans until September 1, 2018, and rapeseed – until January 1, 2020.

Also, the officials extended the moratorium on agricultural land sale for another year.

 

Julia Shevchenko, APK-Inform Agency

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