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AGRO perspective ¹6 '2000
 Reforms |
The year 2000 will enter the history as the year of actual agricultural reforms in the Ukrainian economy. Not only does the renowned December Decree of the President on radical changes in the agriculture provide for new types of agricultural business, but it also sets the new principles of relations between the State and agricultural producers. Today, it is up to the land’s owner to define what to do with this land. At the same time, he is responsible for his actions to the State and the society. Journalists Arkady Muzychuk and Alexey Mishchenko discuss these and other issues with Mikhail Gladiy, Vice Prime Minister of Ukraine on Agro-Industrial Sector.
Reference note. Mikhail Vasilyevich Gladiy was born in 1952 in Lvov region. He graduated from a veterinary institute and worked in the agro-industrial complex and local authorities from 1975 till 1992. From 1992 until 1996 he held higher offices in Lvov Regional Council of People’s Deputies and in 1997-1999 he headed Lvov Regional State Administration. Since 1999, Mr. Gladiy has been the Vice Prime Minister of Ukraine on Agro-Industrial Sector. Mr. Gladiy is a doctor of economics, Corresponding Member of the Ukrainian Academy of Agrarian Sciences, and chairman of the Agrarian Party of Ukraine.
- Mr. Gladiy, reforms of the Ukrainian agro-industrial complex have been discussed during almost all the years of Ukraine’s independence. Decree of the President “On urgent measures to accelerate reforms in the agrarian sector of the economy” was like a start signal showing that you should either run all the way or step out.
- I would like to emphasize straight away that the Ukrainian rural economy objectively wanted reforms long before the President's Decree became effective. Indeed, the Decree became the start signal for agriculturists and for executive authorities of the Ukrainian agro-industrial complex, as well as encouraged efficient landowners who are interested in the fruits of their labor. Tedious work on establishment of new business establishments and creation of the necessary conditions for their successful operations has been going on for more than half a year.
The key task is to get the sense of reforms over to every owner of land shares and to every farmhouse. The ideas must be explained with responsibility, in detail, and without fuss. Local authorities and mass media do this work. The course of reforms is under permanent control of governmental agencies. The main attention is first of all paid to efforts made to establish new private agricultural formations and develop the system of agricultural lease contracts.
Of course, it is still too early to make radical conclusions on economic efficiency of the work underway. However, as it was scheduled, the first and the most important stage of collective agricultural enterprises' restructuring had been completed before the spring field works. New productive units, primarily, the ones with collective ownership, have been established on the basis of these enterprises. Leasehold was legally registered. The preliminary analysis has shown that quite a few restructured enterprises reported greater quality and higher pace of spring cultivation works and more efficient utilization of labor, finance, and material resources. New private owners and agriculturists performed the sowing about as good as in the previous season and, most importantly, with lower expenditures. For example, petroleum consumption went one third down against the previous year’s figure. Approximately UAH 1 billion of rent are payable to owners of land shares.
The primary achievement is that the owners of land shares have begun to participate intensively in the process. Passivity, indifference, and temporization that used to be widespread among Ukrainian agriculturists have changed to high activity, demands, business interest, because now they see the opportunity to manage their future independently and to fully use what they earn.
All these factors have contributed to the current situation, when workers of 10,500 farms, i. e. of almost all farms subject to reforms, have already determined what kind of business to conduct. Out of more than 11,000 new agricultural entities, some 45% have been established as associations, 22% as private leasehold enterprises, 25% as agricultural cooperatives, and 6% as farms.
It must be noted that the many enterprises that have been conducting adjustments gradually (in the course of three to four years), currently report stable production growth and operate successfully in the market economy. The Presidential Decree aims precisely at such eventual results.
- Mass media currently publishes the results of the so-called public opinion polls that indicate that agricultural reforms’ approval rating has significantly lowered over half a year. How would you comment on this situation?
- It is not the workers that cultivate the land and contribute their labor and health to farm production who show discontent, but rather a numerous army of various managers ranging from work team accountants to heads of district state administrations and district councils of deputies. These people have got used to planned distribution and command management methods over the many years of the Soviet collective and state farming system. It is this portion of local officials that makes the most fuss trying to find the pettiest pretexts in the Decree in order to discredit the document and hamper its enforcement.
Their response is understandable enough. The land slides, in the full sense of this word, from under their feet or, what’s more correct, out of their hands. We speak here of millions of hectares of land that used to be part of the so-called state reserve and reserve fund. Heads of farms had an opportunity to do what they wished with this land. This huge area was handled by false farmers and various dummies from among the confidants of farm directors or district heads. Produce was not always accounted for in statistical statements and was sold for the benefit of this “narrow circle”. These individuals now form the public opinion.
The following facts also affect the situation. Analysis of the data performed by consulting- methodical centers, which were established in rural areas upon the initiative of the Agrarian Party of Ukraine, indicate that not all the business entities adopted the due well-balanced and correct state approach to enforcement of the Presidential Decree. In selected districts, irresponsible and prejudiced actions were taken as regards selection of what type of business to adopt, election of higher managers of future agricultural entities, registration of land share lease, allocation of farm property, allotment of physical land lots, and assignment of land lots as a single land tract should the farmers decide so.
These problems are still the reasons for most conflicts, misunderstandings, and speculations. Individual local officials cause such problems by taking indifferent attitude or, on the contrary, by zealous administrative meddling. In these cases, farmers feel discontent, oppose the reforms, or get disappointed.
- It is well-known that any significant project can be promoted and good results can be achieved if spirited, industrious, and professionally skilled people apply their efforts. What are the requirements set for the managers that bring to life these important and vital agricultural reforms?
- These have to be superbly skilled specialists who have already worked under market adjustment conditions and have proven themselves in the new business environment. To my opinion, these qualities must be natural to managers and organizers, i.e. competent, intellectual and, honest people devoted to the matter they are working on. Such employee potential is already taking shape in rural communities. First of all, this potential comprises the 36,000 Ukrainian farmers and the new generation of university graduates and young scientists. They are the key reserve of managers and representatives of the middle-class rural producers. The Ministry for Agrarian Policy, which is currently being changed and reconstructed, is doing its best in order to support and assist these producers. The Ministry’s functions, structure, power, and responsibilities of all kinds of executive officers are currently being revised in detail.
In particular, we plan to establish the department for agricultural reform and development with a network of agencies that would back practical execution of reforms. The advisory-consulting service is next in turn to be set up. Every rural dweller will have an opportunity to make use of the services rendered by this establishment. Finally, the Agricultural Chamber will be established to protect the rights and interests of minor landowners, who have no reliable lobby in the state authorities so far.
- Mr. Gladiy, you have mentioned assistance to the new generation of rural workers. What particular support and assistance did the State render to agricultural producers in order to speed up the reform? Officials are reluctant to keep in mind the agricultural producers, especially when it comes to procurement of produce for the state reserve.
- Over the past two years, the President and the government have done a lot in order to clean up the obstructions, to say so, in agricultural enterprises’ financial affairs. In particular, the tax burden that agricultural producers are subject to has more than halved, i. e. has been reduced by UAH 1.4 billion. Taxes payable of collective agricultural enterprises totaling UAH 2.4 billion have been written off and restructured. Fixed agricultural VAT rates have been introduced. Accounts on compensation of social object costs have been reciprocally set off. State subsidies on milk, meat, mineral fertilizers, seeds, and pedigree livestock continue coming further on. On the whole, the financial aid coming from the State has exceeded UAH 6 billion.
As we can see, agriculture has received significant support. Thus, it is no wonder that most sub-sectors of the agro-industrial complex, notably the processing sectors, operate stably. Collective enterprises and farms are boosting output of agricultural products. The year’s results showed that losses were reduced by UAH 1.4 billion, while some 14% of business entities earned profits.
To be more exact, last year around 26 million tonnes of grain, 2.7 million tonnes of sunflower seeds, and over 1.6 million tonnes of sugar was produced in Ukraine. This is even more remarkable since nearly one third of crop yields were lost owing to frosts and drought.
Meat and egg production are on the rise, while productivity of cows and poultry has increased. Pig herds added 6%. Production figures in food and processing industries, as well as those in the private sector, have improved as well. The private sector accounts for two thirds of the total milk and meat, more than 80% of fruits and vegetables, and 97% of potatoes. Private and auxiliary enterprises increase their production at the rates of 3 to 5% per year.
Nearly 33,000 farms that are not subsidized by the State earned more than UAH 27 million, which corresponds to over UAH 27 per hectare of land, whereas collective enterprises lost UAH 116 per hectare.
As a matter of fact, all the financial aid coming from the State was channeled to support inefficient collective enterprises. Here is a paradox: the laws and by-laws aim at development of market-economy companies, whereas financial and material resources are spent on resurrection of the system that has no future in this legal environment. To a considerable extent, the Presidential Decree dated December 3, 1999 resolves these problems.
- Do you think additional legislative instruments are indeed needed to speed up the reform in the agro-industrial complex?
- Efficient reforms are impossible without due legal provisions. Today, the agro-industrial complex wants several dozens of effective laws, whereas only slightly over ten have been generated so far. The laws in effect also need to be amended. First of all, it concerns the Land Code. Draft bills on the State land cadastre, on land protection, on purchase and sale of land estate, and others have been prepared.
Under the conditions, when land is transferred to private ownership, there is a need in laws on mortgage and land mortgage banking. They shall legalize the possibility of land mortgage loans and provide the effective mechanism of land disposal in case the debtor fails to pay back the credit.
In addition, pursuant to instructions mentioned in the President’s Address to the Parliament, we are working out the basic principles of formation and functioning of agrarian market mechanisms. The eventual document shall significantly limit the state’s interference in the agrarian market; provide market-type sales of resources and purchase of products with the purpose to optimize the prices, supply, and demand; and launch development of a branched network of agro-service and infrastructure-related institutions. The principles of rural social management and social security of rural inhabitants under the system of private ownership on land and property must also be worked out.
For instance, let us take the effective Law “On collective agricultural enterprises”. This legal act creates all the nourishing conditions for farm heads to adopt irresponsible approach to wage and salary payment and to directly ignore their obligations to the State. Owing to lack of legally registered private land ownership, it was impossible to apply any legal punishment to farm heads, because all the violations were approved with collective decisions. For these reasons, many farms did not act in compliance with instruction on lease of land and property shares. If a pensioner owns a share, rent is not paid. Very often, withdrawal of farmers from collective agricultural enterprises was artificially prohibited.
It is natural that under such conditions, banks discontinued issuing loans to agricultural producers and investors stopped investing in agriculture. The shadow economy expanded and social stratification in rural communities intensified.
These problems cannot be resolved with administrative methods. Only the switch to different type of ownership and market relations will manage to do that. One will never rob himself and labor for the sake of one’s own welfare is always a pleasure, has rational and efficient nature.
As we can see, there is still a lot to do in the legislative sphere. The most important thing is to accurately forecast and analyze all the possible consequences of reforms in production and ownership system, take advantage of the vast opportunities of the functional agrarian market, and develop private types of management.
- Mr. Gladiy, the harvesting season will begin soon enough. What should the private farmer do with his harvest? Should he sell it to the State, export it, or use it for his own needs? How is this issue discussed on the governmental level?
- Before I get down to answering this question, I would like to remind the readers about the time when such issues did not arise at all. They were resolved automatically under the uniform scheme. The system of planned distribution provided that the agricultural products of collective and state farms were owned by the State, not by farmers who worked the land. Besides to plans, there were obligatory extra commitments and various types of additional orders. This is why neither farm heads nor farmers faced the problem of product sales. The so-called “stockpiles of the Homeland” consumed the lion’s share of the harvest. Farms were left with the remaining trifles that were spent mainly on labor payments in kind. They could not even provide themselves with seeds. The fact that the word “sales” was changed for the categorical “handing over” leaves nothing here to talk about.
I intentionally recalled the former system of relationships between the producer and the State. It was this system that played a bad joke on the future of many farm heads. Moreover, this system is still alive in minds of many of them. Most agricultural chiefs do not know how to trade. When the moment of the most profitable sales comes, many of them seem to lose the presence of their mind because it is the time when they have to find the clients on their own and before the combine harvesters start harvesting the fields. This inability causes serious material and financial losses, forces them to search for half-legal and illegal ways of product sales, and strengthens the prevalent barter transactions.
Now, let me comment on your particular question. How and to whom the agricultural producer will sell his harvest is his personal business. The State is now also a buyer and there is no state order any more. The State will purchase the top-quality products it needs on the exchanges at the current prices.
These market rules are to be applied to all the other agricultural purchasers irrespective of their management structures and types of ownership.
As regards the State’s role here, its task is to provide the necessary equal rules for both producers and purchasers. The Decree of the President sets these principles clearly and in detail.
With this purpose, the infrastructure required for the agrarian market is being set up now. In particular, new commodity exchanges, wholesale markets, and agro-trade houses are established. Auctions and trade fairs are held. Procurement cooperatives and brand-name trade companies resume their business on a totally new basis. We can see that there are plenty of opportunities now. The most important thing here is to make sure that producers find the most suitable client among the many buyers and eventually benefit from this trade.
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