the public and private sectors in the sustainable development of the ukrainian … report.pdf ·...

DRAFT FOR DISCUSSION

THE PUBLIC AND PRIVATE SECTORS IN THE SUSTAINABLE DEVELOPMENT OF

THE UKRAINIAN GRAIN SECTOR

List of Abbreviations


CAC Codex Alimentarius Commission CAP Common Agricultural Policy CIS Commonwealth of Independent States CPI Consumer Price Index DSTU Ukrainian National Standard EBRD European Bank for Reconstruction and Development EU European Union FAO Food and Agriculture Organization FAT Fixed Agricultural Tax FOB Free on Board GOST gosudarstvennyy standart Ha Hectare Kg Kilogram KMT Thousands of Metric Tons MMT Millions of Metric Tons MPL Maximum Permitted Level MT Metric Ton MY Marketing Year ND Normal Document OECD Organization for Economic Cooperation and Development TC Technical Committee US United States VAT Value Added Tax WTO World Trade Organization


CONTENTS

THE PUBLIC AND PRIVATE SECTORS IN THE SUSTAINABLE DEVELOPMENT OF THE UKRAINIAN GRAIN

SECTOR ................................................................................................................................................... 1

Part I. Grain Market Developments in 2003-2008 ....................................................................................6

1.1 Grain production.........................................................................................................................6

1.1.1. General trends .................................................................................................................6

1.1.2. Sector-specific trends .......................................................................................................7

1.1.3. Future trends ....................................................................................................................8

1.2. Grain Prices ..........................................................................................................................9

1.2.1. Principles of grain price formation....................................................................................9

1.2.2. Domestic grain prices in MY 2007/2008.......................................................................... 10

1.3. Government interventions in the grain market................................................................... 11

1.3.1. Introduction of export restrictions.................................................................................. 11

1.3.2. Impact of export restrictions .......................................................................................... 11

Part II. Policy Environment for the Grain Sector ..................................................................................... 13

2.1 Policymaking Process ................................................................................................................... 13

2.1.1. Role of government bodies .................................................................................................. 13

2.1.2. Role of Agri-Businesses and Business Associations ............................................................... 14

2.1.3. Role of Expert Groups .......................................................................................................... 16

2.1.4. Role of Women .................................................................................................................... 16

2.2. Public Support Measures.................................................................................................... 17

2.2.1 Agricultural budget support measures................................................................................... 17

2.2.2. Administrative measures...................................................................................................... 21

2.2.3. Fiscal measures .................................................................................................................... 22

2.3. Impact of EU integration and WTO Membership......................................................................... 23

Part III. Key sector constraints ............................................................................................................... 26

3.1. Farm-level constraints........................................................................................................ 26

3.2. Government-level constraints ............................................................................................ 29

Part IV. Priority Recommendations for a Public-Private Dialogue ........................................................... 32

4.1. Alignment of public support programs to the grain sector with WTO requirements............ 32

4.2. Removal of potential barriers to future grain trade between the EU and Ukraine............... 33

4.3. Creation of a single transparent government grain production, use and trade information

system 34


Appendix A............................................................................................................................................ 36

Appendix B............................................................................................................................................ 61

Appendix C ............................................................................................................................................ 71

Appendix D............................................................................................................................................ 75

Appendix E ............................................................................................................................................ 98


Summary

Ukraine has a strong potential to produce and export larger grain volumes through improved yields and increased acreages. Increased production and export of grains would not only constitute a source of additional export revenues, farm income and rural employment, but also help alleviate the high level of global food prices. However, in order to realize Ukraine’s potential in the grain sector a number of structural constraints need to be removed. This study was completed by order of FAO/EBRD within the framework of a project for improving the dialogue between Ukraine’s private business and government. The study contains a fundamental analysis of recent trends in Ukrainian grain markets and key aspects of the state policy towards the grain market. In addition, it identifies key constraints to grain sector development and presents a series of recommendations for their removal. The study calls for the establishment a structured dialogue between the public and private actors in the grain sector that is aimed at developing a shared action strategy for the promotion of the sector’s growth and development. It proposes that the dialogue center upon the alignment of public support programs to the grain sector with WTO requirements, the removal of potential barriers to future grain trade between the EU and Ukraine, and the creation of a single transparent government grain production, use and trade information system.


PART I. GRAIN MARKET DEVELOPMENTS IN 2003-2008

1.1 Grain production

1.1.1. General trends

Grain production is approaching pre-transition levels as part of the overall stabilization of agricultural output in Ukraine. The collapse of socialism in the early 1990s resulted in a dramatic decline in agriculture output levels in Ukraine (see Appendix A, Figure A.1.). Annual grain production, which had been relatively stable at about 47 million tons in the period 1986-1990, halved to just 22-25 million tons during this period. Many agricultural producers were forced into subsistence farming due to the decreasing budget and financial resources for agricultural investments, hyperinflation (including rising input prices)1, and the loss of traditional export markets in the CIS. Fifteen years into the transition, agricultural output levels in Ukraine have gradually stabilized as macro-economic conditions improved, capital investments picked up again, and a series of market reforms were implemented.2 During the period 2000-2006, annual grain production rose to 35-36 million tons. Nonetheless, total agricultural output remains below its pre-transition level as many structural constraints persist (see Part 3).

Grain production has been variable in recent years. Yields have been stagnating since the MY 2004/05 harvest, and fell sharply in MY 2007/08 due to the drought (see Appendix A, Table A.2). Spring crops, especially barley, suffered the most from this drought. It reduced the total grain crop size to 27-28 million tons compared to 34 million tons in MY 2006/07. In 2008, wheat, corn and rapeseed showed the greatest increases in sown areas. The acreage expansion took place chiefly at the expense of barley and sugar beet (see Appendix A, Table A.3). In MY 2008/2009, a grain harvest between 46-49 million tons is expected. This volume of production would be close to Soviet-era levels and push Ukrainian grain exports to an all-time high.3 Combined with a similar rise in exports from Russia, the Black Sea region would thus strengthen its position as a key determinant for global grain market prices. Although the ratio between input costs and sale prices was not so attractive thus year, it is expected to sustain high output volumes during MY 2009/2010 as well. Grain production faces increased competition for arable land from oilseed production. Sunflower seed production increased considerably in the period 2000-2007 (see Appendix A, Figure A.4). While sunflower seed yields kept relatively stable at a level between 0.93 and 1.25 MT/ha, output growth was accounted for mainly by acreage expansion. Areas sown with sunflower seed expanded from 2.5-2.8 Ml ha in 1999-2000 to 4.3-4.5 Ml ha in MY 2006/2007. In MY 2007/08, the acreage shrank to 4.06 Ml ha primarily as a result of the expansion of rapeseed and wheat production. Rapeseed has recently joined sunflower seed as a preferred crop 1 According to the State Statistics Committee inflation equaled 4835% in 1993. 2 The new currency unit (Hryvnya) was introduced on September 02, 1996. In addition, more disciplined budgetary policy ensured a slowdown in the inflation rate and, somewhat later, stabilization of the Hryvnya/US dollar exchange rate. In the period 1998-2003, the Government of Ukraine launched a reform program for collective farms; introduced preferential tax treatment of agricultural producers through VAT exemptions and a Fixed Agricultural Tax; developed market regulations (e.g. Law on Grain and Grain Market (337-IV, July 4th 2002), Law on State Regulation of Sugar Production and Sale (#758-XIV, June 17th 1999)); completed the privatization of processing enterprises; and passed the Law on State Support to Agriculture. According to the State Statistics Committee, real per capita incomes increased by 9-18% annually between 2001-2003. 3 The greatest total grain crop harvested in Ukraine in the end of the 1980s was 50 MMT.


(see Appendix A, Figures A.5). Until 2008, relatively little rapeseed was grown (just 390,000 hectares in 2006). Rapeseed now appears to be a strong choice in crop rotations. This year’s planted area is estimated to have reached 1.4 million hectares. The total area sown with oilseeds in the Ukraine now exceeds 30% of the arable area in Ukraine.

The sharp shift towards oilseed production is a response to declining margins for grain crops. Cropping patterns in Ukraine seem to be strongly determined by crop margins. Technically, rapeseed is at present Ukraine’s most profitable crop. In the period 2004-2007, gross margins averaged $550 per hectare (for large-scale farms), while margins for other crops ranged between $56 (for rye) and $432 (for wheat) per hectare (see Appendix B). However, its margins are currently inflated due to artificially low input costs (see Appendix A, Tables?). As rapeseed production was only recently introduced in Ukraine, it currently benefits from low incidence levels of pest and disease. However, as the crop becomes more established, incidence levels can be expected to increase to levels similar in Western Europe and input costs such as pesticides will increase accordingly. Sunflower seed profitability has averaged 54% from 2000-2007 and was a near-record 75% in 2007 (see Appendix A, Table A.6) due to relatively high crop prices and low input costs (see Appendix A, Tables A.7 and A.8). Prices for wheat and barley, on the other hand, were held down by the export restrictions imposed by the government during the last two years (see Part 2). These trends demonstrate that producers in Ukraine respond rationally to market signals. 1.1.2. Sector-specific trends

Wheat

Wheat production volumes have been variable. Wheat produced in Ukraine has traditionally been used for feed purposes. Importantly, the Government does not stimulate growing quality grain. In fact, the quality standards are often adjusted so as to consider relatively poor quality wheat as milling wheat. Due to winter-kill, the smallest harvest (4.3 million tons) in more than 45 years was produced in MY 2003/04 (see Appendix A, Table A.9).4 As a result, Ukraine was forced to import 3.4 MMT of wheat in 2003 – the highest volume since it gained independence. In MY 2008/2009, a very rich crop is expected to be combined with high opening stocks. Estimates of the MY 2008/09 wheat crop range between 22.5 and 24.5 million tons (66-75% above last year). These output levels will allow for all-time high wheat exports. The winter wheat crop benefited from excellent weather conditions. In addition, approximately 93% of the area was fertilized in the spring. By comparison, the country’s largest crop was 30.4 million tons, produced in 1990/91 — just prior to end of the Soviet Era.

4 The 2003 crop experienced a series of unfavourable weather events. Fall sowing was delayed or prevented by wet weather. As result, the crop emerged late, establishment was poor, and the crop was not “hardened” when bitterly cold weather arrived in December. Hardening (vernalisation) is the process by which winter wheat gradually adjusts to lower temperatures and prepares to enter winter dormancy. According to some estimates, the lack of hardening contributed to a 20 percent loss just to the December frost. However, the greatest damage to the crop was done in February, when repeated cycles of thawing and re-freezing led to the formation of an ice crust which persisted from forty to ninety days (wheat begins to suffer damage after only twenty days). It was estimated that 66% of the winter wheat area was destroyed (versus an annual average of just 15%).


Barley

Barley production has experienced a significant decline. Barley is the principal grain used for spring reseeding of damaged or destroyed winter-crop fields (including winter wheat as well as winter barley). On average, 90% of Ukraine’s barley production is accounted for by the spring-sown crop. The area sown with spring barley typically fluctuates in response to the level of winter wheat that is sown in the autumn and the amount of winter wheat that suffers winter kill. However, barley now increasingly competes for area in spring with corn and oil seeds as gross margin for these crops have been strong. Despite the growth in demand for barley from the developing brewing industry, the area sown with barley has declined sharply from 5.7 million hectares in MY 2003/04 to an estimated 4.3 million hectares in MY 2008/2009 (see Appendix A, Table A.10). In MY 2007/08, drought and excessive heat drove barley yield to its lowest level since 1963.

Corn

Corn production is resurging. Traditionally, corn-for-grain comprises two-thirds of total corn seeded area with the remainder intended for silage. The area intended for silage declined sharply in the post-Soviet era, concurrent with the decline in livestock production in Ukraine.5 The resurgence of corn is largely the result of strong gross margins on corn production. Areas sown with corn increased from 1.9 million hectares in MY 2006/07 to 2.5 million in MY 2008/09 (see Appendix A, Table A.11). In terms of production volumes, Ukraine has shifted from the 3-5 MMT to the of 6-9 MMT range. Estimates of Ukraine’s MY 2008/09 corn production range between 8.5 and 9 million tons, up sharply from the 2006/07 crop of 6.4 million tons. If the MY 2008/2009 crop is larger than 8.8 million tons, it will be the largest crop since MY 1962/63, when output reached 10.1 million tons. So far, the crop has benefited an expanded use of hybrid seed and from a cool, wet growing season that delayed crop development, but boosted yield potential. Yield estimates for MY 2008/09 range between 3.6 and 4.1 tons per hectare, compared to the 1991-2000 average of just 2.9 tons (by comparison, this year’s US yield is 9.6 tons). Should Ukraine approve the planting of genetically modified corn varieties, it is likely that average yields as well as areas seeded would increase further.

1.1.3. Future trends

Domestic demand for grains will increase moderately. Domestic food consumption of grains will be relatively stable despite a decreasing population due to rising incomes. Feed consumption of grains, on the other hand, is expected to rise. Currently, a large portion of grains is fed to livestock in Ukraine because of the low quality of a large share of the wheat crop and because of a shortage of grain storage. Although livestock production shrank dramatically in the period 1992-2004 (see Appendix A, Table A.12), it is expected to recover over the next five years in light of rising incomes, the significant livestock investments made in the past 2-3 years, and government support programs to rebuild cattle herds. Generally, the potential for growth in meat consumption is high.6 Meat consumption in Ukraine is expected to increase by an annual rate of 4-5%, resulting in an increase in grain feed demand of 2-3% per year. Total feed grain consumption may thus increase up to 16-17 million tons by 2010 from the current level of 12-14

5 In 1990, silage accounted for 79% of total corn area, but by 2005 the share had fallen to 29%. 6 At present, average meat consumption in Ukraine is estimated at 34 kg per capita compared with 84 kg in 1990. This is also low compared with other European countries: Hungary (120 kg), Germany (86 kg), and Poland (78 kg).


million tons. The main consumers of feed grain in the next 2-3 years will be pig and poultry production. It should be underlined that the acceleration in grain feeding is not expected sooner than 2010 and is likely to suffer a delay as a result of the current global financial and economic crisis. In addition, the projected increase in domestic demand for grains is not expected to limit exports if production increases as current feed conversion rate can be expected to improve.

Grain production is expected to flatten out in the medium term. Depending on the definition of currently underutilized land, it is believed that between 5 and 12 million hectares might be drawn into farming in Ukraine. Table A.13 of Annex A presents estimates of potential increases in annual output of barley, wheat and sunflower seed. The model assumes the lower estimate of available areas (5 million hectares), a typical four year rotation of wheat, barley, and sunflower seed, and no yield growth (taking average yields from the past three years). Any yield increases would increase production further. While model does not produce an accurate forecast of future crop area growth, it does provides an indication of the area potential that exists in the Ukraine. In the long term, it is expected that grain production will stabilize at a level of 38-40 MMT in 2009-2012, while rising to a level of 40-45 MMT between 2012-2015. Weather conditions will remain a risk factor contributing to fluctuations in grain production volumes. In addition, the current global financial and economic crisis is likely to put the development of this potential under increased pressure.

Oilseed production is likely to stabilize in the absence of improvements in farming practices. Due to the current global financial and economic crisis, credit is becoming increasingly scarce and expensive. Minimizing input costs by planting oilseeds has thus become more attractive to farmers. However, Ukrainian producers currently place oilseed crops too frequently in their crop rotation. The total area sown with oilseed crops in the Ukraine (exceeding 30% of arable area) suggests that they are planted every three years on average. This approaches the agronomic limit for oilseed crops, making further expansion difficult to achieve. 7 Future output increases could potentially be achieved through improved crop yields, but these risks being undermined by soil exhaustion and soil-borne fungal diseases (such as phomopsis) if farmers do not change their current growing practices.

1.2. Grain Prices

1.2.1. Principles of grain price formation

Domestic grain market prices are low shortly after the harvest. The behavior of grain market prices in Ukraine overall reflects the changes in supply and demand balances as discussed above. Typically, grain prices on the domestic market drop just after harvest and rise toward the end of the marketing season. The huge sales just after harvest depress domestic grain prices. They are mainly the result of information asymmetries, a lack of financial risk mitigation instruments, and high transportation costs in Ukraine.

7 Traditional rules for crop rotations prescribe that sunflower seeds, which extract more moisture and nutrients from the soil than other crops, should not be planted in the same field more than about once every seven years. However, the area planted with sunflower seeds in Ukraine has expanded with many farms planting the crop once every four years or less. In principle, sunflower seeds could be planted every four to six years provided farmers use disease-resistant seed, apply adequate amounts of mineral fertilizer, and treat the fields with appropriate plant-protection chemicals. However, for most farmers in Ukraine these recommended practices are too expensive.


Domestic grain prices are closely correlated to international grain prices. Since Ukraine is a grain exporting country, domestic grain prices are usually lower than the world price level. In general, Ukrainian prices track world prices minus the transportation costs and other charges. The actual size of the average discount for Ukrainian grain prices depends on domestic and international supply and demand balances. Domestic grain prices can rise towards import price parity when shortages in domestic grain supplies arise. Table A.14 in Appendix A shows that, with a stable level of world prices, a switch from a net grain exporting status to a net grain importing status results in a 75% rise in domestic grain prices (210/120) in Ukraine. This price increase may be even higher if grain has to be imported from countries other than Russia or Kazakhstan given the additional transportation costs. In the case of feed grains, price shifts are being transmitted through the entire supply chain.

1.2.2. Domestic grain prices in MY 2007/2008

Domestic grain prices increased dramatically. Following the major price increases observed in MY 2003/2004, Ukraine’s grain market switched to a more predictable behavior in MY 2004/2005 (see Appendix A, Figure A.15). However, seasonal price fluctuations sharply decreased soon thereafter. Since MY 2006/2007, the Ukrainian market has been following the overall upward trend in world prices. MY 2007/2008 marked the unfolding of a global food crisis as a result of increasing international agricultural commodity prices. Organizations such as the FAO, World Bank, and OECD identified as the main drivers behind this development the growing world population, increased demand for meat and dairy products from emerging economies (which disproportionately increases demand for grains and oilseeds), rising energy prices (which increase production and trade costs), the development of the biofuel industry, and adverse weather conditions in many key producer countries, including Ukraine. Rising grain prices fed into sharp food price increases, fuelling strong inflationary pressures. Food represents a large share (50%) of the CPI basket in Ukraine. Grain and animal products alone account for 27% of the CPI basket. By comparison, just 10.3% is spent on food in the United Kingdom and roughly 5% on grain and animal products. A significant rise in grain prices can thus entail a fast growth in food prices and the overall inflation rate in Ukraine. While export restrictions prevented domestic grain prices from increasing to the world market’s reference points, a World Bank report found that in March 2008 food price inflation in Ukraine was 42.2% year-on-year and accounted for 93% of the overall CPI inflation of 26.2%.8 Grain stocks were tightening. As grain exports amounted to 3.7 MMT in MY 2007/2008, closing stocks were at most 4 MMT. As a result, at most 1 MMT of grain could have been exported without any threat to the domestic market (taking into account necessary closing stocks). However, given that Ukraine’s port infrastructure, which has seen significant investments in recent years, currently allows for the exporting of 1.5-2 MMT of grain a month, the entire export potential of MY 2007/2008 could be realized in just two months.

8 The World Bank, Competitive Agriculture or State Control: Ukraine’s Response to the Global Food Crisis, Sustainable Development Unit – Europe and Central Asia Region, Washington DC, p.5


1.3. Government interventions in the grain market

1.3.1. Introduction of export restrictions

The government responded to rising food prices by imposing a series of export restrictions. In September 2006, the Cabinet of Ministers passed a resolution on automatic licensing of wheat exports. By October 2006, however, the resolution had already been replaced with non-automatic licensing of wheat exports (i.e. export quotas). Export quotas were also introduced on barley, corn and rye. The government retained the export quota regime (with short interruptions for barley, corn, and wheat) throughout MY 2006/2007 and MY 2007/2008. In May 2008, export quotas and automatic licensing arrangements (for corn) were cancelled due to the prospect of a large grain harvest in MY 2008/09. In addition, Ukraine had an obligation to cancel the export restrictions as part of its WTO commitments9. The history of the decisions made concerning grain export restrictions is given in Table A.16 in Appendix A. The 12 government resolutions that were passed in the period 2006-2008 demonstrate the ad-hoc manner in which the government tried to stabilize the grain market. Also exports of oilseed were restricted. In March 2008, export taxes were imposed on sunflower seeds and sunflower oil. They were replaced by export quotas in April 2008. The decision to impose export quotas was controversial as Ukraine’s export potential was at least 600 KMT (March / August) at the moment the quotas were introduced. The decision was suspended in May 2008 by Presidential Decree and forwarded to the Constitutional Court for review. The decision may be reinstated if the Court confirms the constitutionality of the decision.

1.3.2. Impact of export restrictions

Grain export restrictions had a limited effect on restraining domestic grain prices and increased the levels and volatility of world market prices. Figures A.17, A.18, and A.19 in Appendix A demonstrate that domestic wheat and barley prices moved further away from world market prices following the export restrictions imposed by the government, while corn prices held their relationship and gradually converged to world market price levels. Although grain prices would have been higher in the absence of the export restrictions, the latter failed to stop the overall upward trend in domestic grain prices. The reasons for this were multifold. Even with export restrictions, the domestic grain supply was overall too small to drastically reduce prices. In addition, as wheat and coarse grain availability relaxed somewhat in the domestic market, grain exporters switched to flour production (which did not face export quotas) in order to circumvent the grain export quotas. This resulted in wheat flour exports being at a record high in MY 2007/08. Furthermore, there was an increased willingness among many grain producers and traders to store grains until prices arrived at desired levels. The export restrictions created significant uncertainty among grain producers and resulted in a major distortion of price signals. The export restrictions limited grain producers’ incomes compared to their potential level thus reducing incentives for private investments in domestic

9 Report of the Working group for Ukraine’s entry into the world Trade Organization (document WT/ACC/UKR/152 of January 25, 2008), which is an integral part of Ukraine’s Law on ratification of the Protocol on Ukraine’s entry into the World Trade Organization #250-VI adopted by Parliament of Ukraine on April 10, 2008, includes Ukraine’s commitment to lift its grain export restrictions on the day of Ukraine’s entry into the WTO (Paragraphs 255 and 370)


grain production. As discussed above, Ukrainian grain producers responded to depressed farm-gate prices for grains (and hence gross margins) by shifting production and investments to oilseeds. The uncertainty whether an individual grain producer would be able to export his/her crops further supported this shift. Though reducing farm incomes, agricultural producers often prefer export taxes to quotas because they are comparatively more transparent and domestic prices remain tied to international market conditions, albeit at an artificially high discount due to the export tax. With the easing of quotas in the spring of 2008, Ukrainian grain prices can be expected to return to their usual patterns of close correlation with international prices. Their removal is likely to renew incentives for private investments. The benefits of the grain export restrictions were unevenly distributed. Though increasing, prices for the affected crops were lower than they would have been if exports were unrestricted. The imposition of export quotas thus led to foregone revenues for grain producers to the benefit of the milling industry, livestock producers and consumers. While higher agricultural commodity prices did not translate into higher agricultural wages, fast increases in overall real incomes were able to absorb food price inflation.


PART II. POLICY ENVIRONMENT FOR THE GRAIN SECTOR

2.1 Policymaking Process

2.1.1. Role of government bodies

Government bodies sometimes take a creative approach to defining their role in agricultural policymaking. The Parliament (Verkhovna Rada), President, Cabinet of Ministers, and the Ministry of Agricultural Policy are the key government bodies involved in grain sector policymaking. Their respective legislative and executive roles and responsibilities are defined in the Constitution of Ukraine.10 However, they have sometimes tried to broaden their responsibilities by creatively interpreting their constitutional mandates. For example, the President used provisions in the Law "On the Council of National Security and Defense of Ukraine", which empowers the President to consider issues concerning state security, to sign the Decree "On the Condition of the Agro-Industrial Sector and Measures for Ensuring Food Security of the State"11. The Presidential Decree provides for the establishment of a guarantee fund of warehouse documents for grain. It also gives instructions to the Cabinet of Ministers on a very wide range of issues: from facilitating the establishment of agricultural producer cooperatives to aligning legislation with WTO requirements. However, most measures stipulated by the Decree have remained unimplemented. There are no uniform legislative or regulatory practices. The Parliament is the central legislative body in Ukraine. However, the President and the Cabinet of Ministers, as part of the executive branch, can initiate legislation as well and thus propose basic principles for regulating the grain sector12. All parties have availed themselves of this right in recent years.13 Since July

10 The President is responsible for blocking unconstitutional acts by the Ukrainian government by simultaneously addressing to the Constitutional Court; heading the Council of National Security and Defense of Ukraine; signing laws passed by the Parliament, through the President has a veto right which allows him/her to send a draft law back to the Parliament for reconsideration. The Parliament is responsible for the adoption of laws; approval of the State Budget (including its expenditures for grain grower support and other agriculture support programs); approval of national economic development programs; review and adoption of the program of the Cabinet of Ministers’ actions; appointment, as well as dismissal, of Ukraine’s Prime Minister, members of the Cabinet of Ministers (including the Agricultural Policy Minister), the Antimonopoly Committee’s Head and a number of other governmental bodies; control over activities of the Cabinet of Ministers of Ukraine; ratification of the obligation of Ukraine’s international agreements and their denouncement; approval of the list of state property objects which are not subject to privatization. The Cabinet of Ministers is responsible for pursuing financial, price, investment, taxation policies as well as those in the fields of labor relations and employment, environmental security and education; working out and implementing national economic development programs; providing equal conditions for the development of all ownership forms, managing state property objects; drafting the Bill on the State Budget of Ukraine and ensuring the implementation of the Budget passed by Parliament; guiding and coordinating the work of Ministries; creating and liquidating Ministries and other government bodies. 11 Decree #1867/2005 of December 28, 2005 12 Article 93 of Ukraine’s Constitution 13

On October 20, 2006, the President submitted to Parliament for consideration a draft law on amending the Law of Ukraine "On State Support to Ukraine’s Agriculture". The draft concerned, in particular, bringing the terms of foreign trade in state price regulation objects (including a number of grain crops) into accord with the WTO requirements. It was adopted on November 31, 2006 (Law #401-V). On November 09, 2006, the Cabinet of Ministers submitted to the Parliament a draft law on amending the Law "On Grain and Grain Market in Ukraine". It has since been adopted by the Parliament (Law#547-V). The Parliament adopted the draft Law amending the Law “on Value-Added Tax” submitted on October 10, 2006 by the People’s Deputies of the 5th convocation. The law (#273-V) prolonged VAT benefits for agricultural producers (including grain growers) for 2007.


2008, however, the situation of a minority government in Ukraine has made all legislative and regulatory work generally ineffective.14 The Ministry of Agricultural Policy is the leading ministry in agricultural policymaking and implementation. The Ministry’s role and responsibilities are defined by Resolution #1541 approved by the Cabinet of Ministers on November 1th, 2006 and its activities are guided and coordinated by the Cabinet of Ministers of Ukraine.15 Importantly, the Ministry of Agricultural Policy participates in the drafting of the State Budget, which determines financing of agricultural support programs. However, significant roles are also assigned to other Ministries in agreeing upon common government approaches to agricultural policy. The Finance Ministry is closely involved in defining procedures for distributing funds under the agricultural support programs. The Economy Ministry supports risk assessments of food security conditions. And the Justice Ministry considers all legal aspects of government actions in the agricultural sector. A series of other Ministries and government agencies are to a lesser degree involved in the policymaking and implementation process.16 The dispersion of power and responsibilities in agricultural policymaking and implementation calls for a close coordination among all actors involved. Since 2000, responsibilities in the area of agricultural policymaking have been scattered at the level of the central government and between the central government and regional authorities. Previously, governments tried to address coordination issues by establishing a Vice Prime Minister post in charge of agricultural sector development. However, such a position is absent in the present government.

2.1.2. Role of Agri-Businesses and Business Associations

State-owned entities only play a secondary role in grain sector policymaking. At the moment of its founding, more than 80 enterprises dealing with grain storage, processing and handling,

14 A number of People’s Deputies wrote individual applications about their withdrawal from the coalition, though they formally remained in their factions of which the coalition is formed. As a result, the coalition of parliamentary factions numbers just 225 People’s Deputies, while 226 votes are needed to pass a decision. 15 The Resolution stipulates that the Ministry of Agricultural Policy is responsible for working out key fields of the agricultural policy (strategy) and mechanisms for its implementation, including drafting of legal and regulatory acts; developing and participating in the implementation of state targeted programs; taking part in elaborating drafts of the State Budget and the government activity program; performing monitoring of markets, working out supply & demand balances for agricultural commodities. Following the grain supply shortages in MY 2003/2004, the Ministry also became responsible for collecting information on the country’s grain stocks and imports needed to set off the shortage; ensuring certification of grain warehouses; keeping a warehouse documents register and guaranteeing grain availability declared by grain storage subjects; coordinating the work of the Agricultural Fund for making up food reserves; ensuring control over quality and safety of agricultural commodities and foods; managing state property within the Ministry’s management domain; participating in the development and implementation of a land protection policy; elaborating technical regulations and standards within the Ministry’s competence; and ensuring the development of biofuel production. 16 They include the Environment Protection Ministry, the Fuel and Energy Ministry of Ukraine, the Industrial Policy Ministry of Ukraine, the Transport and Communication Ministry of Ukraine, the State Committee of Forestry of Ukraine, the State Committee for Water Management of Ukraine, the State Committee for Land Resources of Ukraine, the National Electricity Regulation Commission of Ukraine, the State Committee of Ukraine for Technical Regulation and Consumer Policy, the State Committee of Ukraine for Regulatory Policy and Entrepreneurship, the State Tax Administration of Ukraine, the State Customs Service of Ukraine, the Antimonopoly Committee of Ukraine, the State Committee of Fishery of Ukraine, the State Food Department of Ukraine, and the State Committee of Material Reserves


including the port elevators of Odesa and Mykolaiv, were transferred into the ownership of the state-owned company "Khlib Ukrainy".17 The company was responsible for carrying out state order and state purchases and it operated the mortgage purchase system from 2001 until 2004. After the Agricultural Fund was established, however, the company lost these roles in managing the grain market. The Agricultural Fund, which now executes government interventions in the grain market, operates the mortgage purchase system and administers accumulated food reserves, is not an active subject of agricultural policy.18 The government made several attempts to establish Khlib Ukrainy as a powerful national trader.19 However, the discrimination of private operators which accompanied these attempts ended in August 2005. The company is now rather heavily indebted. Various attempts for restructuring the company by selling parts of the company’s assets have been blocked by the government or the Parliament. There are only a small number of well-established agri-business associations in Ukraine’s grain sector. The legal framework governing associations allows for the creation of associations of any type20. Agri-business associations can be divided in cross-sectoral association (for example, the Farmer Association that comprises not only grain growers but also producers of other agricultural commodities) and sector associations (for example, the Baker Association). Many associations face difficulties trying to develop an equal partnership with the government. Membership is often nominal in many associations and does not involve the payment of membership fees, which undermines the financial viability of the associations’ activities. A list of the most important association is given in Table A.20 of Appendix A. Agri-business associations are involved in grain sector policymaking in various ways. They can participate in grain sector policymaking either through direct influence on executive bodies (for example, by meeting with officials, sending letters to government authorities, conducting media campaigns etc.) or through institutionalized forums such as Ministry Councils and subject-specific consultation and advisory bodies.

Ministry Councils

Ministry Councils are overall ineffective channels for participating in agricultural policymaking. A Council works under each Ministry to consider and approve general approaches to policy issues in the Ministry’s area of competence.21 Representatives of almost all leading agri-business associations presented in Table A.20 of Appendix A are members of the Council under the Ministry of Agricultural Policy.22 Some associations participate in the Councils under other Ministries as well. For example, representatives of the Ukrainian Grain Association are members of the Council under the State Tax Administration23. However, the 17 Created by the government resolution #1000 of August 22, 1996 29 Created by the government resolution #543 of July 6, 2005 "On the Agricultural Fund” 19 The latest of such attempts was the resolution #295-r of July 29, 2005, which gave Khlib Ukrainy export VAT refund preferences and railway carriage discounts. 20 Ukraine’s legislation allows the creation of both associations (the Economic Code of Ukraine) and citizens’ unions (Law of Ukraine "On Citizens’ Unions"). At times, it has been difficult to obtain the non-profit status (item 7.11. of Article 7 of Ukraine’s Law "On Taxation of Enterprise Profits") 21 The operations of the board under the Ministry of Agricultural Policy are governed by Item 9 of the Regulations on the Ministry of Agricultural Policy of Ukraine, which was approved by the government resolution #1541 of November 1, 2006 22 A list of the public council members is available at http://www.minagro.kiev.ua/page/?4243 23 A list of the public board’s members is available at http://www.sta.gov.ua/tax/control/uk/publish/article?art_id=116238&cat_id=101891


impact of these Ministry Councils on the policymaking process is limited. Many government decisions are made without discussing them with the Ministry Councils.

Subject-specific consultation and advisory bodies

Subject-specific consultation and advisory bodies set up by the government allow for a more effective participation in the policymaking process. In relation to the grain sector, the most important of such bodies are the Coordinating Council for Agricultural Policy24 and the Working Group for Grain Market Coordination. Almost all leading agri-business associations presented in Table A.20 of Appendix A are members of these bodies. Through these bodies they are involved in activities such as drafting legislative and regulatory acts and the development of standards. In particular the Working Group for Grain Market Coordination has proven to be an effective tool for developing common positions between the government and the associations. To some degree, these bodies are also instrumental for settling issues among associations25. However, the work of these bodies is very much dependent on the leadership by government staff and is often undermined when membership needs to be re-approved following a change in administration. The government also reaches out to associations individually for certain initiatives. One of the most significant of such initiatives is the “State Program of the Ukrainian Grain Sector’s Development till 2015”, which has been developed by the government in collaboration with the “Ukrainian Grain Association”. Another example is the participation of representatives of the "Ukrainian Club of Agricultural Business" in the Ministry’s Working Group for developing the draft 2009 State Budget. The Working Group allows the association to make proposals for the Budget when it is still in a preparatory stage.

2.1.3. Role of Expert Groups

Though still at an early stage, expert groups are increasingly being engaged in agricultural policymaking. There is a serious shortage of qualified government staff in the fields of economic and market analysis. Most of the expertise in this area is currently concentrated within large agricultural information companies and commodity trading firms. However, government bodies are now starting to engage independent experts in the policymaking process (e.g. through direct contracting or donor projects). Also large agri-businesses and agri-business associations are increasingly turning to outside expertise to support them, for example, in the development of policy proposals that can be used in their dialogue with the government. Overall these developments could contribute to a more technocratic approach to policy issues related to the agriculture sector.

2.1.4. Role of Women

There are no special provisions aimed at enhancing the role of women grain sector policymaking. An overall legal framework and action program for promoting gender equality is

24 Its new membership was approved by the government resolution #185 of March 12, 2008 “On Approving the New Membership of the Coordinating Council for Agricultural Policy” 25 The associations often lobby principally different positions. An example of such a situation is the attitude to imposing grain export quotas, when the associations of grain growers and exporters opposed the quotas regime, while the associations of livestock raisers and bakers supported retention of the quotas


in place in Ukraine.26 It authorizes government bodies to appoint a person (coordinator) responsible for gender issues and to conduct gender examinations of legislative acts. However, the latest organizational chart of the Ministry of Agricultural Policy does not designate any person responsible for the implementation of policies related to gender equality. In general, implementing regulations have been fragmented and many remain unenforced.27 As a result, the real progress in the gender equality development has thus far been limited in Ukraine.

2.2. Public Support Measures

2.2.1 Agricultural budget support measures

Agricultural enterprises have until recently been heavily depended on state support. Before the transition, both input supplies and product sales were performed by state authorities. In the first half of the 1990s, considerable grain volumes were sold to the state under the state order system. Under this system, the government partially prepaid farmers for products which they had to sell in stipulated volumes for an established price after harvesting. However, the system became unsustainable due to insufficient budgetary resources and persistently insufficient farm supplies. The state order system was formally cancelled in 1996-1997, though advancing of grain deliveries to the state continued for a number of years thereafter. Public financing for agricultural support programs was at its lowest in the late 1990s/early 2000s, but increased substantially thereafter as the overall economy recovered. The adoption of the Law “On State Support to Ukraine’s Agriculture” in June 2004 is considered the tuning-point. The Law stopped the decrease in budgetary funding for agriculture and set the basic principles of state support to agriculture, including production subsidies, insurance and credit subsidies, intervention operations etc. The nature and volume of current support programs delivered through the Ministry of Agricultural Policy are given in Appendix C. Taking into account the planned replacement of part of the existing fiscal measures for agricultural producers with budget support programs (primarily in the livestock sector), the total funding for agricultural support programs is expected to rise from roughly UAH 4.1 Billion in 2008 to over UAH 9 Billion in 2009. The section below will review current agricultural budget support measures as they apply to the grain sector.

26 Article 7 of the Law of Ukraine of September 8, 2005, #2866-IV " On Providing Equal Rights and Opportunities to Men and Women" identifies the authorized government bodies in the field of ensuring equal rights for men and women, including: Parliament of Ukraine; the human rights commissioner of Parliament; the Cabinet of Ministers of Ukraine; the special central body for ensuring equal rights and opportunities for women and men; authorized persons (coordinators) in government and regulatory bodies; citizens’ unions. Government resolution #1834 of December 27, 2006 "On Approval of the State Program for Establishing Gender Equality in the Ukrainian Society for the Period till 2010" envisages the development of a plan for conducting gender and legal examination of legislative acts, bringing regulatory legal acts in line with the Law of Ukraine "On Providing Equal Rights and Opportunities to Men and Women", conducting staff reviews of executive authority bodies, and educational initiatives. 27 Ukraine’s government passed a number of acts following the approval of the State Program for Establishing Gender Equality in the Ukrainian Society for the Period till 2010. They include Resolution #504 of April 12, 2006 "On Conducting Gender Legal Examination" and Resolution #1087 of September 5, 2007 “On Advisory Bodies for Issues of Family, Gender Equality, Demographic Development and Human Traffic Prevention". In addition, Resolution #14 of January 16, 2008 The action program "Ukrainian Break-through: for People, not for Politicians" envisages the creation of a National Gender Resource Center along with similar regional centers and the inclusion of a gender component in social and economic development programs.


Production Subsidies

Grain subsidies have overall a limited impact on grain production decisions. Direct support to grain producers in the form of subsidies per hectare of crops began in 2003 as a measure to compensate farmers for the adverse weather conditions they suffered that year. However, they became an independent tool of agricultural policy in 2004. While the list of subsidized crops has changed over time, per hectare payments for crops were made during each of the subsequent years except in 2005.The terms and procedures for supporting crop producers in 2008 were stipulated by the Government in Resolution #256 of February 21, 2007.28 The applicable support rates under this measure are presented in Table A.21 of Appendix A. Given that crop growing costs range between UAH 2,000 - 3,000/ha, the subsidies cover about 3-5% of these cost and even less in terms of per hectare incomes. For most grain crops the allocated subsidy amounts are thus not a critical factor in their production expansion.

Insurance Subsidies

Insurance subsidies fail to promote the development of an agricultural insurance market. The Law “On State Support to Ukraine’s Agriculture” provided for the establishment of an agricultural insurance subsidy fund. It is financed through contributions of both the government and insurance companies. Agricultural producers who wish to insure against agricultural risks (including adverse weather risks) are being reimbursed 50% of the insurance premium they pay to private insurance companies. While UAH 50 Ml was allocated for this program in 2007, the government is projected to allocate UAH 200 Ml29 in 2008 (see Appendix C). However, this support measure has failed to develop a comprehensive system of agricultural insurance in Ukraine. As the government still resorts to compensating (fully or partially) agricultural producer losses caused by natural disasters through the Reserve Fund of the Cabinet of Ministers, agricultural insurance is rendered unattractive to agricultural producers.30 It thus perpetuates a situation whereby similar compensations will continue to be required in the future.

28 Decision on support payments are made by special commissions comprised of representatives of the regional

agro-industrial development departments (agricultural units of local administrations), auditing services, land

resources bodies, agri-business associations and other parties. Applications for obtaining the support are to be

submitted before April 1 for winter crops and before July 1 for spring crops. To be eligible, the agricultural producer

must have no past-due debts (for more than 6 months) to the budgets and target funds. A number of documents must

be included in the application package: statistical forms about crop areas, mineral fertilization, an income statement

for the previous year, and a debt clearance certificate among others. The special commissions review the submitted

application packages and draw up registers of the eligible agricultural enterprises. Amendments to Resolution #256

were introduced by the Government through resolutions #965 of July 25, 2007, #86 of February 22, 2008, #352 of

April 17, 2008, # 584 of June 25, 2008. 29The procedure of using the State Budget’s funding disbursed for cheapening insurance premiums (contributions) actually paid by agricultural market entities was approved by the Government resolution #235 of May 6, 2005 30 The latest instance of such a step was the approval by the Government of Resolution #794 of June 4, 2007 "On

Urgent Measures for Mitigating the Drought Adverse Consequences and Ensuring Accumulation of the Y2007 Crop

Grain Resources”. Following this resolution, the Ministry of Agricultural Policy developed a mechanism of

determining the actual loss incurred by peasants due to adverse weather conditions. The mechanism was established

by the Ministry’s Order #417/180 of June 15, 2007. It was registered in the Justice Ministry of Ukraine on June 16,

2007 #643/13910 and came into force on June 27, 2007. The Order stipulates that the loss size is to be determined

for each crop separately by lost crop areas as a share of the cost of varietal and hybrid seeds used in 2006 for the

winter crop and in 2007 for the spring crop. The Order applied to lost crops of winter and spring wheat and triticale,

winter and spring barley, winter rye, winter and spring rape, sunflower, soy, buckwheat, millet, peas, corn, sugar

beet. The size of losses (as of June 1, 2007) is determined as the difference between the total of growers’ actual costs


Farm Mechanization Subsidies

Farm mechanization subsidies are unsuccessful in modernizing farms and building a competitive machinery building industry. The Law of Ukraine “On Stimulating the Development of National Machine Building for the Agro-Industrial Sector”31 aims to support the upgrading of farms in Ukraine and the development of a domestic agricultural machine building industry. A first support mechanism under the Law partially compensates agricultural producers for the cost of purchasing domestically produced machinery and equipment.32 Under a second support mechanism, the government procures domestically produced machinery and equipment and provides them to agricultural producers on the basis of a financial lease.33 The support mechanisms have been generally ineffective. Insufficient funding has been allocated under the first support mechanism and many agricultural producers have been unable to obtain the necessary financing. In addition, farmers tend to prefer to buy more efficient machinery and equipment manufactured abroad. In 2006, UkrAgroLeasing Company, which carries out the financial leasing operations on behalf of the government, was allowed to purchase foreign machinery and equipment (apart from Ukrainian ones) within allocated funding limits. Overall the subsidy program has not resulted in increased domestic production of agricultural machinery and did not help attract investments from international manufacturers.

Interest Rate Subsidies

Excess demand for interest rate subsidies is likely to arise. The government’s interest rate subsidy program compensates agricultural producers for interest payments made on credits taken from private financial institutions. This program does not have a separate legal basis. Instead, it is financed through financial allocations under each Law of Ukraine on the State Budget.34 The funding under this program has steadily increased in recent years. In the period 2007-2008 they grew from UAH 0.67 Billion to UAH 1 Billion. It is expected that UAH 1.2 Bl will be provided under the 2009 State Budget. Unlike the farm mechanization program, financing under the interests rate subsidy program allows the purchase of foreign machinery and equipment35. In

for varietal and hybrid seeds used on the lost areas (but not higher than standard costs) and the total of insurance

indemnity under crop insurance agreements. The applications for assessment of damages are submitted to special

commissions established by the districts’ agricultural development departments in drought-affected regions. 31 # 3023-III of February 7, 2002 32 The Law stipulates that Ukrainian raw materials, spares and components must account for more than 50% of the cost of the machinery and equipment in order to be classified as a domestically produced good. The terms for this measure were approved by Order #236 of July 14, 2003 of the Ministry of Agricultural Policy. The Order was registered in the Justice Ministry of Ukraine on July 28, 2003 under #648/7969. The procedure of using the State Budget’s money allocated for partial compensation of the cost of Ukrainian - made complex agricultural machinery was approved by the Government resolution #959 of July 28, 2004 On Approving the Procedure of Using the State Budget’s Money Allocated for Partial Compensation of the Cost of Complex Agricultural Machinery of National Production” 33 The procedure for purchasing domestically produced machinery and equipment for the agriculture on the financial leasing terms was approved by the Government resolution #1904 of December 10, 2003. 34

The procedure of using money under this program was approved by the Government resolution #126 of February

27, 2008 “On Approving the Procedure of Using Money Provided by the Y2008 State Budget for Financial Support to Agro-Industrial Enterprises through the Credit Cheapening Mechanism” 35 The list of such machinery was approved by the Order # 648-r of April 17, 2008 “On Approving the List of New Agricultural Machinery and Equipment of Foreign Production Whose Analogues Are Not Produced in Ukraine and Which are Bought by Agricultural Enterprises in 2008 Using the Credit Cheapening Mechanism”


previous years, the program included limits on the maximum interest rates applicants can take on credits. However, the government decided to remove these limits in 2008 in light of the worsening situation in Ukraine’s credit markets36. As a result, it can be expected that demand from agricultural producers will soon exceed the allocated budget resources and questions with respect to the distribution of the limited resources will emerge.

Intervention operations.

The Agricultural Fund and the State Committee for Material Reserves are the principal government instruments for grain market interventions. The Law of Ukraine "On State Support to Ukraine’s Agriculture” regulates the conduct of commodity market interventions. Following the harvesting campaign, the Agricultural Fund typically purchases commodities to which the state price regulation is applied37 and sells them in the latter half of the season if domestic supply runs short. State reserves, on the other hand, are stockpiled by the State Committee for Material Reserves. As a rule, central authorities recommend the regional administrations to ensure the accumulation of a three-month irreducible stock of food grain. Normally the state reserves are to be used in case of a mobilization situation only. As a result, these stocks are purchased and sold mostly for refreshment.38 However, after the legislation was amended in 200439, the State Committee for Material Reserves can also take measures for stabilizing the market of strategically essential products on the basis of a decision by the Cabinet of Ministers.40 The Cabinet has availed itself of this possibility in the past.41 Grain market interventions have generally been unable to offset serious price fluctuations. The legislation42 specifies accumulation rates for the commodities to be stockpiled in the food reserves under given price regulations (see Appendix A, Table A.22). However, provisions have never been fulfilled since the approval of the Law of Ukraine "On State Support to Ukraine’s Agriculture”. The Agricultural Fund’s grain stocks have not exceeded 500 KMT since its creation, i.e. roughly 6% of the estimated domestic food consumption of grains. In MY 2004/2005 the grain market state agents (mostly the State Committee for Material Reserves) bought 3rd grade wheat for UAH 800/MT43 ($158/MT) while market prices dropped far lower. A similar situation may repeat itself in MY 2008/2009. The government has set this year’s minimum procurement price for 3rd grade wheat at a level of UAH 1251/MT (including VAT) EXW44. However, wheat prices had neared this point as early as the middle of July and keep falling. For MY 2008/2009, the government has approved the purchase by the Agricultural Fund of 803 KMT of wheat, 78 KMT of rye, and 278 KMT of beet sugar.

36 Amendments were made by the Government resolution #561 of June 18, 2008 37 A list of such commodities is determined by item 3.3.1 of Article 3 of the Law of Ukraine “On State Support to Ukraine’s Agriculture" 38 Item 2 of Article 12 of Ukraine’s Law “On the State Material Reserves” 39 Item 5 of Ukraine’s Law “On Amending Some Legislative Acts of Ukraine”, 1713-IV of May 12, 2004 40 Item 4 of Article 8 of the Law 41 For example, the resolution #532 of April 28, 2004 “On Procurement of the Y2004 Crop Food Grain” was passed with this purpose, providing for the purchase of 1 MMT of grain by the State Committee for Material Reserves. 42 Item 9.3.1 of Article 9 of the Law of Ukraine “On State Support to Ukraine’s Agriculture" 43 http://www.apk-inform.com/showart.php?id=16849&sid=584097&markup=0&?&sections=1&search=800%20грн/т&mode=2&ds=1&d1=14.04.0208&d2=21.07.2008&start=81 44 Approved by the Agriculture Ministry’s Order of February 27, 2008 #96 (registered in the Justice Ministry on March 13, 2008, #206/14897) “Issues of the Agricultural Fund’s Activities on the Organized Agricultural Market in the Marketing Year 2008-2009”


2.2.2. Administrative measures

Local administrations can control flour/bread margins in the bakery sector. Local administrations are allowed to set maximum margins for bakeries. Typically, 10% is the maximum margin, 5% is commonly used, and there are cases in which margins are smaller than 5%.45 In addition, local administrations provide subsidies to bakeries to ensure so that they can purchase cheaper grain/flour early in the season.

Export quotas were the government’s primary response to rising food prices. Due to the market interventions’ ineffectiveness in influencing grain prices described above, the government turned to administrative measures such as export quotas on grains and oilseeds to stem the rising food costs observed since mid-2006, and which accelerated dramatically towards the end of 200746. Although the measures had some effect in slowing down the growth rate of grain prices, they could not stem the overall upward price trend.

The decision-making process in regards the grain export quotas provoked criticism by agricultural producers and traders. The rapid replacement in the first half of October 2006 of automatic licensing of wheat exports by non-automatic licensing for wheat, barley, corn and rye took many producers by surprise. A draft resolution had not been published by the Ministry of Economy in the timeframe required under Ukraine’s legislation on regulatory policy. The measure effectively undermined the execution of export contracts that had already been signed. Despite attempts to judicially contest the decision47, the government retained the quotas regime in the domestic market throughout both MY 2006/2007 (with short interruptions) and MY 2007/2008. The process of distributing export quotas provides strong incentives for rent-seeking.48 A call for applications for export quotas is normally announced by the Ministry of Economy. Following the announcement, traders have to submit their application packages (within 11 days) that include copies of export contracts, a state registration certificate and a certification from the Ministry of Agricultural Policy that the trader is in possession of the grain. Upon review of the applications, a special commission distributes the available quota to the traders in proportion to the requested volumes. Introducing export quotas in the future will be limited by WTO requirements. As a WTO member, the government can impose export quotas on agricultural products only in the case of proven threats to food security. In addition, it needs to notify trade partners in advance through

45

The World Bank, Competitive Agriculture or State Control: Ukraine’s Response to the Global Food Crisis, Sustainable Development Unit – Europe and Central Asia Region, Washington DC, p8 46 The Law of Ukraine “On Foreign Economic Activity” includes provisions allowing the imposition of export quotas on certain goods. Specifically, it provides for the possible introduction of automatic licensing (the license is issued automatically if the documents are submitted correctly) or non-automatic licensing (with establishing certain volumes of quotas). The grounds for introducing export restrictions can be “a significant disbalance with regard to certain goods in the domestic market”, including agricultural products. Although this provision stipulates that restrictions can be introduced when a disbalance is present in the domestic market, it has been suggested that restrictions can also be introduced in the event of an essential risk of a disbalance. 47 http://www.uga-port.org.ua/cgi-bin/valnews_portal.sh?lpos02006101924.shtml 48 The process is governed by Regulation#1179 of October 26, 2007, with changes and amendments of April 23, 2008.


the WTO Committee on Agriculture. To these ends, the Law of Ukraine “On State Support to Ukraine’s Agriculture” was amended.49 The limits on the administrative regulation of foreign trade operations are aimed at making international agricultural markets work in a more predictable manner.

2.2.3. Fiscal measures

Fiscal benefits are more important for agricultural producers than the agricultural budget support they receive. It is expected that the total amount of tax benefits to agricultural producers will exceed UAH 8 billion in 2008’, far higher than the UAH 4.1billion worth of funding provided under the agricultural budget support measures (Appendix A, Table A.23)

VAT exemptions

Agricultural producers have benefited from significant VAT exemptions.50 Three types of VAT exemptions are granted to agriculture: (i) a zero VAT rate is applied to producer sales of milk and meat to processing plants; (ii) VAT amounts due to be paid by milk and meat processing enterprises are to be used for subsidies to agricultural producers proportionally to their raw materials contributions; and (iii) VAT generated from agricultural produce sales remains on agricultural producer accounts to be used for production purposes. The total amount of VAT benefits for agricultural producers came to UAH 5.71Billion in 2007 and it is expected to reach UAH 7 Billion in 2008. According to some estimates, these benefits exceed the State Budget’s revenues from VAT, which is one of the most important taxes contributing to the budget.51 In 2007, VAT accounted for 35.8% of the State Budget’s revenues52. The continuation of these benefits has been uncertain for a number of years. Despite the government’s efforts to introduce a reduced VAT rate for agriculture, the Parliament has prolonged the VAT exemptions every year since 2000. According to the current Law “On Value - Added Tax”, they would remain valid until January 1 of the year next to the year of ratification of the WTO entry protocol by Ukraine’s Parliament. In other words, they were scheduled to expire on January 1, 2009. The differences between the current and future VAT regime have been summarized by the World Bank in Table A.24 of Appendix A. It is expected that the new VAT regime will be neutral in terms of its impact on the budget and the overall demand for agricultural products. However, the new regime is likely to increase the complexity of accounting due to the different VAT rates. In addition, many grain producers are expected to be taxed, in particular those that cannot offset the 9 percent VAT charged on outputs by 20 percent of VAT charged on inputs.53 Persistent arrears of VAT refunds provoke much criticism, in particular among agricultural exporters. Though not exclusively, the main burden of VAT refund delays is borne by agricultural exporters. A typical export company in Ukraine loses an estimated 10% of the export price due to the VAT refund delays (see Table A.25 in Appendix A). These losses are transmitted to domestic producers in the form of reduced purchasing prices. The government has

49 Law of Ukraine “On Amending the Law of Ukraine “On State Support to Ukraine’s Agriculture” #401-V of November 30, 2006 50 Law “On Value - Added Tax”. 51 Estimate of the project “Reforming in the Agricultural Sector, Improvement of Legal and Regulatory Grounds” 52 http://www.minfin.gov.ua/file/link/99073/file/Budget_2007.pdf 53 The World Bank (2006), Improving Agricultural Fiscal Policy in Ukraine, Sustainable Development Unit – Europe and Central Asia Region, Washington DC, p15-p16


made efforts to pay off the VAT refund indebtedness. VAT refunds almost doubled during the first 6 months of 2008 – up to UAH 16.9 Billion compared with UAH 18.9 Billion for the whole year of 200754. Total VAT refunds to the agricultural sector amounted to UAH 1 Billion55 during this period. Macroeconomic conditions contributed significantly to this development.56 Nonetheless, VAT refund debt amounts remain high and are now estimated at UAH 7.9 Billion (including UAH 3.6 Billion of overdue indebtedness)57. A settlement on VAT refunds is hampered by poor coordination among state authorities, complicated taxation procedures, difficulties in tracing VAT payments in fragmented agri-food supply chains, and misconduct among tax authority officials.

Fixed Agricultural Tax (FAT)

The benefits of the Fixed Agricultural Tax (FAT) will continue to decrease in the future. The FAT was introduced in 1999 to substitute for 12 other direct taxes and levies (profit tax, personal income tax, land tax, local taxes, Pension and Social Fund fees, etc.) from which agriculture is exempted. This brought significant tax savings to agricultural producers. Livestock producers have tended to benefit more from the FAT as the tax is determined on the basis of land values as of July 1997. In 2005, however, the contribution to the pension fund was excluded from the FAT and the tax rates of the FAT were reduced. Since then, the benefits of the FAT have gradually declined. Though the precise benefit is difficult to determine, the total benefit to agricultural producers was estimated to equal around UAH 1.17 Billion in 2008.58 The pension insurance payment rate for agricultural producers equaled 60% of the regular rate in 2008. The rate will rise by 20% annually in the future until reaching the common rate of the compulsory state pension insurance fee59. The FAT will remain operational until the end of 2009.

2.3. Impact of EU integration and WTO Membership

Strategic priorities with respect to EU integration have changed in recent years. In the period 2004 – 2005 the government declared the ambitious plan to accede to the EU before 2015. Since then, the government’s objectives have been modified. Today the government aims to successfully negotiate a Free Trade Agreement (FTA) with the EU that would establish an expanded free trade zone (so-called FTZ+) with a minimum number of exceptions. The negotiations are still ongoing and are not expected to finish before the end of 200960.

54 http://www.sta.gov.ua/tax/control/uk/publish/article?art_id=127802&cat_id=45661&search_param=%D0% B2%D1%96%D0%B4%D1%88%D0%BA%D0%BE%D0%B4%D1%83%D0%B2%D0%B0%D0%BD%D0%BD%D1%8F+%D0%9F%D0%94%D0%92&searchForum=1&searchDocarch=1&searchPublishing=1 55 http://www.sta.gov.ua/tax/control/uk/publish/article?art_id=127683&cat_id=90622&search_param=%D0%B2% D1%96%D0%B4%D1%88%D0%BA%D0%BE%D0%B4%D1%83%D0%B2%D0%B0%D0%BD%D0%BD%D1%8F+%D0%9F%D0%94%D0%92&searchForum=1&searchDocarch=1&searchPublishing=1 56 According to the State Statistics Committee, the import of goods to Ukraine increased by 50% in January - April 2008 compared to the same period last year. The export volume, on the other hand, gained just 31%. And the commodity trade deficit rose to $7.4 Billion56. As a result, value - added tax revenues from imports increased faster than expenses for VAT refunds to exporters. Furthermore, retail volumes have been expanding, growing from UAH 131 Billion between January - June 2007 to UAH 200 Billion between January - June 2008 (by almost 53%). Since VAT is a consumer tax, this contributed to greater revenues to the Budget as well. 57 http://www.top.rbk.ua/ukr/newsline/2008/06/26/388716.shtml 58 Law of Ukraine “On State Budget for 2008” 59 Item 1 of Article 4 of Ukraine’s Law “On Compulsory State Pension Insurance Fee” 60 http://pinchukfund.org/uk/news/archive/2008/07/11/822.html


An expanded free trade zone with the EU could improve market access for Ukrainian grain exports. Ukrainian grain exports to the EU fluctuated considerably between 2000-2008 (see Appendix A, Figure A.29). Prior to 2003, the EU import tariffs applied to grain imports were determined using the Margin of Preference formulae agreed as part of the WTO agreement. The latter established tariffs as the difference between 155% of the intervention price and the border price (including transportation costs) of imported grains from North America. Following the dramatic increase in Ukrainian wheat exports in 2002, the EU replaced its existing import tariffs on grains with a tariff quota system. In January 2003, tariff quotas of 2.981, 0.30 and 0.05 million tons were introduced for low and medium quality wheat, feed barley and malting barley respectively; compared to total import volumes of 13.95 million tons of wheat and 1.23 million tons of barley in 2002.61 Compensation was provided by splitting the quota among traditional suppliers that are WTO members, including Canada and the US, and “third countries” (mainly Ukraine, Russia and Kazakhstan). Since Ukraine was not a WTO member at that time, it did not receive any compensation. The tariff quotas have been marginally increased since 2003 to take into account the accession countries to the EU. In 2009, the “third country” quotas are as follows: • Low and medium quality wheat – 2.3 million tons per year at a tariff of €12 per ton • Barley – 306,000 ton per year at a tariff of €16 per ton • Corn – 242,000 ton per year at a tariff of €0 per ton The tariff quota system is vulnerable to misuse. The quota is split into quarterly tranches which run from the 1st of January, April, July and October. Import traders must apply for licenses on a weekly basis and pay a fee relative to the volume of imports requested. The EU then assigns the licenses on a proportional basis to the size of the application. If supply meets demand, the license requests are granted in full. However, if demand outstrips supply, the licenses granted will be lower. This system has been vulnerable to abuse. Assuming that the EU will only license a fraction of their application, traders have submitted applications greater than their planned import volumes. In the event the EU licensed the full application, the trader is unable to fulfill the contractual obligation to import the volume granted by the license. In recent years, the EU has tightened its regulations governing the tariff quota system in order to prevent such misuses. Provided it effectively removes current EU tariff quotas and export subsidies, the establishment of a free trade zone between Ukraine and the EU could enable increased Ukrainian grain exports. Ukrainian grain export levels since the tariff quota system was introduced have been substantially lower than their peak in 2002 (see Appendix A, Figure A.29). Many grain exports have been diverted to traditional EU export markets, such as the North Africa region. The effective liberalization of grain trade between the EU and Ukraine could allow Ukraine to supply feed wheat deficit markets in Southern Europe in the event EU intervention stocks are tight. EU intervention stocks tend not to increase in years with lower crop harvests as the market price is set higher than the floor intervention price. In addition, the EU has been tightening its regulations governing market interventions. WTO requirements will condition the future policy environment for the grain sector. Following its WTO membership, Ukraine can access to the WTO’s trade dispute settlement mechanisms, actively participate in multilateral trade negotiations, and consider membership 61 The tariff is set at 12 Euros per ton for low and medium quality wheat within the quota and 95 Euro per ton

outside of the quota which renders the crop prohibitively expensive.


applications of countries intending to join the WTO. At the agricultural policy level, WTO membership will result in the following key changes:

• The size of the Aggregate Support Measures will be limited to UAH 3.043 Billion. When the WTO’s de-minimus rule is applied to the financing of both product and non-product support measures62, this limitation will have no immediate impact on current support levels to the agricultural sector, including the grain sector, in the context of high world prices for agricultural products. However, the future growth in budgetary expenditures for programs that fall under the WTO’s Amber box of trade distorting support measures will be limited.

• Grain import tariffs will be reduced by 10-15%. The government has already implemented these required cuts, though administratively not in a fully satisfactory manner63. The size of the required cuts differs for the different grain crops (see Appendix A, Table A.26). The reductions are expected to have a limited impact on the grain market given Ukraine’s status of net grain exporter. In addition, the grain trade with Russia and Kazakhstan, the two main sources of grain imports into Ukraine, is already governed by Free Trade Agreements. In regards the livestock sector, however, reduced import tariffs will makes imported meat products much more competitive (see Appendix A, Tables A.27 and A.28). The increased competition may limit the future growth of the livestock sector and hence domestic demand for feed grains. Initial trade data show that import of meat products increased by 50% in the first six months of 2008 compared to the same period in 2007.

62 Item 6 of Article 6 of the WTO Agriculture Agreement 63 The Parliament adopted the draft law #2351-1 of May 13, 2008 which provides for the cutting of import duty rates. However, as the law did not fully comply with the WTO commitments of Ukraine, the President vetoed the law. Since Ukraine’s membership to the WTO, the import duties are regulated by the Letter of Ukraine’s State Customs Service of May 15, 2008 #11/1-14/5335-EP. According to the letter, the duty rates determined by Appendix 1 to the Protocol on Ukraine’s entry into the WTO are applied to goods originating from the countries to which Ukraine grants the most favored nation status.


PART III. KEY SECTOR CONSTRAINTS

The grain sector has strong growth potential. High global food prices pose a major opportunity for Ukraine. It is one of the few grain exporting countries which through increased acreages and yields (combined with relatively stable domestic consumption) can generate large exportable surpluses and hence increase its share in the global grain market. In addition, the more open trade environment that will be created through Ukraine’s WTO membership and its ongoing integration process with the EU can be expected to improve the overall market access for Ukraine’s grain exports.64 It will also help improve the grain sector’s overall growth and competitiveness by attracting increased foreign investments, facilitating the introduction of new agricultural practices, and make imported machinery, equipment and inputs more affordable. Some promising trends can be observed. The structure of the agriculture sector in Ukraine has undergone substantial changes in recent years. Large-scale, modern, private agricultural producers are gradually displacing less efficient traditional participants. The data presented in Table A.30 of Annex A shows this ongoing commercialization process within the agriculture sector. While the total number of medium and larger agriculture enterprises dropped in the period 2003-2006, the average farm size increased by 13 percent. Output, productivity, and profitability levels in several crops can be expected to improve due to increased use of key agricultural inputs, increasing investments in farm machinery as well as quality seeds by these operators. For example, the application of mineral fertilizers is predicted to increase 3-5 times by 2015. However, in order to realize the grain sector’s full potential a number of structural constraints at both the farm- and government-level will have to be removed.

3.1. Farm-level constraints Grain yields have suffered from low investments in recent years. The ineffectiveness of the government’s grain market intervention and the imposition of administrative measures such as grain export quotas to stem rising food prices have depressed domestic farm-gate prices and caused significant uncertainty in the market. Grain producers have responded to the declining profitability of grain production primarily by reducing investments and (to a lesser degree) adjusting seeded areas. Table A.31. in Appendix A demonstrates how declining yields resulting from lower investments have been closely linked to declining margins in grain production: if the grain growing margin sinks in the current year, yields decreases in the next one; and vice versa. This trend makes grain production more vulnerable to adverse weather conditions and undermines the further expansion and improved productivity levels in the sector. The unfolding global financial and economic crisis is likely to limit future on-farm investments in the grain sector. Although the crisis has not significantly affected the winter and spring crops in MY2008/09 (winter crops had largely been planted before the crisis started in October 2008 and mostly oilseeds that have relatively low inputs and cash outlays will be planted in spring 2009), it is expected that future grain yield improvements and expansion of seeded areas will suffer as a result of the the limits the crisis imposes on farmers’ ability to buy

64 On May 16, 2008, the Verkhovna Rada of Ukraine ratified the Protocol on Ukraine’s entry into the WTO. Ukraine intends to seek the creation of a deepened free trade zone with the EU that will include not only free movement of goods but also unification of many regulatory procedures; an agreement on establishing the FTZ is expected to be signed in 2010-2011


good quality seeds and fertilizers and invest in land, machinery, logistics, storage and processing capacities. Poor infrastructure raises marketing costs. Better infrastructure is needed to allow grains to be efficiently exported from Ukraine to the world market and to prevent bottlenecks. In addition, a reduction in marketing cost is needed to limit post-harvest losses and generate higher farm-gate prices for grain producers. However, the following elements continue to hamper logistics in Ukraine:

• Roads: Within a 250-300 km radius from the ports, delivering grain by trucks is more profitable for grain owners. However, the current quantity and quality of access roads toward ports do not allow for increased goods traffic.

• Railways: Transportation is constrained by a shortage of railcars. UkrZaliznytsya (the state railway monopoly) has tried to address the problem by raising fines for downtime of railcars to quicken their turnover. However, it will be impossible to resolve this problem in the future without a substantial increase in the grain carrier number.

• Ports: Both public and private investments continue to be made in Ukraine’s ports. The ports currently allow the handling of an estimated 24-26 MMT of grain. Transhipment capacities are thus expected to satisfy the demands of future Ukrainian grain exports, though problems may still emerge at the time of peak shipments (August - October).

• Storage/Drying: Many grain producers are currently forced to turn to expensive elevator services for storage/drying. Ukraine’s grain storage capacities are currently estimated to total around 30 MMT.65 These are sufficient to meet demand for storage, but problems emerge in peak crop years. Rising tariffs during peak loading periods badly affects grower incomes. A number of agricultural enterprises have thus begun constructing own elevators.

Compliance to international food safety, phytosanitary measures and quality standards is becoming more important. To seize the increased market opportunities resulting from Ukraine’s WTO membership and its integration process with the EU, agricultural producers in Ukraine will need to invest in new technologies for product safety and quality to comply with international standards. The latter are playing an increasingly important role in international trade, including grain trade. Non-compliance with international standards effectively constitutes a non-tariff barrier to trade in the importing markets. There have been precedents when these issues created problems for exporters to the EU, Brasil, the United States and other trading partners. Although the necessity of restructuring is most evident in the livestock sector, grain producers will have to adapt as well. For example, corn quality is a limiting factor for faster export expansion. Insufficient access to financial and risk management services remains a problem for many producers. Despite several initiatives aimed at developing credit, commodity exchange, and insurance markets in Ukraine, agricultural producers’ access to these services continues to be constrained:

• Credit: The introduction in 2002 of a system of warehouse receipts for grain was in part aimed at improving access to private credit resources by allowing grain producers to use grain as collateral for loans or sell, trade or use the receipts for delivery against financial

65 659 grain storage enterprises were in Ukraine in 2007 with their total capacity amounting to 30.8 MMT, compared to 606 between 2000-2001.


instruments such as futures contracts. However, the system is still facing a number of challenges that continue to limit farmers’ access to credit by undermining financial institutions’ trust in the system, including:

o Contradictions in the legal framework: Rights, liabilities, and duties of each party to the single and double warehouse receipt (producer, warehouse, bank etc.) are defined differently under different laws in Ukraine. Table A.32 in Appendix A summarizes the contradictions between the Law “on Grain and Grain Market in Ukraine” and the Law “on Certified Commodity Warehouses and Simple and Double Warehouse Certificates”.

o Inadequate monitoring system: These are still no independent mechanisms for verifying the quality and quantity for the stored commodities

o No reliable performance guarantees: Holders of warehouse receipts do not receive adequate compensation if the stored goods do not match with what is specified in the receipt (due to either negligence or fraud).

• Futures exchange market: Agricultural market operators cannot hedge effectively against price fluctuations using futures contracts due to the absence of a well-developed futures exchange market. Although Ukraine has 30 exchanges that declare trade in agricultural products66, in reality the exchanges are either engaged in activities not related to the grain market or fully depend on decisions of government bodies. Although the government established an Agricultural Exchange, the latter cannot be considered an exchange in the classical sense of the word. Rather, it constitutes a focal point for registering the Agricultural Fund’s contracts. The Agricultural Exchange’s activities are thus largely determined by the Agricultural Fund. In these conditions the exchange fails to attract private investors by limiting the liquidity of exchange contracts.

• Insurance: Despite the government’s insurance subsidy program, agricultural producers mostly opt out of paying premiums for private crop insurance because they do not expect that any claims will be paid in the event of crop failures. In addition, the government’s compensation programs for farmers affected by adverse weather conditions remove important incentives to participate in private crop insurance schemes. This situation keeps agricultural producers vulnerable to adverse weather conditions while perpetuating public expenditures under the government’s compensation program.

Preconditions for efficiently functioning land markets are not in place. The development of land markets in Ukraine is hindered by the absence of an appropriate legal and regulatory framework and the subsequent continuation of the moratorium on land sales. Key primary legislation such as the Law “on land market” and the Law “on state land cadastre” has not yet been approved by the Parliament. In addition, despite the fact that proper legal provisions are in place, unified electronic property and land registration systems are still not operational and the delimitation of state-owned and community-owned lands has not been implemented. Overall the process for registering land and land lease agreements is both cumbersome and expensive. As a result of these constraints and a generally weak governance environment, land ownership rights remain uncertain in Ukraine. This condition not only prevents formal land markets to take off, but also further constrains agricultural producers’ access to credit by undermining their use of land as collateral. This limits the commercialization process of the agricultural sector in Ukraine, which thus far has been supported by the growing land lease market.

66 http://www.sabu.org.ua/members/list.php


3.2. Government-level constraints

The government lacks a coherent vision for the development of the agriculture sector in Ukraine. Despite a number of recent strategic programming initiatives67, the government has not yet developed a broadly shared understanding of the formation and development of agricultural markets and the role public policies and investments should play in promoting them. As a result, agricultural policy in Ukraine in recent years has mainly been reactive and actions of different government bodies have been subject to a substantial degree of arbitrariness. Growth-enhancing investments are insufficiently promoted through current public expenditures on agriculture. Public spending on agriculture, including agricultural budget support measures and fiscal measures, has grown considerably in recent years. In regards to agricultural budget support measures, those measures classified as “non-market distorting” have increased from 47.2% in 2007 to 55.6% in 2008. However, substantial resources are allocated to market interventions under this window, while budget support measures for on-farm investments, public goods (such as research and development, education, and training), and rural development, through increasing, remain relatively low. As such measures have a greater impact on sector growth and competitiveness, the overall effectiveness of budget support measures remains small. It should also be underlined that the public support programs are generally difficult to access by small farmers. As a result, a significant share of the benefits accrues to the largest agricultural enterprises. In regards to fiscal measures, the export VAT refund delays negatively impact farm incomes as traders and processors include risk premiums in their purchase price negotiations with farmers. Market interventions do not stabilize grain prices. The reasons for the ineffectiveness of the government’s market interventions are multifold. First of all, budgetary funding for the interventions is either too low or not disbursed in due time (see Table A.33 of Appendix A). Second, the intervention activity procedures (e.g. interventions beginning date, criteria for purchases in case of short funding) are poorly described in Ukraine’s Law “On State Support to Ukraine’s Agriculture”. Third, the alternation of the intervention mechanisms (see Table A.34 of Appendix A) used by the government, the different state agents receiving priority financing for the interventions, and the annual changes in the list of commodities covered by state price regulations send distorting signals to the market.68. Generally, there is no information from

67 The government has established a program for the ‘Agroindustrial Complex and Development of Rural Areas’. This program is based on the three pillars (i) rural development, (ii) competitiveness of agriculture, including quality and safety issues, and (iii) natural resource management and environmental sustainability. In addition, the Ministry of Agricultural Policy has drafted a national program for rural development until 2015 aimed at “enhanced competitiveness on domestic and foreign markets, ensuring food security for the country, and the preservation of rural way of life and peasantry as the carrier of Ukrainian identify, culture, and spirituality.” 68 Changes in the intervention regime corresponded with changes in the goals of the interventions. In the period 2001-2005, supporting farm incomes was a priority. As a result, mortgage purchases were the government’s preferred intervention tool as it allowed farmers to redeem grain and to sell it for higher prices in the market in case of their seasonal rise. While the State Reserves made grain mortgage purchases through tenders in 2004, the Agricultural Fund made the purchases during the following year through the Agricultural Exchange. As international commodity prices increased, it became less critical to support farm incomes. The government subsequently turned to intervention purchases that assured accumulation of state food reserves in the event of a grain shortage in the market. Both intervention and mortgage operations were used in MY 2006/2007, but only intervention ones in MY 2007/2008. Intervention and forward purchases are now envisaged in MY 2008/2009 and proposals to renew mortgage operations are emerging.


whom and at what price grain purchases are made. All these factors contribute to a non-transparent operation of the government’s grain market interventions. Administrative measures deter private investments in grain sector development. As explained earlier, export quotas distort market signals by depressing farm-gate prices (and hence grain gross margins) and by introducing uncertainty into the market. They thus undermine an effective supply response by producers to increasing international commodity prices by deterring private investments in additional grain production. In addition, they render the government’s agricultural budget support measures to the sector ineffective. In fact, these measures cannot compensate for the losses imposed on farms as a result of depressed farm-gate prices. As such, the government’s agricultural budget support policy and its trade/price policy work at cross-purposes. VAT expenditures have an adverse impact on the agriculture sector. Given that VAT expenditures are coupled to the level of production, the benefits have accrued to a small, well-connected group of large agricultural producers. In addition, they have created a significant economic distortion by increasing the tax burden on non-farmers. If the foregone fiscal revenues would be directed towards more growth-enhancing investments, they would generate significantly higher returns. Public services to agriculture fail to support grain sector growth and competitiveness. Key public services to agriculture such as agricultural information, research and education, extension and advisory services, and food safety and quality control systems are inadequate:

• Agricultural information: Good market information, especially on prices and crop forecasting, is essential for adequate decision-making on the part of the government, farmers, financial institutions, and processors. However, untransparent price formation as a result of information asymmetries continue to depress farm-gate prices. In addition, current information on grain supply and demand balances (S&D balances) cannot be used for reliable crop forecasting mainly due to the absence of a uniform methodology for calculating S&D balances and formal procedures for approving and using S&D balances. Currently, data on grain stocks are prepared by a variety of actors, including the Ministry of Agricultural Policy, State Statistics Committee, Economy Ministry, international organizations, and private consulting firms.

• Research and education: Ukraine’s knowledge system continues to suffer from excess human and physical capacity that is difficult to maintain under the current operational budget levels. As a result, the system is unable to develop and deliver the technologies and skills required for a competitive agricultural sector.

• Extension and advisory services: Public extension and advisory services have historically been underfunded and are further constrained by producers’ unwillingness to pay for their services. As a result, they are currently unable to deliver the technical support needed by producers and processor to face up to the challenge of an increasingly competitive market environment. New emerging needs include support in preparing application packages for public support programs, developing business plans, introducing good agricultural practices, complying with international food safety and quality standards etc.

• Food safety and quality control systems: Current food safety and quality control systems are ineffective and limit grain sector growth and competitiveness. Despite ongoing government actions, domestic food safety and quality standards remain insufficiently


aligned with WTO and EU standards.69 Appendix D and E provide an overview of the existing gaps as they relate to the grain sector. Remaining GOST standards are not recognized in market economies and they reduce export competitiveness because they give producers little flexibility to follow market trends. Inefficient food safety control and quality assurance systems, which are characterized by multiple inspections, arbitrary compliance procedures, and weak laboratory services, further constrain the sector. These conditions not only restrict access to foreign markets such as the EU, but also prevent private investments in the introduction of new technologies.70

69 The alignment process started with the passing of the Laws of Ukraine “About Standardization” (Vestnik of Supreme Soviet of Ukraine, 2001, #2408-III) and “About conformance verifying” (Vestnik of Supreme Soviet of Ukraine, 2001, #32). In 2005, the Law of Ukraine “About standards, technical agenda and conformance estimates procedures” (Vestnik of Supreme Soviet of Ukraine, 2005, #3164-IV) was passed. The alignment process will continue to be supported in the context of the Partnership and Cooperation Agreement between Ukraine and the EU, which has been in force since March 1, 1998. 70 M.Betliy, O.Borodina, S.Borodin and others; O.Borodina as editor, “Ukrainian Rural Sector on the way to Europe agglomeration”, Uzhgorod: IBA, 2006


PART IV. PRIORITY RECOMMENDATIONS FOR A PUBLIC-PRIVATE DIALOGUE

A shared action strategy aimed at removing structural constraints facing the grain sector is needed. In order to realize the potential of the grain sector in Ukraine, the government and private grain sector stakeholders need to establish a structured dialogue aimed at developing a shared action strategy for the promotion of grain sector growth and development. The dialogue should center upon the following priority actions:

1. Alignment of public support programs to the grain sector with WTO requirements 2. Removal of potential barriers to future grain trade between the EU and Ukraine 3. Creation of a single transparent government grain production, use and trade information

system

4.1. Alignment of public support programs to the grain sector with WTO

requirements Shift resources away from market-distorting support measures that undermine the long-run competitiveness of the grain sector. WTO membership provides an opportunity to establish an incentive framework that is more effective in resolving the structural constraints faced by the grain sector by enabling private sector-led growth and competitiveness. In line with WTO requirements, the government should phase out most of its current subsidy programs that currently fall under the WTO’s “amber box” of market-distorting measures and replace them by less market-distorting “green box” measures. Specifically, the government should shift its crop production-linked support to farmers to direct payments that are decoupled from crop choice. The same trend has been observed in recent Common Agriculture Policy (CAP) reforms of the EU. In addition, the government should continue increasing budgetary resources in farm investment programs, rural development, and public services. Farm investment programs should function as competitive grants programs that co-finance on-farm investments by farmers financed both from their own and credit resources. Rural development programs, on the other hand, should focus on promoting income diversification in rural areas through investments in their social and physical infrastructure. Importantly, international experience has shown that rural development investments generate the highest returns when local authorities, communities, and private sector can actively participate in their planning and implementation. Refrain from direct interventions and controls in the grain market. The government should remove its controls on margins in the bakery sector. In addition, it should avoid resorting to market distorting measures such as export restrictions when trying to stabilize commodity markets. Less distorting alternatives such direct transfers to low-income social groups could be used by the government when trying to address the social impact of high food prices. End the current tax benefits for agriculture. The government should end the VAT exemptions for agricultural producers and introduce the reduced VAT rate for agriculture. It should also address the export VAT refund arrears through practical measures such as simplified export VAT refund procedures, the establishment of a special fund for VAT refunds, allowing non-refunded export VAT to be deducted under other taxes and duties etc.


Address the weaknesses in the way public support programs are planned, implemented, monitored and evaluated to improve the impact of public expenditures. A more coherent and strategic approach is needed to link policy objectives with the budget process. In this context, the government needs to consolidate existing plans and programs that deal with agricultural sector development. In addition, it should introduce measurable objectives with clear results monitoring targets and frameworks.

4.2. Removal of potential barriers to future grain trade between the EU and

Ukraine Invest in improved marketing infrastructure. While maintaining the current level of investments in port infrastructure, the government should increase public investments in key bottlenecks in Ukraine’s infrastructure such as roads (in particular rural roads), railways (in particular grain carrier numbers), and waterways in order to limit post-harvest losses and better connect producers to export markets in the EU. They could also act as a catalyst for private investment in other links of the supply chain. Rural development programs in which local authorities, communities and private sector can actively participate, could be an effective vehicle for planning and implementing these investments. In addition, the government should promote private investments in drying and storage capacities through competitive investment grants programs. Develop effective food safety and quality control systems. In order to capture a higher market value and prevent that stringent product safety and quality standards act as a non-tariff barrier to trade with the EU, the government should continue the alignment process of the domestic legal and regulatory framework for food safety and quality with WTO and EU requirements. The gaps identified in Appendix D and Appendix E of this report could serve as a reference guide in this respect. The legal approximation process should be accompanied by the development of a lean institutional framework for enforcing food safety and quality standards. The current fragmentation and distribution of official food control competences among the Ministries of Agricultural Policy, Healthcare and Economy results in a disjointed approach and inefficient use of physical and human resources. An integrated approach to food control with greater communication and coordination among relevant government bodies should be developed. In addition, the prevailing inspection, monitoring, and surveillance system under the GOST should be redesigned in a progressive manner. The system should move towards a risk-based control system that shifts more responsibilities to the private sector. The existing laboratory structure should also be rationalized and adequate public funding should be provided for laboratory testing to lower the cost of compliance for producers. Widen the scope and efficiency of extension and advisory service delivery. The scope of extension and advisory services needs to be broadened in order to provide the private sector the support it needs to adapt to changing market requirements and seize upon increasing trade opportunities in a more open trade environment. For example, awareness is generally low among agricultural producers and processors of the implications on their operations of rising food safety and quality standards as a result of Ukraine’s WTO membership and its integration process with the EU. Increased public funding will be needed for preparing public extension and advisory services to meet these new emerging needs. However, a minimum level of cost recovery should be introduced as well. In addition, the government should develop public-private partnerships for service delivery involving the public sector, nongovernmental organizations, associations, and


private suppliers. Research and education institutions should become an integral part of this knowledge transfer system. Regional centers of excellence for research and higher education should be developed and links between these centers, extension and advisory services, and sector stakeholders should be strengthened. Establish an agricultural futures exchange market. Grain trade could be further enabled through a well-developed agricultural futures exchange market. To this end, the government should prepare an appropriate legal and regulatory framework for the establishment and development of futures exchange market. In the initial period, the government could provide a public share in the futures exchange market’s statutory fund, but a clear timeframe for the sale of this share in the future should be in place from the outset. The future development of the agricultural exchange market will depend to a significant degree on the development of other parts of the financial and risk management system in Ukraine such as credit and insurance markets. In regards to the development of credit markets in Ukraine, the government should improve the warehouse receipt system by establishing an integrated and transparent legal and regulatory framework that uniformly defines rights, liabilities and duties of all the parties to the system, strengthening the monitoring system, and establishing the proposed Guarantee Fund. In regards to insurance markets, the government should establish an appropriate legal and regulatory framework for the development of a private agricultural insurance system based on weather index-based insurance. In addition, it should promote agricultural producers’ trust in private agricultural insurance by standardizing approaches towards determining coverage and tariffs of insurance products and improving the information flow to producers. And it should improve rule of law to better guarantee consumer rights. Establish a partnership for the active promotion of grain trade. The government and private grain sector stakeholders should establish a partnership for the active promotion of Ukrainian grain exports to the EU. Through joint trade missions, seminars, or conferences, such a partnership could be instrumental in developing links between, for example, Ukrainian feed producers and the feed importing industry in the EU. In order to be successful, however, the network of agri-business associations in the grain sector needs to be further strengthened by improving the legislation and incentive structures governing associations in Ukraine.

4.3. Creation of a single transparent government grain production, use and

trade information system Develop a harmonized approach to monthly grain crop forecasting. By enhancing transparency and objectivity in assessments of the grain market fundamentals, a harmonized approach to calculating grain supply and demand balances would better inform government policies and actions and enhance their coordination. By doing so, it could greatly improve the effectiveness of government policies and actions in the grain markets. A working group headed by the Ministry of Agricultural Policy should be established that is focused on the development of a harmonized approach to grain crop forecasting. The working group should include representatives of the Economy Ministry, State Statistics Committee, Ukraine’s Hydro-Meteorological Center (which possess key input data), and Ukraine’s Academy of Sciences. In addition, the working group should include representatives of key grain sector stakeholders, including farm and trade associations, private advisory companies, international organizations, etc.


Prepare and adopt necessary legal and regulatory provisions for the implementation of the harmonized approach. To be effective, it is critical that all responsible bodies use the harmonized approach to grain crop forecasting in their activities. To this end, appropriate legal and regulatory provisions that outline the formal process and procedure for preparing, approving, and using of grain supply and demand balances need to be put in place. The preparation of such provisions should be part of the working group activities. Improve public access to market information. The government should improve the public dissemination of data and information related to agricultural product markets. Information should cover market prices, agricultural commodity purchases by the Agricultural Fund or the State Reserves, decisions on export licenses etc. Public access to this information would help remove the information asymmetries that currently distort decision-making processes by grain market participants.


APPENDIX A

Figure A.1: Trends in the total agricultural output (1990 = 100%), %

0

20

40

60

80

100

120

140

160

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Agricultural enterprises All types farms Private sector

Table A.2: Grain Supply and Demand Balances 2002-2009, Th tons

25-Jun 20-May

Opening stocks 3894 3894 2827 2702 2466 1342 2027 2030

Acreage seeded 15586 15572 15467 14771 15225 15790 17485 15868

Acreage harvested 15125 14950 13553 14018 14433 14032 11282 14500

Yield 2.87 2.74 2.08 2.45 2.55 2.71 1.8 2.5

Crop 43452 40975 28202 34398 36823 37957 20320 36273

Imports 165 165 177 186 185 160 3725 693

SUPPLY 47511 45034 31206 37286 39474 39459 26072 38996

Food Industry 8545 8535 7985 8015 8070 8200 7820 8780

Feed Usage 12130 12760 11210 12090 10615 12400 10535 12165

Seeds 2932 2930 2792 2770 2830 2815 2520 3220

Exports 16160 14005 3700 9879 13241 11283 2888 10739

Losses 1935 1830 1625 1705 2015 2295 967 2065

DEMAND 41702 40060 27312 34459 36771 36993 24730 36969

Ending stocks 5809 4974 3894 2827 2703 2466 1342 2027

Stocks/Use (%) 13.9 12.4 14.3 8.2 7.4 6.7 5.4 5.5

2003/04 2002/03Total grain

2008/09*

2007/08 2006/07 2005/06 2004/05

Source: UkrAgroConsult

*UkrAgroConsult Estimate


Table A.3: Grain and Oilseed Crops Changing, Th ha

Crop 2008 2007 Growth/Reduction Rapeseed 1 750 1 145 + 605

Wheat 7 000 6 511 + 489

Corn 2 500 2 200 + 300

Sunseed 4 320 4 170 + 150

Rye 465 352 + 113

Millet 130 106 + 24

Oat 425 407 + 18

Others 160 151 + 9

Total areas’ growth + 1,708

Barley 4 300 5 055 - 755

Sugar beet 410 635 - 225

Peas 225 368 - 143

Soybean 600 665 - 65

Buckwheat 310 337 - 27

Total areas’ reduction - 1,215


Figure A.4 Ukraine Sunflower Harvested Area and Yield

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1987/88 1989/90 1991/92 1993/94 1995/96 1997/98 1999/00 2001/02 2003/04 2005/06 2007/08

Area harvested, mn ha

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Yield, m

t/ha

A rea Harves ted Y ield

Source: LMC International from USDA data


Figures A.5:Rapeseed production is rapidly increasing, 2005-2008

Seeded acreage structure under

oilseed crops, 2005/06 season

85%

5%

9% 1%

Sunseed

Rapeseed

Soybean

Others

Seeded acreage structure under oilseed

crops, 2007/08 season

68%

19%

11%2%

Sunseed

Rapeseed

Soybean

Others


TableA.6: Profitability of Major Crops

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Grains Suns eed Sugar beet

Profitability

2000 2001 2002 2003 2004 2005 2006 2007

Source: LMC International with Data State Statistical Committee of Ukraine


Table A.7.: Direct Crop Input Costs for Large-Scale Ukraine Agricultural Enterprises

0

100

200

300

400

500

600

700

800

Wheat Barley Corn Sunflow er Rapes eed Sugarbeet

US$ per ha

2004-2007 2009


Table A.8.: Direct Crop Input Costs for Small-Scale Ukraine Agricultural Enterprises

0

100

200

300

400

500

600

Wheat Barley Corn Sunflow er Rapeseed Sugarbeet

US$ per ha

2004-2007 2009



Table A.9: Wheat Supply and Demand Balances 2002-2009, Th tons

25-Jun 20-May

Opening stocks 3047 3047 1895 1976 1287 928 1428 1261

Acreage seeded 7005 7000 6511 5633 6794 6077 7226 7441


Yield 3.18 2.96 2.29 2.65 2.78 2.93 1.62 2.91

Crop 21830 20000 13700 13809 17910 16529 4250 19756

Imports 5 5 2 10 10 5 3400 403

SUPPLY 24882 23052 15597 15795 19207 17462 9078 21420

Food Industry 6000 6000 5750 5600 5750 5800 5700 6200

Feed Usage 4200 4200 3800 3200 3000 3900 1000 4700

Seeds 1400 1400 1300 1200 1100 1350 1100 1450

Exports 8200 7000 1000 3300 6481 4325 50 6542

Others consumption and Losses 1100 1000 700 600 900 800 300 1100

DEMAND 20900 19600 12550 13900 17231 16175 8150 19992

Ending stocks 3982 3452 3047 1895 1976 1287 928 1428

Stocks/Use % 19.1 17.6 24.3 13.6 11.5 8 11.4 7.1

2003/04 2002/03 Wheat

2008/09*

2007/08 2006/07 2005/06 2004/05



Table A.10.: Barley Supply and Demand Balances 2002-2009, Th tons

25-Jun 20-May

Opening stocks 675 675 520 310 670 185 245 455

Acreage seeded 4300 4300 5055 5379 4511 4695 5795 4577


Yield 2.45 2.36 1.48 2.18 2.07 2.38 1.58 2.29

Crop 10280 9860 6150 11300 8825 10615 7450 9828

Imports 5 5 5 5 20 15 40 20

SUPPLY 10960 10540 6675 11615 9515 10815 7735 10303

Food Industry 700 700 550 550 450 500 350 800

Feed Usage 3000 3750 3000 3800 3300 3900 4600 4675

Seeds 1000 1000 1000 1100 1200 930 900 1200

Exports 5000 4100 1100 5145 3955 4315 1520 2883

Losses 300 300 350 500 300 500 180 500

DEMAND 10000 9850 6000 11095 9205 10145 7550 10058

Ending stocks 960 690 675 520 310 670 185 245

Stocks/Use % 9.6 7 11.3 4.7 3.4 6.6 2.5 2.4

2003/04 2002/03Barley

2008/09*

2007/08 2006/07 2005/06 2004/05



Table A.11.: Corn Supply and Demand Balances 2002-2009, Th tons


25-Jun 20-May

Opening stocks 124 124 169 127 212 82 97 96

Acreage seeded 2530 2500 2202 1890 1762 2564 2266 1461


Yield 3.6 3.7 3.32 3.42 3.99 4.14 2.85 2.72

Crop 8530 8500 6300 6156 6570 6950 5745 3127

Imports 30 30 30 26 15 0 30 6

SUPPLY 8684 8654 6499 6309 6797 7032 5872 3229

Food Industry 620 620 600 580 550 550 600 600

Feed Usage 4000 4000 3650 3830 2750 3000 3400 1200

Seeds 145 145 125 130 160 120 140 160

Exports 2700 2700 1500 1100 2510 2300 1250 852

Losses 450 450 500 500 700 850 400 320

DEMAND 7915 7915 6375 6140 6670 6820 5790 3132

Ending stocks 769 739 124 169 127 212 82 97

Stocks/Use % 9.7 9.3 1.9 2.8 1.9 3.1 1.4 3.1

2003/04 2002/03 Corn

2008/09*

2007/08 2006/07 2005/06 2004/05



Table A.12: Ukraine Poultry and Livestock inventories (‘000 head)

1990 2000 2001 2002 2003 2004 2005 2006 2007 2008*

Cattle 24,623 9,424 9,421 9,183 7,886 7,158 6,514 6,175 5,863 5,790

Pigs 19,426 7,652 8,370 9,033 7,469 6,640 7,053 8,055 7,266 7,150

Poultry, Ml 246 124 137 148 144 154 162 167 168 170

Source: LMC estimates

Table A.13: Potential Additional Annual Output in Ukraine


0

2

4

6

8

Sunflower Barley Wheat

Output (million tonnes)


Table A.14: Simplified calculation of domestic grain prices in terms of net exporting and

net importing status of the market

Export Import

Price, EXW71 120

Price, СРТ-port 140

World price 150 (FOB) 150 (DAF Russia)

Price, free on rail 160

including VAT 192

with delivery to inland

elevator

210


71

Exporter profit at the expense of VAT refund


Figure A.15: Behavior of Market Prices for Key Grain Crops in Ukraine’s Market, EXW

Market prices behavior for main grain crops

0

50

100

150

200

250

300

350

10.01.

2003

10.04.

2003

10.07.

2003

10.10.

2003

10.01.

2004

10.04.

2004

10.07.

2004

10.1

0.20

04

10.01.

2005

10.04.

2005

10.07.

2005

10.1

0.20

05

10.0

1.20

06

10.04.

2006

10.07.

2006

10.1

0.20

06

10.0

1.20

07

10.04.

2007

10.07.

2007

10.1

0.20

07

10.0

1.20

08

10.0

4.20

08

10.07.

2008

pri

ce

,

US

D/t

feed wheat milling wheat (3rd gr.) barley corn



Table A.16: Chronology of government decisions on grain export restrictions in 2006-2008

Grounds Period Wheat Barley Corn Rye Government resolution of September 28, 2006, #1364

Automatic licensing

Government resolution of October 11, 2006, #1418

17.10.2006- 31.12.2006

400 600 600 3

Government resolution of December 8, 2006, #1701

14.12.2006-30.06.2007

3 600 500

Government resolution of February 13, 2007, #185

15.02.2007-30.06.2007

606 30

Government resolution of February 22, 2007, #290

26.02.07-07.06.07

228

Government resolution of May 16, 2007, #748

08.06.07-30.06.07 Quotas cancelled

Quotas cancelled

Quotas cancelled

3

Government resolution of June 20, 2007, #844

01.07.07- 31.10.07

Government resolution of October 31, 2007, #1287

20.06.07-31.12.07

3 3 3 3

Government resolution of September 26, 2007, #1179

01.01.08- 31.03.08 600

Government resolution of March 28, 2008, #271

01.04.08- 30.04.08

200 400

Government resolution of April 23, 2008, #418

01.01.08- 01.07.08 1200 900

Automatic licensing

3

Government resolution of May 21, 2008, #470

Both quotas and licenses were cancelled


Figure A.17: Ukraine and World Wheat Prices


Figure A.18: Ukraine and World Barley Prices

Figure A.19: Ukraine and World Corn Prices


Table A.20: Grain sector associations

Association Field of Activity

CROSS-SECTORAL ASSOCIATIONS

Union of Agricultural Enterprises of

Ukraine

Production of agricultural produce

Association of Farmers and Private Land

Owners

Production of agricultural produce

Ukrainian Agrarian Confederation Comprises associations, producers, processors

and exporters of agricultural produce

Ukrainian Club of Agricultural Business Production, processing and export of

agricultural produce

National Agricultural Chamber of Ukraine Production of agricultural produce, advisory

activity, wholesale markets of agricultural

produce

SECTOR-SPECIFIC ASSOCIATIONS

Ukrainian Grain Association Export and production of grain

All-Ukrainian Baker Association Bread baking


Union of Poultry Raisers of Ukraine Poultry meat production

UkrKhlibProm Association Bread baking

TvarynProm Corporation Meat production

Union of Agricultural Exchanges of

Ukraine

Exchange trade in agricultural produce


Table A.21. Financing of crop production support in 2008

Crops Support rates, UAH/ha Winter wheat, triticale, rye 100

Spring wheat, triticale, oats, peas, buckwheat, millet

100

Soybeans, at least 1st reproduction 80

Soybeans, 2nd and 3rd reproductions 50

Rice 220

Sugar beet 750

Long-fibred flax and retted hemp stalks 640


Table A.22. Accumulation rates for the price regulation commodities

Year Accumulation rates, %*

2007 12

2008 14

2009 16

2010 20

* to domestic consumption


Table A.23. Financing of support measures for agricultural producers, UAH Bl


Year 2005 2006 2007 2008

Total of VAT benefits*

3.78 4.12 5.71 8

Amount of direct budgetary support for agricultural producers**

1.78 2.80 4.04 4.5

Source: * - Data of the Agriculture Ministry, 2008 - forecast

** - estimate on the basis of data of Ukraine’s Laws “On State Budget”

Table A.24: Key features of the current and future VAT regime for agriculture

Source: World Bank (2006)

Table A.25. Estimated losses entailed from VAT refund delay


Share of paid VAT in export price* 16.67%

Refund delay term** 6 months

Crediting rates*** 12%

Exporter losses (16.67х0.5х12), % to export price

10%

Note: * - share of the tax credit due to be refunded can be larger or smaller, depending on whether exporters include the future VAT refund into their purchase price under domestic contracts;

** - aggregated conservative indicator according to a poll among a number of export companies;

*** - the crediting rate is given in dollar terms on the assumption that exporters will take a

foreign currency credit for refinancing the unrefunded VAT; the rate will be higher when

credited in Hryvnya

Table A.26: Degree of reduction of import duties on key grain crops

Old duty Code in Nomenclature of Foreign Economic Activity Goods

Crop

Ad valorem, % Specific, EUR/MT

Commitments before WTO, %

1001 10 00 90 Wheat and mixture of wheat and rye

40 10

1002 00 00 00 Rye 20 20

1003 00 90 00 Barley 20 5

1004 00 00 00 Oats 20 5

1005 90 00 00 Corn 25 20 10


Table A.27: Actual reduction of customs rates (fulfillment of assumed obligations before

WTO)


Previous customs tariff

Commodity positions price,

EUR/MT Specific

duty rate,

EUR/MT

Ad valorem

equivalent of

specific rate

Ad valorem

rate

Commitments

before WTO

0202000000 Beef, frozen: 575

0202309000 - - other 568 20% 15%

0203000000 Pork fresh, cooled or

frozen: 999

0203211000 - - - hogs 793 600 76% 10% 10%

0203290000 - - other: 1281 1000 78% 10%

0203291300 - - - - loin and its cuts 1618 1000 62% 10%

0203295500 - - - - - boned 1266

0206000000 Food by-products of

cattle, hogs, sheep, goats, horses,

donkeys, mules or hinnies, fresh,

cooled or frozen 517 500 97% 15%

0206220000 - - liver: 527

0207000000 Meat and food by-

products of poultry of commodity

position 0105, fresh, cooled or

frozen: 279 400 143% 10% 10%

0207141000 - - - - boned 261 400 154% 10% 10%


Table A.28: Effect of import duty reduction

Import Previous New wholesale

Possible


price*

Commodity positions price,

EUR/MT

wholesale

prices,

EUR/MT* EUR/MT UAH/kg

reduction

of

wholesale

price,

UAH/kg

0202000000 Beef, frozen: 575

0202309000 - - other 568 818 784 6.08 -0.26

0203000000 Pork fresh, cooled or frozen: 999

0203211000 - - - hogs 793 1671 1046 8.11 -4.84

0203290000 - - other: 1281 2737 1691 13.11 -8.11

0203291300 - - - - loin and its cuts 1618 3142 2136 16.56 -7.79

0203295500 - - - - - boned 1266

0206000000 Food by-products of cattle, hogs,

sheep, goats, horses, donkeys, mules or

hinnies, fresh, cooled or frozen 517 1220 713 5.53 -3.93

0206220000 - - liver: 527

0207000000 Meat and food by-products of

poultry of commodity position 0105, fresh,

cooled or frozen: 279 815 368 2.85 -3.46

0207141000 - - - - boned 261 793 344 2.67 -3.48

* - including VAT

Note: calculation by the UAH/$ rate of 7.75


Figure A.29: Ukraine Grain Exports to the EU, 2000-2008


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008

million tonnes

Wheat Barley Corn

Source: LMC International from Eurostat data

Note: The data compiled from Eurostat. Data for 2008 only covers months between January and

October 2008. The year total was estimated by taking for each crop the average percentages of

the months November and December in the period 2000-2007 and add these to the January-

October numbers

Table A.30 : Structural changes in agricultural enterprises


2003 2005 2006 change, 2006 to 2005, %

General Land Use

Number of enterprises 10258 8366 7460 -11%

Cultivated area, Ml ha 18,95 16,3 15,6 -4%

Average farm size, Th ha 1847 1943 2085 +7%

Cattle inventories

Number of enterprises 8 032 5 689 4 777 -16%

Total population, Ml heads 2,48 1,63 1,50 -8%

Average farm size, heads 308 287 314 +9%

Hog inventories

Number of enterprises 6 997 5 108 4 610 -10%

Total population, Ml heads 1,42 1,63 2,03 +25%

Average farm size, heads 203 319 441 +38%

Poultry inventories

Number of enterprises н/д 595 554 -7%

Total population, Ml heads н/д 46 67 +46%

Average farm size, heads н/д 77 120 +56%

Source: UkrAgroConsult using official statistics data

Table A.31: Correlation between grain production profitability and yield

Correlation between grain production

profitability and yield

24,5

20,8

19,7

19,4

27,1

27,3

18,2

28,3

26,0

24,1

21,8

37,5

1,9

12,0

64,8

43,3

19,3

45,8

20,1

3,1

7,4

27,9

0,0

5,0

10,0

15,0

20,0

25,0

30,0

1997 19981999 20002001 200220032004 20052006 2007

Yie

ld, cen

tner

per

ha

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

pro

fita

bilit

y, %

yield profitability



Table A.32: Contradictions between provisions of separate laws of Ukraine providing

functioning of the system of warehouse receipts for grain

№

Contents of the Law of Ukraine «About the certificated

commodity and simple and double warehouse receipts»

Content of the Law of

Ukraine «About grain

and the grain market in

Ukraine»

Essence of

contradictions

1

Article 1. The register of simple and double warehouse receipts (further – the register of warehouse receipts) is the document containing system of accounting of the information about simple and double warehouse receipts, issued and cancelled by certified warehouses and containing the information on owners of these receipts;

Article 1. The register of warehouse documents on grain is a system of accounting of the information on the warehouse documents issued by grain warehouses for grain and information on owners of such documents;

Narrower definition

of the concept

"register".

2

Article 10. The warehousing contract is made in writing. The written form of the contract is considered observed if goods acceptance by the warehouse is confirmed by simple or double warehouse receipt.

Article 26. The contract of warehousing of grain is made in writing, that is to be confirmed by handing over of warehouse document to the owner of the grain. Article 37 The grain warehouse is to confirm acceptance of grain by issuing of one of the following documents: -double warehouse receipt; -simple warehouse receipt; -warehouse slip. Article 43 If a grain warehouse accepts grain for storage without issuing of the simple or double warehouse receipt, it should hand over the warehouse slip as a confirmation of the acceptance of grain for storage.

The different list of

documents,

confirming goods

acceptance by a

warehouse and

contract drawing up

(warehouse slips

are cancelled).


№






Ukraine»

Essence of

contradictions

3

Article 13.

The certified warehouse is obliged to

examine at its own expense the

goods accepted for storage in order

to define of its quantity and an

external state.

Article 1. Par. 10. Grain storage is a complex of steps and actions including acceptance, finishing, storage and grain shipment. Articles 28 Payment for storage of grain and terms of its carrying out are established by the contract of warehousing of grain.

Grain weighing at

acceptance at the

expense of a grain

warehouse.

4

Article 22 The Owner of a

warehouse part of the double

warehouse receipt separated from the

warehouse receipt, is not entitled to

dispose of this receipt without the

consent of the pawnbroker (the

owner of the pledge receipt).

The owner of a warehouse part of the

double warehouse receipt separated

from the pledge receipt is not entitled

to demand delivery of the goods or a

part of it from the certified

warehouse until the moment of the

termination of the obligation secured

with the pledge receipt.

Articles 40 Warehouse and pledge receipts can be transferred together or separately by means of endorsements. The endorsement should contain the name of the legal person or a name of the citizen and their address (a residing place), which became the new holders of the warehouse or pledge receipt, date of making of the endorsement and the signature of the authorized employee of the legal person (citizen), assured by the stamp of the legal person or the notary.

Different procedure

of transfer of the

double warehouse

receipt and

receiving of a

credit.


№






Ukraine»

Essence of

contradictions

Article 14 Pledge of the goods

accepted for storage under the double

warehouse receipt, arises after

separation and transfer of the pledge

part of the warehouse receipt (pledge

receipt) from the depositor to the

pawnbroker from the moment of

drawing up of the corresponding

contract of pledge.

At registration of pledge the

depositor gives to the pawnbroker an

extract from warehouse books

confirming that the double

warehouse receipt is valid and was

not lost. Period of validity of such

extract from the register of

warehouse receipts is 3 calendar

days, during which the certified

warehouse is stopping operations

concerning the goods and receipts

mentioned in it.

The pawnbroker should inform in

writing within 3 working days the

certified warehouse which has given

out the double warehouse receipt that

the goods were accepted as a deposit.

Throughout the time period of

pledge of the goods, restoration of

the rights under the lost double

warehouse receipts, provided by

Article 24, is forbidden.

Article 39. The owner of the warehouse receipt can exclusively dispose of grain, but this grain can not be taken out from the grain warehouse prior to the credit repayment which have been given out under the pledge receipt.


№






Ukraine»

Essence of

contradictions

5

Article 18, 24. In case the

person entitled with property right to the goods is not claiming the goods, storage period of which has ended, within 90 days, the certified warehouse has the right, based on a court decision, to sell the goods on a competitive basis. After sales of the goods and compensation of the expenses confirmed by court to the certified warehouse, the certified warehouse transfers the rest of the money received from sale to the bearer of the warehouse receipt.

In case of absence of the

bearer of the warehouse receipt, the certified warehouse transfers money to a deposit in bank till the moment of claiming it by the person having the property rights for the goods.

In case within the time period provided by the legislation for claiming of a monetary compensation for the sold goods, the owner of the warehouse receipt has not addressed the certified warehouse, the money carries over to the certified warehouse.

The duplicate of the lost double warehouse receipt is not to be issued.

Restoration of the rights under the lost double receipt can be made based on a court decision. The certified warehouse can return the goods or give out the simple warehouse receipt instead of the lost double receipt not earlier than three working days from the date of court decision reception.

Not defined by legislation.

According to the Decree

№510 Article 38.

In case of a loss of the

warehouse document it is

necessary to inform a grain

warehouse in writing

immediately.

The duplicate of the simple

or double warehouse

receipt in that case is not to

be issued.

Restoration of the rights

concerning the lost simple

or double warehouse grain

receipt is carried out based

on a court decision.

In case of a loss of

the simple

warehouse receipt

the possessor of the

goods cannot

restore the property

rights.


№






Ukraine»

Essence of

contradictions

In case of the simple warehouse receipt is lost, its restoration and restoration of the rights of the person which delivered goods for storage does not occur.

6

Article 21. The cession of

rights, established by the simple warehouse receipt, is made by its transfer to other holder with making on the simple warehouse receipt of a preliminary inscription according to the Article 25 of this Law.

Article 42 The simple warehouse receipt is transferred by handing it over to its new owner.

Different procedure

of transfer of the

warehouse receipt.

7

Article 21 the Owner of the

simple warehouse receipt can transfer it as a deposit. Thus the simple warehouse receipt is withdrawn from the goods possessor and stays in possession of the pawnbroker.

In a case the owner of the simple warehouse receipt has an intention to transfer goods as a deposit, the simple warehouse receipt should be cancelled, and instead of it the certified warehouse issues the double warehouse receipt and makes respective alterations in the register of warehouse receipts.

Articles 42 Pledge of the

grain delivered for storage

under the simple warehouse

receipt shall be made by

transfer to the pawnbroker

of this receipt with

endorsement made

according to the terms

defined by article 40 of this

Law. On request of the

debtor, the duplicate of the

simple warehouse receipt

can be issued with a mark

about pledge. In case of

pledge of the grain deliverd

for storage under the simple

warehouse receipt, the

simple warehouse receipt is

treated according to the

rules established for the

1. The second

paragraph conflicts

to the first.

2. Different

procedure of

transfer to pledge.

3. The receipt is

transferred in

pledge (that is has

properties of


№






Ukraine»

Essence of

contradictions

pledge receipt, the

duplicate of the simple

warehouse receipt -

according to the rules

established for warehouse

receipts.

securities)

8

Article 26. Sales of the pledged

goods subject to collecting are

carried out according to the order

stipulated by the Law of Ukraine

«About pledge».

Article 39. In case the maturity term of the credit specified in the pledge receipt has come, the grain warehouse is obliged to sell grain in an order established by the legislation for sales of the pledged grain, under the written request of the owner of the pledge receipt.

Different procedure of sales of the pledged grain.

Table A.33: Information on grain purchases for the state food reserves, KMT

Year Plan of purchases Actually purchased 2005/2006 1500** 135

2006/2007 400 176

2007/2008 580 425

2008/2009 881 352***

Source: due to lack of official reporting on purchases, the data represent analysis of information available in public sources;

Note: ** - the plan was calculated proceeding from the total consumption volume, including feed grains;

*** - as of September 05, 2008.


Table A.34. Chronology of mortgage, intervention and forward purchases

Seasons Mortgage purchases*

Intervention purchases*

Forward purchases

2001/2002 Х

2002/2003 Х

2003/2004 Х Х

2004/2005 Х Х

2005/2006 Х Х

2006/2007 Х Х

2007/2008 Х

2008/2009 Х Х

Note: * before MY 2004/2005 inclusive, the purchases were made by Khlib Ukrainy, and later

by the Agrarian Fund; an exception was MY 2004/2005, when intervention purchases were made

by the State Reserves.


APPENDIX B: GROSS MARGIN ANALYSIS OF ARABLE CROPS IN UKRAINE

1. Methodology

A farmer’s choice of which crops to grow in any particular year is heavily influenced by

expectations for costs and revenues. The objective of this Gross Margin Analysis is to identify

the crops that can be expected to offer farmers the best prospects in the near and longer term.

The analysis is conducted for three time periods:

• 2004 to 2007 (actual) • 2009 (forecast) • Long run equilibrium, or “trend”

Gross Margins provide the clearest indicator of accounting profitability per hectare of arable

land. Owing to the difficulty of attributing indirect (machinery and labour) costs to individual

crops, gross margins are typically presented net of direct costs only. However, we present the

two sets of gross margins:

Gross Margin I = Total Revenue - Total Direct Costs

Gross margins (and costs and revenue) are expressed as US$ per hectare

Gross Margin II = Total Revenue - Total Direct and Indirect Costs

Gross margins (and costs and revenue) are expressed as US$ per hectare


2. Total Revenues

The total revenue for each alternative crop is equal to:

Total Revenue = Price * Yield

The following revenues are excluded from the analysis

• Government payments: Such payments are only important when they affect crop choices In

Ukraine, government payments are considered too small to actually influence crop planting

choices.72

• Credit for inputs

2.1. Prices

The analysis presents the following farm gate prices for each of the featured crops and its three

main regions (Forest, Forest-Steppe, Steppe):

• 2004 to 2007 (actual): Average estimated farm gate prices for the past four crop years are used.

• 2009 (forecast): Nearby market price quotations (November 2008) are used as a guide to the price expectations for each crop. These are adjusted to local farm gate prices in each region using empirical price differentials.

• Long run equilibrium or “trend”: To allow for the short run volatility of commodity prices, estimates of future prices under an established longer term equilibrium are used. The 2009 trend value is adjusted to local farm gate prices in each region using empirical price differentials. The analysis allows for the significant influence of biofuels on crop prices. The effect of growing biofuel demand on commodity prices is captured by valuing long run trend prices at their energy parity equivalent. The analysis uses the long run price for 2009 based on an oil price projection of US$50 per barrel.

Price levels for each of the featured crops in the Ukraine and its three main regions (Forest, Forest-Steppe, Steppe) for the different time periods are presented in Tables A, B, and C

72

It should be noted that as the administrative bureaucracy is now in place, the levels of support can be increased quickly if desired and consequently, realign established crop margins if the payments continue to be applied at different rates to different crops.


Table A: Average 2004-2007 Prices (US$ per ton)

Modern

Sector

Barley Maize Common

Wheat

Rye Soybeans Rapeseed Sunflow er Sugarbeet

Ukraine 117 113 149 115 246 271 246 32

Forest 113 114 32

Forest-

Steppe

118 113 149 119 272 247

Steppe 117 112 148 246 270 246

Traditional

Sector

Barley Maize Common

Wheat


Ukraine 117 113 149 115 246 271 246 32

Forest 113 114 32

Forest-

Steppe

118 113 149 119 272 247

Steppe 117 112 148 246 270 246

Table B : 2009 Prices (US$ per ton)

Modern

Sector

Barley Maize Common

Wheat


Ukraine 109 145 193 138 406 440 353 34

Forest 99 136 400 34

Forest-

Steppe

103 138 185 142 408 443 354

Steppe 114 155 197 406 436 352

Traditional

Sector

Barley Maize Common

Wheat


Ukraine 109 145 193 138 406 440 353 34

Forest 99 136 400 34

Forest-

Steppe

103 138 185 142 408 443 354

Steppe 114 155 197 406 436 352

Table C: Long Run Trend Prices, 2009 (US$ per ton)

Modern

Sector

Barley Maize Common

Wheat


Ukraine 128 103 151 127 297 290 328 34

Forest 123 125 293 34

Forest-

Steppe

129 104 152 130 299 290 329

Steppe 128 103 151 297 289 327

Traditional

Sector

Barley Maize Common

Wheat


Ukraine 128 103 151 127 297 290 328 34

Forest 123 125 293 34

Forest-

Steppe

129 104 152 130 299 290 329

Steppe 128 103 151 297 289 327


Table D presents the nearby value of each of the featured crops expressed as a percentage of their long run trend value, using trends values from both before and after the introduction of biofuels. The Table shows that nearby crop prices are currently valued above long run trend levels, with wheat especially strong at present. Whilst prices have declined significantly since their highs earlier in 2008, they remain above trend levels.

Table D: Short Term Crop Prices Relative to Their Trend Values

0%

50%

100%

150%

200%

250%

Maize Common

Wheat

Barley Rye Rapes eed Sunflow er Soybeans

Cereals Oils eeds

Deviation of 2008 Prices From Trend

2.2. Yields The traditional and modern farm sectors differ mainly in terms of input cost structures and yields realized. However, the methods employed to derive yield levels are similar for both sectors: • 2004 to 2007 (actual): Yields are an average of actual yields for the past four crop years

for each region.

• 2009 and Long Run Trend (forecast): For these periods, trend yields are used that are derived from long run time series. Trends are based on the period since 1995, after the upheaval of the market reforms. The national trend yield figure is adjusted for each region by the empirical yield differential of each region against the national average. This adjustment is necessary as long run series of regional yields are not available for accurate trend estimates. In regards the yield differential between the traditional and modern sector, local data sources are used wherever possible. Trend national average yields are adjusted by the revealed differential when appropriate.

Yield levels for each of the featured crops in the Ukraine and its three main regions (Forest, Forest-Steppe, Steppe) for the different time periods are presented in Tables E and F.


Table E: Average 2004-2007 Yields (tons per hectare)

Modern

Sector

Barley Maize Common

Wheat


Ukraine 2.7 5.3 4.1 2.5 1.5 2 1.7 28.7

Forest 2.9 2.1 1.3 28.7

Forest-

Steppe

3.3 6.7 4.4 3.3 1.7 2.2 2

Steppe 2.3 3.1 4 1.5 1.7 1.7

Traditional

Sector

Barley Maize Common

Wheat


Ukraine 1.3 2.6 2.1 1.2 0.8 1 0.9 14.4

Forest 1.4 1 1.3 14.4

Forest-

Steppe

1.6 3.3 2.2 1.7 0.9 1.1 1

Steppe 1.1 1.5 2 0.8 0.8 0.8

Table F: 2009 and Long Run Trend Yields (tons per hectare) Modern

Sector

Barley Maize Common

Wheat


Ukraine 2.9 6.1 4.1 2.5 1.7 2.2 1.8 33

Forest 3.2 2.1 1.4 33

Forest-

Steppe

3.6 7.8 4.4 3.3 2 2.4 2

Steppe 2.5 3.6 4 1.7 1.8 1.7

Traditional

Sector

Barley Maize Common

Wheat


Ukraine 1.5 3.1 2.1 1.3 0.9 1.1 0.9 16.5

Forest 1.6 1 0.7 16.5

Forest-

Steppe

1.8 3.9 2.2 1.7 1 1.2 1

Steppe 1.2 1.8 2 0.9 0.9 0.9

2.3. Total Revenues Total revenues for each of the featured crops in the Ukraine and its three main regions (Forest, Forest-Steppe, Steppe) for the different time periods are presented in Tables G, H, I


Table G: Average 2004-2007 Revenue (US$ per hectare) Modern

Sector

Barley Maize Common

Wheat


Ukraine 294 579 610 289 375 548 421 924

Forest 326 239 924

Forest-

Steppe

365 751 653 385 600 484

Steppe 246 317 585 375 458 406

Traditional

Sector

Barley Maize Common

Wheat


Ukraine 147 289 305 145 187 274 210 462

Forest 163 120 462

Forest-

Steppe

182 375 326 193 300 242

Steppe 123 159 292 187 229 203

Table H: 2009 Revenues (US$ per hectare) Modern

Sector

Barley Maize Common

Wheat


Ukraine 318 892 793 350 703 954 629 1,115

Forest 312 283 574 1,115

Forest-

Steppe

368 1,081 809 476 807 1,055 720

Steppe 282 558 782 703 783 607

Traditional

Sector

Barley Maize Common

Wheat


Ukraine 159 446 397 175 351 477 315 558

Forest 156 142 287 558

Forest-

Steppe

184 541 405 238 403 527 360

Steppe 141 279 391 351 391 303


Table I: Long Run Trend Revenue, 2009 (US$ per hectare)

Modern

Sector

Barley Maize Common

Wheat


Ukraine 373 636 622 321 514 627 585 1,115

Forest 390 260 420 1,115

Forest-

Steppe

460 811 664 436 590 691 669

Steppe 315 370 598 514 518 564

Traditional

Sector

Barley Maize Common

Wheat


Ukraine 186 318 311 160 257 314 292 557

Forest 195 130 210 557

Forest-

Steppe

230 405 332 218 295 346 335

Steppe 157 185 299 257 259 282

3. Costs

Direct costs are expenses directly attributable to the production of a particular crop. They

include the costs of purchased seed, fertilizer and crop protection chemicals, plus any irrigation

costs.

Indirect costs include the labour and machinery costs incurred in growing each crop (e.g. the

cost of land preparation, seed drilling, fertilizing, spraying and harvesting). Cost estimates are

based on the typical number of labour and machine hours that are required at each stage of the

production process from planting through harvest. By doing this in a systematic way, and

allowing for difference in labour costs and farm technology (in particular the size and work rate

of machines that are typically used), we derive indicative labour and machinery costs for each

crop

The following costs are excluded from this analysis:

• Land costs: These costs are the same whichever crop farmers choose to plant.

• Farm overhead costs (e.g) administration costs: The costs are not attributable to the

production of any one crop.

4. Gross Margins

The gross margins for each of the featured crops in the Ukraine and its three main regions

(Forest, Forest-Steppe, Steppe) for the different time periods are presented in Tables J, K, and L.

Data are provided for Gross Margin I and Gross Margin II for both the modern and traditional

farm sectors in each region.

The data show that gross margins are sometimes negative, especially when indirect costs are

included. This is not unusual and is one of the reasons why analysis of gross margins often

focuses only on the direct costs of farming (Gross Margin I). However, even though the


inclusion of indirect costs generates these uncomfortable results — which mean that farmers

either do not fully account for depreciation, return on capital, etc., and/or do not value their labor

at its full opportunity cost — there are important differences in the indirect costs associated with

farming individual crops.

Although sugar beet may generate large gross margins, it nevertheless has much higher indirect

costs than grains or oilseeds. This is because the machinery used for beet farming, especially

harvesting, is rather specialist. The indirect costs of sugar beet production are thus unavoidable

even in the short term to a greater degree than for grains and oilseeds.


Table J: Average 2004-2007 (US$ per hectare)

Gross Margin I

Modern Sector Barley Corn Wheat Rye Soybeans Rapeseed Sunflower Beet

Ukraine 164 390 432 56 311 550 410 467

Forest 208 35 295

Forest-Steppe 239 580 480 98 600 604

Steppe 112 101 403 311 475 359

Traditional

Sector

Barley Corn Wheat Rye Soybeans Rapeseed Sunflower Beet

Ukraine 51 147 155 17 127 240 145 136

Forest 76 11 50

Forest-Steppe 90 254 178 29 256 203

Steppe 24 -16 142 127 216 130

Gross Margin II

Modern

Sector


Ukraine 27 254 299 -47 222 359 225 194

Forest 70 -69 22

Forest-Steppe 115 443 349 -3 411 412

Steppe -34 -33 270 222 278 176

Traditional

Sector


Ukraine -57 37 41 -74 58 68 25 -115

Forest -33 -80 -201

Forest-Steppe -8 143 66 -60 87 78

Steppe -92 -124 27 58 40 11

Table K: 2009 (US$ per hectare)

Gross Margin I

Modern

Sector


Ukraine 161 650 562 109 615 925 588 565

Forest 169 65 431

Forest-Steppe 219 862 593 195 1,015 842

Steppe 118 281 542 615 780 523

Traditional

Sector


Ukraine 34 258 199 33 268 412 241 155

Forest 45 20 89

Forest-Steppe 68 379 219 60 447 421

Steppe 9 51 186 268 357 196

Gross Margin II

Modern

Sector


Ukraine -20 464 377 -35 502 685 376 173

Forest -13 -80 39

Forest-Steppe 55 675 411 54 779 622

Steppe -75 98 356 502 534 313

Traditional

Sector


Ukraine -114 105 36 -96 178 192 98 -212

Forest -102 -110 -279

Forest-Steppe -65 225 59 -67 230 272

Steppe -149 -100 22 178 132 53


Table L: Long Run Trend, 2009 (US$ per hectare)

Gross Margin I

Modern

Sector


Ukraine 215 394 391 80 427 598 544 564

Forest 247 42 431

Forest-Steppe 312 592 447 155 651 792

Steppe 150 93 357 427 516 480

Traditional

Sector


Ukraine 61 130 113 19 174 249 219 155

Forest 84 9 88

Forest-Steppe 114 244 146 40 265 396

Steppe 25 -43 93 174 225 174

Gross Margin II

Modern

Sector


Ukraine 34 209 206 -64 313 358 331 172

Forest 65 -103 38

Forest-Steppe 148 405 265 14 415 571

Steppe -42 -90 171 313 269 270

Traditional

Sector


Ukraine -87 -23 -49 -110 84 28 75 -213

Forest -63 -122 -279

Forest-Steppe -19 90 -14 -87 48 247

Steppe -133 -195 -70 84 0 32


APPENDIX C: FINANCING OF EXPENSES OF THE MINISTRY OF AGRARIAN POLICY FROM THE STATE BUDGET, THOUSAND UAH

Code of

program

classification

Name of expenses

Amount

actually

used in

2005

Amount

actually

used in 2006

Amount

provided

for 2007

Amount

provided

for 2008

2800000 The Ministry of Agrarian Policy 5498839.2 7100850 8 466 782.0 11016680.3

Including separate programs of state support connected with grain sector

2801170 Radical improvement of soil used by the agricultural enterprises 9964.9 100000

2801180 Agrochemical certification of the agricultural land 5000 3650 5 000.0 7900

2801200 Measures for pest and diseases control in agriculture 4993.6 4658.5 5 000.0 5000

2801210

The budgetary support of animal husbandry, including

beekeeping, identification and registration of agricultural animals

and financial support of plant growing production by subsidizing

calculated per hectare of crops

629349 1609892.9 2 332 506.9 2 721 771.9

Including:

Support of plant growing production 971747.011 935 000.0

Subsidies per hectare of winter crops 519926.997 586 894.5

Subsidies per hectare of spring crops 436544.014 163 105.5

Subsidies per hectare of crops planted on irrigated lands 15276

Support of sericulture development 1000

Support of flax production 7899.6


Code of

program

classification

Name of expenses

Amount

actually

used in

2005

Amount

actually

used in 2006

Amount

provided

for 2007

Amount

provided

for 2008

Partial compensation of expenses for the electric power which

was used by the agricultural enterprises for irrigation of crops

planted on irrigated land and fillings with water of the land plots

for rice cultivation

27100 35 000.0

Partial compensation of expenses for fertilizers of domestic

production 150 000.0

2801220 Breeding in plant growing branch 64954.8 87209.6 90 000.0 90000

2801240

Financial support of agricultural enterprises through the

mechanism of partial compensation of interest payments for

short-term and long credits

415067.8 319498.4 667 000.0 1000000

2801280 Financial support of the agricultural enterprises which are

situated in especially complicated climatic conditions 19999.8 34966.9 35 000.0 35000

2801330 Setting up and maintenance of reserve stock of high quality and

hybrid seeds 31288.4 4477.6 70 000.0 20000

2801430 Partial compensation of price of domestically produced advanced

agricultural machinery 151306.8 20068 131 810.9 100000

2801490 Measures applicable to operations of financial lease of domestic

agricultural machinery 270 000.0

2801540 Compensation to the Pension Fund of the losses caused by

application of the special rate for payment of collection on

obligatory pension insurance by payers of the fixed agricultural

1207400 1669916.7 1 381 125.4 1167126.1


Code of

program

classification

Name of expenses

Amount

actually

used in

2005

Amount

actually

used in 2006

Amount

provided

for 2007

Amount

provided

for 2008

tax

2801560 Formation of the state food reserve and carrying out of pledge

and intervention purchases by Agrarian fund 406623.5 344362.5 785 000.0

2801570 Financing of Agrarian fund 4825.6 7668.3 18 424.4 18787.7

2801580 Partial compensation of insurance premiums (payments) actually

paid by subjects of the agrarian market 5832.6 9961.2 50 000.0 200000

2801810 Reconstruction of ethanol distilleries for biofuel production 15 000.0

2806000 National joint-stock company "Ukragroleasing" 163975.6

2806020 Measures applicable for operations of financial lease of domestic

agricultural machinery 118284

2806040 Purchasing of agricultural machinery under conditions financial

lease and measures of support of financial lease operations 8920.1

2806060

Reconditioning of agricultural machinery and equipment which

was withdrawn from financial lease at lease receivers which were

declared bankrupt or those which have broken the terms of

leasing contract

3934

2806070 Increase in the statutory capital of National joint-stock company

"Ukragroleasing" aimed at purchasing of agricultural machinery,

trucks and equipment for processing of agrarian products, with its

163975.6


Code of

program

classification

Name of expenses

Amount

actually

used in

2005

Amount

actually

used in 2006

Amount

provided

for 2007

Amount

provided

for 2008

subsequent transfer on leasing terms.

Note: the table includes programs of financing from the state budget, but does not include programs of budgetary crediting.

Source: own calculations on the basis of the information contained in the Law of Ukraine "About State Budget" (Appendix № 3) and

data of the Ministry of Agrarian Policy of Ukrain


APPENDIX D: GAPS BETWEEN UKRAINIAN, EU, AND INTERNATIONAL SAFETY

STANDARDS

Comparison analysis for toxic elements permitted levels

Maximum permitted element contamination, mg/kg

Cereals Element

MBR # 5061-89,

DSTU

3768:200473,

DSTU

3769:199874,

DSTU

4525:200675

Codex

Alimentarius

Commission

standards

EEC

Commission

regulation #

1881/2006

1 2 3 4 5

Wheat, barley,

corn

Lead 0.5 (for food,

technical needs

and exports), 5.0

for feeding

0.2 0.2

Wheat Cadmium 0.1 (for food,

technical needs

and exports), 0.3

for feeding

0.2 0.2

Barley, corn Cadmium 0.1 (for food,

technical needs

and exports), 0.3

for feeding

0.1 0.1

Wheat, barley,

corn

Arsenic 0.2 (for food,

technical needs

and exports), 0.5

Not regulated Not regulated

73

Ukrainian National Standard. Wheat. Technical Conditions, DSTU 3768:2004, Kiev, 2004

74 Ukrainian National Standard. Feed Barley. Technical Conditions, DSTU 3769:1998, Kiev, 1998

75 Ukrainian National Standard. Corn. Technical Conditions, DSTU 4525:2006. Kiev, 1998


for feeding

Wheat, barley,

corn

Mercury 0.03 (for food,

technical needs

and exports), 0.1

for feeding


Wheat, barley,

corn

Copper 10.0 (for food,

technical needs

and exports),

30.0 for feeding


Wheat, barley,

corn

Zinc 50.0 (for food,

technical needs

and exports),

50.0 for feeding


Comparison analysis for micotoxins permitted levels

Micotoxin title Maximum permitted micotoxins contamination, mg/kg

MBR # 5061-89 EEC Commission regulation #

1881/2006

Wheat, DSTU 3768:2004

Aflatoxin B1 0.005 (for food, technical

needs and exports), 0.025-0.1

for feeding

0.002

Zearalenone 1.0 (for food, technical needs

and exports), 2.0-3.0 for

feeding

0.1

T-2 toxin 0.1 (for food, technical needs

and exports), 0.2 for feeding

0.06 (totaled toxin T-2 and

HT-2)

B1, B2, G1 and G2 aflatoxins

totaled

Not regulated 0.004

Dezoxinivalenol (vomitoxin)

For soft wheat

0.5-1.0 (for food, technical

needs and exports), 1.0-2.0 for

1.750


For hard wheat feeding 1.250

Ochratoxin A Not regulated 0.005

Palutin 0.5 for feeding Not regulated

Barley, DSTU 3769:1998



for feeding

0.002


totaled

Not regulated 0.004



feeding

0.1




HT-2)


1.0 (for food, technical needs


feeding

1.250



Corn, DSTU 4525:2006



for feeding

0.005


totaled

Not regulated 0.01 (for sort corn and using it

as food ingredient)

Fusariose toxins (totaled B1,

B2)

Not regulated 2.0



feeding

0.2





HT-2)


0.2-1.0 (for food, technical

needs and exports), 1.0-2.0 for

feeding

1.750




Comparison analysis for radioactive nuclides permitted levels

Maximum permitted contamination, mg/kg

Radioactive nuclide’s

title GN 6.6.1.1-130 CODEX STAN 193-

1995 Rev.2-2006

EC Decree

#737/90/EEC and

Union Regulation

(EBPATOM)

#3954/97

Strontium Sr-90 50.0 100 Not regulated

Cesium Cs-137 20.0 1000 600

Cesium Cs-134-137 Not regulated 1000 600

Plutonium Pu-238,

129, 240

Americium Am-241

Not regulated 1 Not regulated

Ruthenium Ru-106

Iodine I-129, 131

Uranium U-235


Sulfur S-35

Cobalt Co-60

Strontium Sr-90

Ruthenium Ru-106

Cesium Cs-134

Cerium Ce-144

Iridium Ir-192


Hydrogen H-3

Carbon C-14

Technetium Tc-99



Comparative analysis of maximum permitted levels of pesticides in cereal crops

maximum permitted level, mg/kg

Name of pesticide

SSanR&N

8.8.1.2.3.4.000-2001 CAC/MRL 01

ЕU Consolidated text,

2004, EU Directives

2008/17/EEC

1 2 3 4

Agelon 0,1 cereal crops Not regulated Not regulated

Azynfos-methyl 0,2 cereal crops Not regulated 0,05 cereal crops

Aquo-N–2–

methylpyridinemanganese

(ІІ) chloride

0,08 wheat


Actellic

1,0 (during

harvesting)

5,0 (during

treatment)


Alachlor Not allowed in corn Not regulated Not regulated

Aldicarb

Not allowed 0,02 barley, wheat

0,05 corn

0,05 cereal crops

Aldrin Not allowed 0,02 cereal crops 0,01 cereal crops

Alpha-cypermethrin 0,01 Not allowed for

the beginning of

realization.


Aluminium phosphide 0,1 cereal crops 0,1 cereal crops Not regulated

Amidosulfur 0,1 cereal crops Not regulated Not regulated

Аfos Not allowed Not regulated Not regulated

Ambush 0,1 cereal crops Not regulated Not regulated


Аnilat 1,0 Not regulated Not regulated

Atrazine 0,1 corn, cereal

crops


Аdenit А500 0,03 corn Not regulated Not regulated

Acetatrine 0,03 corn Not regulated Not regulated

Acetine А880 0,03 corn Not regulated Not regulated

Acetochlore 0,03 corn Not regulated Not regulated

Acetochloreantidot 0,03 corn Not regulated Not regulated

Acetochloreantidot АД-67 0,03 corn Not regulated Not regulated

Acetozine (control of

Acetochlore and

Atrazine)


Afugan Not allowed Not regulated Not regulated

Basagran 0,1 cereal crops Not regulated Not regulated

Basagran -New 0,1 cereal crops Not regulated Not regulated

Basudin 0,1 cereal crops Not regulated Not regulated

Bayleton 0,5 cereal crops Not regulated Not regulated

Baytex 0,15 cereal crops Not regulated Not regulated

Bayalan 0,2 cereal crops Not regulated Not regulated

Banvel Not allowed Not regulated Not regulated

Banlen 0,05 cereal crops Not regulated Not regulated

Bendiocarb 0,05 corn Not regulated Not regulated

Benomil (it’s metabolite is

karbendazim DDD - 0,01)

0,5 cereal crops Not regulated 0,1 cereal crops

Bentazone 0,1 cereal crops 0,2 corn

0,1 wheat

0,1 cereal crops


Beta-cypermetrin Not allowed wheat Not regulated Not regulated

Binapacril Not regulated Not regulated 0,01 cereal crops

Bitertanol baycor, baymal

sebatol

Not regulated 0,05 barley , wheat 0,05 зернов

Bifentrin

Not allowed in corn

0,2 wheat

0,5 wheat

0,05 barley

0,05 corn

0,5 wheat, barley

0,05 corn

Boricid (control of

Polycarbacin)


Bromidion Not regulated 5,0 cereal crops Not regulated

Bromoxynil 0,05 cereal crops Not regulated Not regulated

Bromopropylat Not regulated Not regulated 0,05 cereal crops

Butan 0,5 control of

Butylat


Butylat 0,5 corn Not regulated Not regulated

Valexon 0,05 cereal crops Not regulated Not regulated

Vernolat 0,5 corn Not regulated Not regulated

Vernolat - antidot 0,5 corn Not regulated Not regulated

Vinclozolin Not allowed Not regulated 0,05 cereal crops

Gamma-hexachlorinecyclo-

hexane(gamma-isomer

HCCH)

0,5 corn

0,2 wheat

0,01 corn, wheat Not regulated

Gvardian 0,03 corn Not regulated Not regulated

Hexaconasol Not regulated Not regulated 0,1 barley , wheat

0,02 corn

Hexachlorane 0,2 cereal crops Not regulated 0,01 cereal crops


Hexachlorinebenzol 0,01 wheat Minimum Permitted

Level (MPL) is not

determined or the

previous norm is

cancelled

0,01 cereal crops

Geptachlorine Not allowed 0,02 cereal crops Not regulated

Gerban 0,1 cereal crops Not regulated Not regulated

Geterofos Not allowed Not regulated Not regulated

Hexachlorcyclohexan

gamma-isomer


Glyphosat 0,3 corn

3,0 wheat

20, 0 barley

1,0 corn

5,0 wheat

20,0 barley

0,1 corn

5,0 wheat

Glyphosat-trimesium 0,3 barley Not regulated Not regulated

Glufosinate-ammonium 0,1 corn

seeds

0,02 milling grain

0,1 corn

Not regulated

Guazatin

0,05 milling grain Not regulated Not regulated

Humic acids Regulation is not

needed for corn


Sodium salts of humic acids Regulation is not

needed for cereal

crops


Dactal Not allowed MPL is not determined

or the previous norm is

cancelled

Not regulated

2,4 –D

Dichlorinephenoxyacetic

Not allowed in corn,

wheat

0,05 corn 0,05 cereal crops


acid 2,0 wheat

DDD, DDE, DDT 0,02 milling grain,

corn

0,1 milling grain 0,05 cereal crops

Deltametrin 0,01 cereal crops 2,0 cereal crops 1,0 cereal crops

Demeton (-0 and –S

isomers)

0,35 milling grain MPL is not determined


cancelled

Not regulated

Decis control of

Deltametrin


Decis-forte control of

Deltametrin


Decis duplet control of

Deltametrin


Decis-quick control of

Deltametrin


DET agains cockroaches,

bed-bugs, fleas, ants

control of

Deltametrin


Diazinone 0,1 cereal crops

0,1 barley

0,02 corn 0,02 cereal crops

4,7-Dioxy -5-

methylundecanol -2

Regulation is not

needed


N-(1,1-dikso-tiolan-3-

methyl)-

Ditiocarbamat potassium

0,2 cereal crops


Dianat Not allowed Not regulated Not regulated

Diamin D 600 Not allowed (control

of 2,4 – D)



Diapren 0,25 control of 2М-

4CP


Diquat

Not regulated 5,0 barley

0,05 corn

2,0 wheat

10,0 barley

1,0 corn

0,05 wheat

Dicamba Not allowed in corn Not regulated Not regulated

Dimethanamid 0,02 corn Not regulated Not regulated

Potassium salt of dihydro-

asparaginic acid of dimethyl

ether

Not allowed in corn Not regulated Not regulated

Dimethyldiethanol

ammonium dimethyl -

phosphoric sour

0,05 barley Not regulated Not regulated

Dimetoat

Not regulated for

milling grain

0,05 wheat

0,3 wheat

Disulfoton

Not regulated 0,2 barley ,

0,2 wheat

0,02 corn

0,2 barley

0,1 wheat

0,02 corn

Difenacin Strict control during

storage and usage


Difenoconazol Not allowed in

barley


Diflubenzuron 0,1

corn


1,3-Diftorpropanol -2 Not allowed Not regulated Not regulated

Dichlobutrazol 0,1 wheat Not regulated Not regulated


Dichloralurea Not allowed Not regulated Not regulated

Dichlorhydrate N1-(3-

dimethylaminopropil

(amidin trychloracet)

Regulation is not

needed for

wheat,

barley


Dichlorprol (2,4 –DP) 0,05 cereal crops Not regulated Not regulated

1,2- Dibromoethane Not regulated Not regulated 0,01 cereal crops

Dichlorethan 7,0 cereal crops Not regulated 0,01 cereal crops

Dyhlofos 0,02 cereal crops 5,0 cereal crops 2,0 cereal crops

Dinitroortonrezol DNOC Not allowed Not regulated 0,05 cereal crops

Dosanex 0,1 cereal crops Not regulated Not regulated

Dursban 0,1 cereal crops Not regulated Not regulated

Dual 0,05 corn Not regulated Not regulated

Isoxaflutol 0,02 corn Not regulated Not regulated

Imidacloprid Not allowed in corn 0,05 cereal crops

Not regulated

Imazalil

Not regulated 0,01wheat Not regulated

Iprodion Not regulated 2,0 barley 0,5 wheat

1,0 barley

0,02 corn

Carbofos 3,0 corn Not regulated Not regulated

Cambio Not allowed Not regulated Not regulated

Camphechlor Not regulated Not regulated 0,1 cereal crops

Carbaryl Not allowed in corn 0,02 corn 0,5 cereal crops


2,0 wheat

Carbendazim 0,2 cereal crops Not regulated 0,1 cereal crops

Carboxyn Not allowed corn Not regulated Not regulated

Carbosulphan Not allowed corn 0,05 corn 0,05 cereal crops

Carbofuran

Not regulated 0,5 corn

0,1 cereal crops

Cafpon Not allowed (control

of 2,4 – Д)


Quintocen Not allowed cereal

crops

0,01 cereal crops 0,02 cereal crops

Clopyrapid 0,1 corn Not regulated Not regulated

Clofentezin Not regulated Not regulated 0,02 cereal crops

Cowboy Not allowed Not regulated Not regulated

Compasan 0,5 cereal crops Not regulated Not regulated

Compas Not allowed Not regulated Not regulated

Cotoran 0,5 barley Not regulated Not regulated

Kresoxim-methyl Not regulated 0,1barley

0,05 wheat

0,05 cereal crops

Croneton 0,05 cereal crops Not regulated Not regulated

Kroton-lakton- sirets 0,2 cereal crops Not regulated Not regulated

2-Byten-4-olyd-2-okso-2,5-

dihydro-furan

0,2 corn, wheat Not regulated Not regulated

Cuprosan 5,0 control of copper Not regulated Not regulated

Curomazine Not regulated Not regulated 0,05 cereal crops

Laddok Control of Atrazine

and Basagran



Laddok-new Control of Atrazine Not regulated Not regulated

Lancet Not allowed, control

of 2,4 – D


Lentagran 0,5 corn Not regulated Not regulated

Lentagran –comby Control of Atrazine Not regulated Not regulated

Lindan Not regulated Not regulated 0,01 cereal crops

Lintur Not allowed Not regulated Not regulated

Linuron Not allowed Not regulated Not regulated

Lontrel 0,1 cereal crops Not regulated Not regulated

Lontrim Not allowed, control

of 2,4 – D


LotusD Not allowed control

of 2,4 – D


Lyambda-cigalotrin 0,01 corn, wheat Not regulated 0,05 barley

0,02 cereal crops

Maloran 0,1 cereal crops Not regulated Not regulated

Maloran-special 0,05 control of

Chlorbrommuron

and Dual


Malathion 3,0 cereal crops 8,0 cereal crops 8,0 cereal crops

Mecoprop 2М-4CP 0,25 barley Not regulated Not regulated

Mercaptofos 0,35 cereal crops Not regulated Not regulated

Metakryfos Not regulated Not regulated 0,05 cereal crops

Metalaxil Not allowed corn

0,1 cereal crops

0,05 cereal crops 0,05 cereal crops

Metalaxil-М (isomeric 0,1 corn Not regulated 0,02 cereal crops


form)

2-Мethyl -4-

dimethylaminomethy

lbenzymi-dazol-5-

oldihydrochloride

Not allowed corn Not regulated Not regulated

Methidathion Not allowed 0,1 corn Not regulated

Metoxyfenozid Not regulated 0,02 corn Not regulated

Metolachlor control of Dual Not regulated Not regulated

Metopren 0,5 cereal crops 5,0 cereal crops Not regulated

Metofen Not allowed (control

of 2,4 – D)


Miklobutanil Not allowed cereal

crops

Not regulated 0,02 cereal crops

Milgo 0,1 cereal crops Not regulated Not regulated

Miltox-special 1,0 control of Cineb Not regulated Not regulated

Methallyl chloride 3,5 cereal crops Not regulated Not regulated

Metaldegid 0,7 cereal crops Not regulated Not regulated

Metation 1,0 cereal crops Not regulated 0,02 cereal crops

0,1 corn

Metafos Not allowed Not regulated Not regulated

Metsulfuron-methyl Not regulated Not regulated 0,05 cereal crops

Neocydol control of Basudin Not regulated Not regulated

Nikosulfuron 0,2 corn Not regulated Not regulated

Nitrogen Not allowed Not regulated Not regulated

Nitrofen Not allowed Not regulated 0,01 cereal crops

Oxydemeton-methyl Not regulated Not regulated 0,1 barley


N-Oxide 2,6-

dimethylpiridine

Not allowed

wheat


Oxicarboxin 0,2 wheat Not regulated Not regulated

Paraivat dichloride Not allowed 0,1 corn Not regulated

Parathion Not regulated Not regulated 0,05 cereal crops

Parathion-methyl Not regulated Not regulated 0,02 cereal crops

Pendimethalin Not allowed in corn,

wheat


Penconazol Not regulated Not regulated 0,05 cereal crops

Perimethrin 0,1 corn, barley 2,0 cereal crops 2,0 cereal crops

Picloram potassic salt Not allowed in corn Not regulated Not regulated

Piridat 0,05 corn Not regulated 0,05 cereal crops

Pirimifos-methyl 1,0 wheat

5,0 barley , corn

(during storage)

7,0 cereal crops

5,0 cereal crops

Piretrins; registered product

Pirigrain BioS

1,0 wheat

0,3 wheat Not regulated

Policarbacin 0,2 cereal crops Not regulated Not regulated

Piperonyl butoxide Not regulated 30,0 cereal crops Not regulated

Pirimicarb Not regulated 0,05 barley ,

0,05 wheat

Not regulated

Polistimulin А-6 Not allowed

control of 2,4 – D


Plantvax 0,2 cereal crops Not regulated Not regulated

Plondrel 0,1 cereal crops Not regulated Not regulated


Pesticide 242 (chloropicrin) 0,1 (grain

processing)


Pressing Not allowed Not regulated Not regulated

Primicide 0,1 corn Not regulated Not regulated

Prime extra control of Dual and

Atrazine


Prime extra Gold control of Dual and

Atrazine


Primsulfuron-methyl 0,05 corn Not regulated Not regulated

Prometrin 0,1 corn Not regulated Not regulated

Propazine 0,2 cereal crops Not regulated Not regulated

Propargit Not regulated 0,1 corn Not regulated

Propachlore 0,3 corn Not regulated Not regulated

Propiconazol 0,1 barley , wheat 0,05 barley , wheat 0,05 cereal crops

S-Propyl-О-phenyl-О-

еthylphosphate

Not allowed corn Not regulated Not regulated

Protrazine control of Atrazine Not regulated Not regulated

Profenofos Not regulated Not regulated 0,05 cereal crops

Prochloraz 0,1 cereal crops 2,0 cereal crops

1,0 barley

0,5 wheat

0,05 corn

Pentachlore-nitrobenzole Not allowed Not regulated Not regulated

Ramrod 0,3 cereal crops Not regulated Not regulated

Resmetrin Not regulated Not regulated 0,05 cereal crops

Rincord 0,05 cereal crops Not regulated Not regulated

Treaters containing mercury Not allowed Not regulated Not regulated


Ronstar PL control of Propanid Not regulated Not regulated

Romucid 0,1 cereal crops Not regulated Not regulated

Rotaprim control of Atrazine Not regulated Not regulated

Rimsulfuron 0,01 corn Not regulated Not regulated

Sangor 0,1 control of

Picloran

Not allowed in corn


Carbon bisulfude 10 cereal crops Not regulated Not regulated

Sirotsyn Control of Cineb. Not regulated Not regulated

Simazine 1,0 cereal crops Not regulated Not regulated

Simicydin 0,1 corn Not regulated Not regulated

Cyfluthrin Not regulated 0,05 corn Not regulated

Spinosad (in the process of

registration)

Not regulated 1,0 cereal crops Not regulated

Spiroxamine 0,1 wheat Not regulated 0,05 cereal crops

0,3 barley

Sulphosulfuron 0,005 wheat Not regulated 0,05 cereal crops

Surpass 0,5 corn Not regulated Not regulated

Suffix BV 0,2 cereal crops Not regulated Not regulated

Terbuconazole Not regulated 0,2 barley

0,05 wheat

Not regulated

Tiabendazol


Terbufos

Not regulated 0,01 corn, wheat Not regulated


Tiametoxan 0,4 corn Not regulated Not regulated

Tiofanat-methyl 1,0 cereal crops Not regulated Not regulated

Tiofos Not allowed Not regulated Not regulated

Tiram Not allowed Not regulated Not regulated

N-Beta-metoxyethyl -

chloracetate-О- toluidid

0,5 corn Not regulated Not regulated

Toluin 0,5 corn Not regulated Not regulated

Thifensulfuron-methyl 0,05 corn Not regulated Not regulated

Thordon 101 Not allowed control

of 2,4 – D


Triazofos Not allowed 0,05 cereal crops Not regulated

Tridemoh Not regulated Not regulated 0,2 barley

0,05 wheat, corn

Triadimenol Not allowed milling

grain

0,5 barley

0,2 cereal crops

0,2 wheat, barley

0,1 corn

Triadimefon 0,5 barley 0,5 barley

0,1 cereal crops

0,2 wheat, barley

0,1 corn

Triasulfuron Not regulated Not regulated 0,05 cereal crops

Trifloxystrobin Not regulated 0,5 barley

0,2 wheat

Not regulated

Triticonazole Not allowed Not regulated Not regulated

Triforin

0,05 cereal crops 0,1 milling grain 0,1 wheat, barley

0,05 corn

О-methyl-О-(2,4,5-

trichlorephenyl)-O-

0,5 cereal crops MPL is not determined


Not regulated


ethyltiophosphate cancelled

Trichlorephon 0,1 corn,

milling grain


Trezor Not allowed control

of 2,4 – D


Famoxadone

0,1 cereal crops

0,2 barley

0,1 wheat

0,02 cereal crops

Fenamifos Not regulated Not regulated 0,02 cereal crops

Fenvalerat 0,1 corn

0,02 wheat,

barley

2,0 cereal crops

0,05 wheat

0,2 barley

Fenitrotion 1,0 cereal crops 10,0 cereal crops

0,5 wheat, barley

0,05 corn

Fenpropimorf

Not regulated 0,5 barley ,

0,5 barley , wheat

0,05 corn

Fenbukonazol Not regulated 0,2 barley

0,1 wheat,

Not regulated

Fenoksaprop-P-etyl Not allowed Not regulated Not regulated

Fention


Fentoat 0,1 wheat Not regulated Not regulated

Fipronil 0,002

corn

0,002 barley , wheat

0,01 corn

Not regulated

Phytobacteriomicin Not allowed Not regulated Not regulated

Flamprom-m-methyl 0,06 wheat Not regulated Not regulated


Fludioxonil Not allowed in

cerea, crops

0,05 cereal crops

Not regulated

Fluzilazol

Not allowed in

cereal, crops

0,1 barley

Not regulated

Fluometuron 0,5 barley Not regulated Not regulated

Fluorglicofen-ethyl 0,01 wheat Not regulated Not regulated

Flupoxan 0,1 wheat Not regulated Not regulated

Flutriafol 0,1 wheat, barley Not regulated Not regulated

Flucytrinat Not allowed Not regulated 0,05 cereal crops

Fozalon 0,2 cereal crops Not regulated Not regulated

Foxim 0,05 corn

0,02 cereal crops


Forat Not allowed 0,05 wheat, corn Not regulated

Formothion Not regulated Not regulated 0,02 cereal crops

Frontier 900 0,02 cereal crops Not regulated Not regulated

Fumaran Not allowed

corn


Furathiocarb (metabolite-

carbofuran)

Not allowed Not regulated 0,05 cereal crops

Chlorebromineuron 0,1 corn Not regulated Not regulated

Chlordane Not allowed 0,02 corn, 0,02 wheat 0,02 cereal crops

Chloremekvatchloride 0,1 wheat 2,0 barley

3,0 wheat

Not regulated

Chlorothalonil Not regulated 0,1 barley , wheat Not regulated


Chlorofos 0,1 cereal crops Not regulated Not regulated

Chlorpirifos

0,1wheat,

cereal crops

10,0 wheat 0,2 barley

0,05 cereal crops

Chlorsulfoxim 0,005 corn Not regulated Not regulated

Chlorsulfoxim -methyl Not allowed Not regulated Not regulated

Chlortoluron Not allowed Not regulated Not regulated

Calcium cyanide,

Potassium cyanide,

Composition of Calcium

cyanide

and Potassium cyanide

Not allowed MPL is not determined


cancelled

Not regulated

Cynidon-ethyl 0,1 cereal crops Not regulated 0,1 cereal crops

Cydial 0,1 wheat Not regulated Not regulated

Cypermethrin 0,04 corn

0,1 wheat

0,5 barley

0,05 corn

0,2 wheat

2,0 barley ,

wheat

0,01 corn

Cyprodinil

Not regulated 3,0 barley

0,5 wheat

Not regulated

Cyproconazole 0,05 barley Not regulated Not regulated

Chistolan Not allowed Not regulated Not regulated

ЕРТС 0,05 corn Not regulated Not regulated

ЕРТС+antidote 0,05 corn Not regulated Not regulated

Endosulfan

Not regulated 0,1 corn

0,2 wheat

Not regulated


Epoxiconazole 0,05 barley Not regulated Not regulated

Esbiotrin Not regulated,

Strict control during

storage and usage


Esfenvalerate Not allowed in

wheat

0,02 barley

2,0 wheat Not regulated

Etamon 0,05 barley Not regulated Not regulated

Etefon 0,5 wheat 1,0 barley ,

1,0 wheat

0,2 wheat

0,5 barley

0,05 corn

Ethylentiourea

(Product of metabolism of

cineb,kyprozan,ditan М-45,

kyprocin, policarbacin,

polimarcin)

0,02 cereal crops Not regulated Not regulated

Ethylendichlorid 7,0 cereal crops MPL is not determined


cancelled

Not regulated

Ethylene oxide Not regulated Not regulated 0,02 cereal crops

Ethyofencarb 0,05 cereal crops Not regulated Not regulated

5-Ethyl-5- hidroksimetil -2-

( furil-2)-1,3-dioxan

0,1 wheat Not regulated Not regulated

Etrimfos 0,2 cereal crops Not regulated Not regulated

Ehoprophos Not regulated 0,02 corn Not regulated


APPENDIX E: GAPS BETWEEN UKRAINIAN, EU, AND INTERNATIONAL QUALITY

STANDARDS

Tables 76: Ukrainian Wheat Quality Standards

Soft Wheat Requirements

Parameters Parameters and Standards for soft wheat as per grades

1 2 3 4 5 6

Standard

composition

I-IV types I-IV types, VII type admitted

Test weight, g/l,

min

760 755 730 710 710 Not limited

Moisture, %,

max

14.5 14.5 14.5 14.5 14.5 14.5

Grain

admixture, %,

max

5.0 5.0 8.0 10.0 15.0 15.0

Including

germinated

grains

1.0 1.0 3.0 3.0 5.0 In the

range of

total grain

admixture

Foreign

admixture,%,

max

1.5 2.0 3.0 4.0 5.0 5.0

Including

Broken kernels 0.2 0.2 0.5 0.5 1.0 1.0

Fusariose

kernels

0.3 0.5 1.0 1.0 1.0 1.0

76

Number of tables and Annexes as per DSTU 3768:2004 text


Stemmed

kernels

0.3 0.5 0.5 0.5 0.5 0.5

0.3 0.3 0.5 1.0 1.0 1.0 Mineral

admixture,

including

stones, slag

and ore

0.15 0.15 0.2 0.2 In the range of total

mineral admixture

Impurities

including

0.2 0.3 0.5 0.5 0.5 0.5

0.05 0.04 0.1 0.1 0.1 0.1 smut and ergot,

Acroptylon

repens, Lolium

temulentum,

Sophora

alopecuroides

L, Thermopsis

lanceolata

(totally)

0.05 0.05 0.1 0.1 0.1 0.1

Coronilla varia 0.1 0.1 0.1 0.1 0.1 0.1

Heliotropium

ellipticum var.

lasiocarpum

0.1 0.1 0.1 0.1 0.1 0.1

Trichodesma

incanum

Not permitted

Smut grains, %,

max

5.0 5.0 5.0 8.0 8.0 10.0

14.0 13.0 12.0 11.0 10.0 Not limited Mass fraction

of protein, on

dry matter, %,

min

Wet Gluten, %,

min

30 27 23 18 18 Not limited

Gluten Quality I I-II I-II I-II I-III Not limited


Group

Units of Gluten

Device

45-75 45-100 45-100 20-100 20-100 Not limited

Falling number,

sec, min

200 200 150 100 max 100 Not limited

Notes. Wet gluten mass characteristics and its quality are not mandatory to determinate soft

wheat grade. Its norms and standards are given for putting them into wheat delivery contract to

millers (flour production).

During wheat grade determination in case of defining germinated grains and falling number the

falling number is preferred.

Hard Wheat Requirements

Parameters Parameters and Standards for soft wheat as per grades

1 2 3 4 5

Standard

composition

V and VI

types

V, VI types, VII type is

admitted

Other types

wheat grains,

%, max

10 10 10 10 Not limited

Including

white-grained

wheat kernels


Test weight,

g/l, min

750 750 730 710 Not limited

Moisture, %,

max

14.5 14.5 14.5 14.5 14.5

Glassiness, %,

min


Grain

admixture, %,

max

5.0 5.0 8.0 10.0 15.0


Including

germinated

grains

1.0 1.0 3.0 3.0 In the

range of

total grain

admixture

Foreign

matters,%, max

2.0 2.0 3.0 5.0 5.0

Including

Broken kernels 0.2 0.2 0.5 1.0 1.0

Fusariose

kernels

0.3 0.5 0.5 1.0 1.0

Stemmed

kernels

0.5 0.5 0.5 0.5 0.5

0.3 0.3 0.5 0.5 1.0 Mineral

admixture,

including

stones, slag

and ore

0.15 0.15 0.2 0.3 In the

range of

total

mineral

admixture

Impurities

including

0.2 0.3 0.5 0.5 0.5

0.05 0.05 0.1 0.1 0.1 smut and ergot,

Acroptylon

repens, Lolium

temulentum,

Sophora

alopecuroides

L, Thermopsis

lanceolata

(totally)

0.05 0.05 0.1 0.1 0.1

Coronilla varia 0.1 0.1 0.1 0.1 0.1

Heliotropium

ellipticum var.

0.1 0.1 0.1 0.1 0.1


lasiocarpum

Trichodesma

incanum

Not permitted

Smut grains, %,

max

5.0 5.0 5.0 5.0 10.0

Mass fraction

of protein, on

dry matter, %,

min

15.0 14.0 12.0 11.0 Not limited

Falling number,

sec, min

200 200 151 100 Not limited

Wheat for further exports to be in health condition, of normal smell and color, not to be infected by pests and to meet with Table 4 requirements.

Export Soft and Hard Wheat Requirements

Parameters Wheat for milling Wheat for Feeding and other

wheat

Test weight, g/l Min 730 Not limited

Moisture, % Max 14.5 Max 14.5

Mass fraction of protein, on

dry matter, %

Min 10.0 Max 10.0

The wheat requirements according to its types, grain admixtures, foreign matters and others are

put into the contract between the Seller and the Buyer.


Table: Ukrainian Barley Quality Standards77

Parameters Requirements for barley used for

Food Malt in spirits

production

feeding brewing

1 grade 2 grade 3 grade 1 grade 2 grade

Color Yellow with

various tints

Color of health grain. Dark

grains are permitted

Light-yellow

or yellow

Light-yellow,

yellow or

grey-yellow

Moisture, %,

max

14.5 15.5 15.5 14.5 15.0

Test weight,

g/l, min

600 570 Not limited Not limited

1000 kernels

weight, g, min

Not limited 40.0 38.0

Protein, %,

max

Not limited 11.0 11.5

Foreign

matters, %,

max

2.0 3.0 5.0 1.0 2.0

including

Mineral

admixture

0.3 0.5 1.0 0.5 0.5

including

stones 0.1 0.1 0.5 0.1 0.1

slag and ore 0.05 0.05 0.1 0.05 0.05

Damaged

kernels

0.2 In the range of total foreign admixture

77

DSTU 3769-98: Feed Barley – Technical Conditions


wild oats 1,0 In the range of total foreign admixture

corncockle 0.3 0.3 0.5 0.3 0.3

Fusariose

kernels

1.0 1.0 1.0 Not permitted

Impurities 0.2 0.2 0.2 0.2 0.2

including

smut and ergot

Acroptylon

repens,

Lolium

temulentum,

Sophora

alopecuroides

L, Thermopsis

lanceolata

(totally)

0.05 In the range of total foreign matters

Heliotropium

ellipticum var.

lasiocarpum

and

Trichodesma

incanum

Not permitted

Grain

admixture, %,

max

7.0 3.0 15.0 2.0 5.0

Including

Barley kernels

put to grain

admixture


Germinated

kernels


Other grain 3.0 In the range of total foreign matters


kernels and

seeds put to

grain

admixture

Including

Rye and oats

kernels


Small kernels,

%, max

5.0 5.0 Not limited 5.0 7.0

Size, %, min Not limited 85.0 70.0

Germination

ability, %, min

(for grain

delivered not

earlier 45 days

after

harvesting)

Not limited 92.0 Not limited 95.0 92.0

Vitality, %,

min (for grain

delivered not

earlier 45 days

after

harvesting)

Not limited 92.0 Not limited 95.0 95.0

Pests

infectiousness

Not permitted excluding tick infectiousness not higher of 1st degree

Note 1. Size is a ratio of weight of barley kernels remained on separator with oval holes 2.5 mm

X 20 mm (bolter Nr 2a – 25x20 as per TC 5.897-111722(1)) to main grain mass in per cents.

Note 2. Recommended malting barley quality according to extract content, %, min, for the 1st

grade – 79.0, for the 2nd grade – 77.0, are put into the contract between the Seller and the Buyer.


Table: Ukrainian Corn Quality Standards78

Corn Technical Conditions. Quality parameters

- corn is divided into types as per botanical and biological characteristics, color and grain

form

- Depending on using, corn is divided into 5 groups according to Table 1 requirements

Parameters Parameters and Norms for corn of various usage groups

Food

Concentrates

and Products

Baby

Nutrition

Groats and

flour

Starch and

Syrup

Feeding

Type I-VIII types I-IX types

Moisture, %,

max

15.0 15.0 15.0 15.0 15.0

Particularly

after drying,

%, min

13.0 13.0 13.0 13.0 13.0

Grain

admixture, %,

max

7.0 3.0 7.0 7.0 15.0

Including

Germinated

kernels

2.0 Not permitted 2.0 In the range

of grain

admixture

5.0

Other grains

kernels and

seeds out to

grain

admixture

Not permitted 2.0

78

National Standard of Ukraine DSTU 4525:2000 Corn. Technical Conditions


Foreign

matters, %,

max

1.0 1.0 2.0 3.0 5.0

Including

Damaged

kernels

0.5 Not permitted 1.0 1.0 1.0

Mineral

admixture

0.3 0.3 0.3 0.3 1.0

Including

stones, slag

and ore

0.1 0.1 0.1 In the range of mineral

admixture

Impurities 0.2 Not permitted 0.2 0.2 0.2

Including

smut and

ergot

0.15 Not permitted 0.15 0.15 0.15

Russian

centaury and

Coronilla

0.1 Not permitted 0.1 0.1 0.1

Heliotropium

ellipticum

var.

lasiocarpum

and

Trichodesma

incanum,

castor-oil

plant,

ambrosia

Not permitted

Size, %, min,

for corn of

VII-VIII

types

80.0 not

limited

not limited


Germination

ability, %,

min

not limited 55.0 not limited 55.0 not limited

Pests

infectiousness

Not permitted Not permitted excluding tick infectiousness not

higher of 1st degree

Table: EU Grain Quality Standards79

Hard wheat Soft Wheat Barley Corn

A. Max Moisture 14.5% 14.5% 14.5% 13.5%

B. Max Content of

Matters which are not

the main grains of

impurities

1. Broken grains

2. Grain admixture

(excluding named in

Point 3)

including

a) shrunken grains

b) other grains c) pests damaged

grains d) colored germ

kernels e) black heated

grains 3. Spotted kernels

and/or fusariose

kernels

including

12%

6%

5%

3%

12%

5%

7%

12%

5%

12%

5%

12%

5%

5%

79

Source: EC Commission Decree #824/2000 dated 19.04.2000 about creating grain accepting procedures by intervention agencies and choosing of grain quality analyses (consolidates version added in 2003, 2004, 2005 and 2006)


- fusariose kernels

4. Germinated kernels

5. Other admixtures

including

a) foreign seed: - toxic - others b) damaged

kernels: - black heated

grains during drying

- others c) foreign matters d) husk e) ergot f) rotten kernels g) dead pests and

pests parts

0.50%

5%

1.5%

4%

3%

0.10%

0.05%

0.50%

--

--

4%

3%

0.10%

0.05%

3%

--

--

6%

3%

0.10%

0.50%

--

--

6%

3%

0.10%


0.05% 0.05%

C. Max per cent of

wholly or partially

weak kernels

27%

D. Min test weight,

kg/gl

78 73 62 71

E. Min protein content

in dry matter, %:

- 2000/2001 MY

- 2001/2002 MY

-2002/2003 MY and

later

11.5%

11.5%

11.5%

10.0%

10.3%

10.5%

F. Hagberg Falling

Number, sec

220 220

G. Zeleny min

parameter. ml

22

the public and private sectors in the sustainable development of the ukrainian … report.pdf ·...

Documents