Oleg MUZYCHENKO, journalist
We have already got used to the fact that Ukraine's
agro-industrial complex comprises the three main groups of agricultural producers, namely
large collective farms with various types of ownership on property and land, medium and
small farms, and small yet numerous personal plots belonging to individuals. Until
recently, these producers were distinguished as regards their relation to the public and
the private sectors. The public sector embraced collective farms and state farms that were
transformed into collective agricultural enterprises just a couple of years ago. By the
way, the State Statistics Committee of Ukraine reports that there were 12,700 collective
agricultural enterprises in 1999, including private-leasehold companies, inter-sectoral
agricultural enterprises, and state farms. Precisely these businesses hold control over
more than 90% of the country’s arable land. The private sector was represented by
farmers (more than 36,000 companies in 1999 that farmed 1.2 million ha or 2.6% of the
total arable land of Ukraine) and personal plots (11.5 million entities that farmed 4.3
million ha of land).
Since the December 3, 1999 President’s decree “On
acceleration of reforms in the agrarian sector of the economy”, the public sector has
died out because all the collective agricultural enterprises have been transformed into
private businesses. Though the process is still pending on and arousing mixed opinions of
the public, most agrarian professionals insist that the age of collective farms is over
for long.
At the same time, new market players, which quickly and
sometimes aggressively get on the market and secure their positions, have been co-existing
and developing in the Ukrainian agro-industrial complex with the mentioned companies for
several years now. It is the private companies that have never been directly engaged in
agriculture until recently. Today, these freshman agriculturists control hundreds of
thousands or perhaps even millions of hectares of land (there are no official statistics
on this figure so far). Instead of the primary landowners and tenants, these lands are
farmed by the so-called outer agricultural operator firms. The author of this article has
had a chance to meet people working for these firms, which cultivate ten thousand and more
hectares of arable lands, some of which are their property, though the bulk is leased from
several agricultural enterprises that experience financial and productive difficulties
trying to farm these lands on their own. By the way, an average collective agricultural
enterprise owns some 2,500 ha of arable lands, an average farm has some 30 ha, and an
average personal plot extends over roughly 0.4 ha of arable land. Therefore, a single
operator firm is about the same as a dozen of collective agricultural enterprises, or a
hundred of farmers, or innumerable personal plots.
Independent experts mention that appearance of
agricultural operator firms in the agrarian sector is not something uniquely Ukrainian.
Similar things are happening in Russia and in other parts of the former Soviet Union.
Besides, these trends are rather familiar to the developed economies as well. This
embraces various types of land lease; custom farming, i.e. contractual rendering of
agricultural services to landlords; market and industrial contraction, vertical
integration, etc. The only distinguishing feature of this process in Ukraine compared to
the Western world is that both local processing companies (milling firms, sugar
refineries, oil and grease works, etc.) and traders (the ones that trade in grain) have no
other alternative but to vertically integrate in production of grain, sunflower seeds,
sugar beet, potatoes, and all the other farm produce. Ukraine has such peculiar problems
as provision of the necessary resources to agriculturists, who often own nothing but a
‘future harvest’, and the problem of making the farmers pay back the borrowed
resources and loans. In the Western countries, there are simply no such problems for,
let’s say, grain traders and, most definitely, for manufacturers and suppliers of
materials, fuel, lubricants, and farm machinery. Basically, it is up to the Western trader
whether to integrate into farm production in order to, let's say, expand influence or get
a foothold on the domestic or foreign market or to do the routine buy-and-sell trade in
farm produce.
What is happening here in Ukraine? Why not only grain
traders and processing companies, but also the suppliers of petroleum products, plant
protectants, and farm machinery have made a decision to plunge themselves into
agriculture. There are several reasons why and we have already mentioned that almost all
of them are mainly forced. For instance, operator firms that emerge from banking
institutions successfully manage to attract both foreign and internal investments in
agriculture. Banks show more interest in doing business with these agricultural operator
firms because they have an opportunity to constantly control their investments in this
case, whereas the traditional producers simply fail to do efficient investment management.
Naturally, bankers are not inclined to waste money. In turn, suppliers of resources and
machinery that have been desperately trying for a couple of years to get back what the
agriculturists owe them (the amount of these debts extends to several millions of
hryvnyas) have now started setting up subsidiary agro-firms, which frequently tenant
arable lands from debtors. At the same time, quality and quantity of the required farm
produce is the problem of the day for processing companies and traders. It is no secret
that quite a few players on the agro-market have been lately complaining of the poor
quality of produce, notably grain, sunseeds, and sugar beet, and of the worsened yields of
almost all the crops cultivated. Sure thing, both quality and yields should be enhanced,
while the peasants have neither money nor opportunities to do this. Today they hardly
manage to perform the minimal agricultural cycle, i.e. to purchase fertilizers, seeds, and
plant protectants. Our scientists believe that in the past few years Ukraine has been
yielding harvests mainly owing to the natural fertility of local soils.
Processing is the most common doorway to agriculture for
the operator firms. For example, a grain trader can allocate some of its profits to
purchase shares in companies that store grain (elevators, granaries) or process cereals
(mills, flour milling plants). Local infrastructure has to be rather developed to supply
farm produce to these newly affiliated companies. To do this, the company acquires
machinery and resources, which are not simply donated to nearby farms, but are efficiently
applied to render harvesting or storage services. All this is performed by subsidiary
companies of the parent grain trader. Afterwards, it comes to either acquisition or
long-term lease of arable land, which makes it possible for the new companies to perform
the full production process. To be sincere, there are several other examples of how
operator firms start with farming and sell their farm produce to processing companies or
to the external market. Acknowledging the market realities (end products cost more than
raw materials and yield greater profits), these companies get into the processing business
as well.
Spokesmen of agricultural operator firms mention that
this production architecture has its obvious advantages, such as elimination of
intermediary services, normal agro-technical cycle (if the company has enough financial
means), which in turn leads to greater yields, lower production costs, and, of course, to
adequate quality.
By the way, these transformations of the Ukrainian
agro-industrial complex are quite revolutionary by themselves, although the new
agricultural operator firms so far hold only a moderate portion of the agro-market in
terms of physical output and influence on the market. However, keeping in mind the
willingness of executive authorities to further advance the agrarian reforms towards the
market economy, agricultural operator firms have more prospects in future than most
agricultural enterprises that are in fact nothing but bankrupts splitting into smaller
private farms (limited liability companies and private-leasehold companies) or farms and
private plots, which account for 60 to 90% of the total farm production in the country
according to different estimates. Firstly, agricultural operator firms are established for
large-scale industrial and merchant agricultural production, which is targeted at sales on
various domestic and foreign markets. Secondly, these firms are more flexible and can
expand production outputs or switch to cultivation of specific crops depending on the
market situation. Thirdly, agricultural operator firms are the reliable way to bring loans
and investments into agriculture, because, as a rule, these firms are backed by reliable
and authoritative companies. Fourthly, it is the agricultural operator firms that purchase
the bulk of brand-new farm machinery, equipment, and technologies for Ukrainian
agriculture today. These are the ponderable factors that can make the new peasants
revolutionize the traditional understanding of the agricultural business in Ukraine.
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