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AGRO perspective ¹6 '2000
 Interview |
YURI MELNIK: BIG AGRICULTURAL ENTERPRISES ARE THE FUTURE OF UKRAINIAN ANIMAL HUSBANDRY
As usual, the situation with animal husbandry in Ukraine is very complicated. This results from a number of subjective and objective factors. However, if to look back to the commencement of the crisis, mainly macroeconomic factors affect the present situation in the industry. Among them, the following often mentioned factors can be listed: disparity of the prices for agricultural and industrial products, the lack of clear and well thought out state policy in animal husbandry, shortage of financial resources at agricultural enterprises, etc. Along with that, according to Yuri Melnik, Deputy Minister for Agrarian Policy in animal husbandry, the sector has prospects and it will again perform economic and food functions in future. These and other problems of animal husbandry are highlighted in an exclusive interview given by Yuri Melnik to Agro Perspective magazine.
AP: What can you say about the present situation in animal husbandry?
Y.M.: Today, compared to the year 1999 and each previous month of 2000, no performance indicator featured stabilization, and we can not say that the industry will recover soonest. At the moment, there is a recession going on in the sector. Over the last three years, this is the second period of decline. In 1998 and the first half of 1999, owing to measures taken by the Cabinet of Ministers and Verkhovna Rada (Supreme Council), the industry entered the period of stabilization. There was no decrease, and within this short period, the industry started to gain revenues with respect to many performance figures. Starting from the second half of 1999 and till now, all performance indicators witness reduction. Firstly, the number of animal and poultry livestock is diminishing. Productivity fell, and animal husbandry output volumes decreased correspondingly. If to mention particular figures, meat production grew up by 3%, but this occured due to diminishment in livestock. This can not be considered as increase, since output grew proportionally to decrease in livestock. Against the respective period of 1999, milk output fell by 7%, eggs- by 2%, cattle livestock – by 14%, including cows – by 10%, pigs – by 13%, sheep and poultry – by 10% each.
With such a dull background, it looks like there are absolutely no signs of stabilization, the Ministry’s work can not be seen and there is no work performed in the regions. However, this is not true. Notwithstanding all these negative facts, food industry significantly impoved its performance, as well as regional authorities, which managed to increase procurement of agricultural products at private farms and agricultural enterprises two times as compared to 1999.
Purchase prices for animal husbandry’ products increased 30% to 50% against the last year’s figure, and interest in production appeared. Two main positive moments for the development of the industry are the following: growth in prices for the products and possibility to work in a transparent market environment.
AP: Is there anything being done for stabilization in animal husbandry at the state level?
Y.M.: The state is quite interested in the industry. Starting from 1997, a series of documents aimed at stabilization in the industry was adopted. Since 1998 till 2004, donations are paid on account of VAT for milk and meat sold to processing enterprises. We were looking forward to receiving donations in amount of UAH 750,000,000. However, in 1998-1999 only UAH 250,000,000 were paid. Also, in this period, the state provided a delay for agricultural enterprises with regard to payments for bread grain for specialized poultry breeding farms and big pig breeding enterprises, which is in force till September 1, 2000. Each year, the state allocates funds for selection works and for the program on anti-epizootic measures, which are conducted by the Department of veterinary medicine. There is only one problem - shortage of funds.
AP: According to Pavlo Dostoyevski, Chairman of Association of the experts in vetenary medicine, anti-epizootic measures are well financed this year. In January-April 2000, farms received UAH 7,000,000 or 17.6% of the projected annual amount.
Y.M.: If a clear mechanism of utilization exists, effiency is obvious, even though there are no enough funds. We should also take into consideration the fact that agricultural producer today is a payer of fixed agricultural tax. Until the recent past, agricultural producers had priveledges with regard to payments of VAT. These tax priviledges were significant for commodity producers.
AP: How do you think, what objective is standing before the industry now?
Y.M.: Today, every regional manager, first of all, chairmen of district and regional administrations should not simply understand the role of animal husbandry, but also assist its development. We have some examples as to Kiev, Lvov and Odessa regions, where each year they provide for funds to support the industry, including selection and pedigree animal breeding. Management of these regions understands that such an approach helps to resolve the problem of food procurement and unemployment, since private farm may ensure normal level of life for its owner.
Regional state administrations should also cooperate with scientific institutions and popularize the introduction of all the novelties that were worked out, but due to various factors are not used at either private or reformed collective agricultural enterprises. New management appeared, and new experts come on the scene. People do not possess all the novelties, which were elaborated in animal husbandry in the recent years. However, there are some examples of efficient use of them. Owing to modern science, technologies, equipment and achievements in the field of genetics and animal selection, a fully profitable production becomes possible.
AP: Today, major part of livestock is kept at private farms, and production performance in this sector is higher. Is this a regular tendency?
Y.M.: According to different assessments, in various sectors of animal husbandry, some 50% to 70% of the products are produced at private farms. Big enterprises are orientated towards the state procurement, first of all – of combined fodder. One cannot say that they are not developing. Majority of them has simply ceased their existence or is preserved in the volumes ensured by the available land area.
There were 8 big complexes for pork production in Ukraine with capacity of 108,000. By now, only one of them is normally functioning in Kharkiv, while other four are able to keep some 10,000 to 20,000 pigs. Private farms appeared to be more mobile and adapted, if not to the market conditions themselves, then to the present circumstances. They had priviledges on taxation. There were no taxes imposed on their products, which they produced and sold. Labour consumed for production at private enterprises is not included into the product’s prime cost. This gives an opportunity to sell it cheaper than that produced at big agricultural enterprises, even provided that they work in market environment.
However, I consider that all this is in the past already. Crisis is passing by. For instance, we started to restore pig livestock at Kalytyan complex in Kiev region. There have been 1,000 pigs, but today – 16,000 animals. The main thing is that a profitable enterprise appeared when producer, Kiev City administration and the Ministry for Agrarian Policy united their efforts. Nonetheless, without integration of all participants of the production process big enterprises will never recover. There exist examples when milk and meat processing plants and other agricultural enterprises rent the land, buy livestock, create their own processing basis and thus resolve the problems of reviving production at big enterprises. As a rule, these enterprises had modern technologies, which are obsolete by now. However, on this basis it is easier for them to use new technologies than for small agribusinesses. The latter, on the one hand, have no qualified personnel, and, on the other hand, they have no suitable premises and, as rule, traditions with respect to production of one or another type of products. Therefore, large agricultural production will not become widespread from the very beginning, but there already is the understanding that it will allow to introduce new industrial technologies and will make the products competitive.
AP: What the Ukrainian animal husbandry should look like, and what way it should develop?
Y.M.: This must be very clear. There are technological parameters, which should be met, and requirements to animals, which are the main means of production. Our experts are well aware of these, since they have been to the European countries and are sure that only normal technology and well-balanced food give opportunity to produce high-quality competitive products.
We should not consider that productive land and cheap labour force gives a reason for simplifying technology of production, breeding low-quality animals and ensuring only 50% of fodders.
There was time when we did not pay much attention to marketing. However, today both the Ministry for Agrarian Policy and owners understand that it is possible to learn to produce high-quality products, but it is also very important to sell them. Before, the state submitted orders and sold the products itself. Today, marketing and knowledge of markets is one of the main elements comprising the work of management and staff of agrienterprises and the Ministry’s district and regional links. On the one hand, some traditions have already been formed, while, on the other, there is a new field of activities – auctions and exchange trade in commercial and pedigree cattle.
For example, in Ukraine, pedigree cattle auctions are held since 1987. Until 1999, there were held all-Ukraine state cattle auctions at annual exhibitions-fairs AGRO taking place in Chubinskoye, Kiev region. In 1999, auction was not held due to organizational omissions. However, we have planned to hold such an event for pedigree cattle in the year 2000, preliminary in September. This auction will show the best of Ukraine for today, give producers of pedigree cattle an opportunity to receive higher price for their animals than for the commercial cattle, since expenses for pedigree cattle breeding are twice as high. There are examples, when pedigree cattle were sold at prices that 5-10 times exceeded those for commercial cattle.
AP: What is the situation with sales of non-pedigree commercial cattle?
Y.M.: This is a new sector by now. In 1994, exchange trade started. This was an interesting period: there were many animals, but meat processing enterprises did not want to pay decent price. Therefore, there were just a few trading sessions held. Now, the situation has changed radically. Meat processing plants re-equipped their facilities and introduced new technologies and kinds of products. Owing to that, 90% of all the products on the market are Ukrainian-made. As early as in 1994, it was 50/50.
At that moment, meat processing enterprises were not willing to work with producers in a new way, to form raw material zones and to advance breeding of one or the other kind of agricultural animals. Today, they agree to do this, but this can not cover the needs in raw. There must be a fair price set, so that producer was interested in producing. This is why exchanges and auctions are needed.
For instance, 10 meat processing enterprises were represented on auction held in Lvov region in May 2000. Prices for cattle were 20% higher than those existed in the region before the sales. Before that, processing enterprises bought cattle locally and monopolly. Auction set up the price, which covered expenses for production. I do not mention gaining profit, since production without negative returns for today is a positive phenomenon.
I am sure that the price for this commodity will go up further, as nobody will deal with unprofitable production. Such a commercial cattle auction was held a month ago in Sumy region, and the prices there were even higher than those in Lvov: UAH/MT 4,000 for cattle and UAH 4,100 per 1 tonne of live weight of 2 category pigs. What is the most important, milk was already sold during these sales. Representatives of all regions should understand that such trades in commercial and pedigree cattle are necessary in every region as soon as this year. There is an agrarian exchange in every city, and it could be involved in auction as an information base. This was how it was arranged in Lvov. Today, every agricultural producer should have wide opportunities for sale of his products.
AP: What else hinder the sales of the product?
Y.M.: If to mention the domestic market, it should be mentioned that the question of renewing exports of Ukrainian-bred animals, in particular cattle, abroad is very topical for today. Export peculiarity is that today the Law on export duty on livestock and raw hides do not concern those enterprises, which are agricultural producers themselves. However, to be able to export cattle, one ought to have a big shipment, but agricultural producers can not do this. They need a connecting link. Before the Law was adopted, civilized intermediator performed the role of such a link, who did not take much for his services, but accumulated cattle and exported it. Cattle were exported mainly to the Middle East, and one shipment had to be not less than 500-600 animals. Then it was possible to sell it. But, what was the most important, export was profitable not only to the intermediator. In 1994-1996, it was also advantageous to the commodity producer, and this is proved by statistical, customs and veterinary service data. Today, the situation has changed. I am talking about the last 4-5 months, when prices on the domestic market went up. The price per one tonne of live weight on the foreign market amounts to USD 900 – USD 1,100, while at auction in Sumy cattle were sold at UAH/MT 4,000, i.e. we lost UAH 1,000 per a tonne of live weight. Half a year ago, we sold cattle even at a lower price –by UAH 2,000 cheaper: price on the domestic market totaled USD/MT 3,000, while on the foreign market it was UAH/MT 5,000. To my mind, producer should sell his products where it is profitable for him.
It is practically impossible to lift the Law on export duty. Verkhovna Rada considered the related draft law on lifting the duty on its last session as well as on the current one. There was taken a decision to consider the draft law on the next session after it is worked out completely and all the arguments of all interested parties are heard. That is why, on the one hand, the Law does not prohibit producers from exporting their products, but, on the other hand, create obstacles that are impossible to overcome. I think that it would be better to abolish this Law, but this is a prerogative of Verkhovna Rada, notwithstanding we are loosing incomes.
AP: How is a pedigree base developing in animal husbandry?
Y.M.: Pedigree base for today is a minimum 30% guarantee of producing competitive commodity. It allows to have such main means of production that comply with the market requirements. Today the best genetic fund is concentrated there, and, via the pedigree animal husbandry, it should turn into commercial animal husbandry, where meat, milk, wool and eggs are produced for sale. Notwithstanding the slump occured in the country, we managed not only to preserve the pedigree base, but also to widen the genetic fund. If to mention concrete figures, 315 pedigree animal breeding farms comprise the foundation of pedigree base. These include 124 farms engaged in dairy cattle breeding, 20 – in meat animal husbandry, 98 – in pigs breeding and 2 selection-hybrid centers. There are also 21 pedigree sheep breeding, 18 horse breeding, 13 poultry raising, 2 bee keeping and 2 fish raising farms. We have quite a well-developed pedigree base either in bee keeping or horse breeding. Provided that its development is supported, it is possible to stimulate commercial part of our animal husbandry. Besides to that, there are 25 enterprises dealing in pedigree animal husbandry.
The Law of Ukraine “On pedigree animal husbandry” adopted in December 1999, is the base and foundation of our pedigree animal husbandry. It regulates selection pedigree works. Now, elaboration of a by-law basis is in process. For this Law to become a competent document, it is necessary to develop about 40 by-laws, regulations of the government, general decrees of various ministries and departments.
As regards the legislative side of financing animal husbandry, the Law provides for the means for selection works in animal husbandry to be allocated by the state annually via the state budget. In 2000, this amount is quite small – UAH 14,860,000. This is 3 times less than in 1999, and 6 times less than in 1998. However, this year, according to the Prime-Minister Viktor Yushchenko, corresponding proposals have already been passed to the Ministry of Finances, so that the amount of financing could be increased 3 times minimum.
Over the last years, notwithstanding we are used to state that everything is going bad here, about 20 various achievements in selection were put into practice. These include 3 specialized breeds of meat cattle, 2 breeds of dairy cattle, 2 breeds of sheep, 2 breeds of horses and 3 breeds of pigs. Today, we are testing one more breed of sheep, and in a year and a half – two years (one year is not enough to accomplish a selection process) we will complete works on creating two new breeds of dairy cattle.
Taking into consideration the present diminishment in a livestock number, we will not be able to bring the required quantity of cattle for restoration from abroad. We need 5, 200,000 cows. Provided that means for creation of modern technologies are available, they can be raised in one year: it is necessary to re-equip premises, where animals are kept, and to follow the modern technologies of cattle breeding. Normal fodder base can be created in a year and a half. And 4 years will be required for raising breeds of cows of the next generation
Selection and genetics are the factor that nobody cares about in transitional period. This is the state’s task to stimulate the process of increasing quality of animals, since producer is focused on gaining profits, and we must give him means of production to enable him to produce competitive products.
Commentaries
Vasily LINIK, Head of the Department of public relations, Kharkov Institute of Animal Husbandry with the Ukrainian Academy of Agrarian Sciences:
“ It is very difficult to talk of the perspectives of dairy cattle breeding taking into consideration that price for milk is lower than that for water. If to mention the necessity of producing milk for children, who can barely be raised healthy without this product, than ruining milk production is a crime.
There are many reasons for unprofitability of milk production. Problems with fuel and power and expensive agricultural equipment are among them.
However, nobody is going to bring us cheap milk. Before we start producing it ourselves, we have to resolve a complex of questions as to production starting with high-quality genetic products, fodders, technology of animal breeding, milking and processing of milk.
Over the recent years, the Institute of Animal Husbandry approaches these problems from the position of saving energy. This means production of fodders with low power consumption, animal breeding with the use of pastures, with lower labour and technique consumption, and utilization of low power consuming premises. We have scientists, who can choose inexpensive and high-quality genetic material and to oversee its usage at farms.
We are also planning to conduct selection-pedigree works, to produce fodder crops and to use crop rotation of lands, in paricular fodder wedge. Units for milk processing and disinfection of milk are beeing developed in the Institute. Today, they are successfully applied at numerous farms.
Necessity of compost applying is another problem, since it should be disinfected, divided into fractions, and deep underlayer must be used. This is quite costly.
The main objective for milk producing sector is to preserve pedigree core, multiply livestock and to introduce high productive cows into the herd. When all these problems are settled, milk production will become profitable.
Our Kutuzovka experimental farm was profitable in 1999 with 12% of positive returns, and this year positive returns should not be less. Unfortunately, there are just a few such farms.
I would like to mention that scientific research base of animal husbandry products is not destroyed yet, but is very close to that. If there is no support rendered to scientific institutions, in 5-10 years it would be impossible to restore Ukrainian science. As far as 10 years ago, promissing young people began to leave for business or abroad, and it is impossible to bring them back. There is no new scientific staff, the number of experts is abruptly reduced. New generations will remember this, but it will be too late. The situation when the sector is working efficiently while the people engaged in it are in disastrous position is impossible.”
Sergey GNATYUK, Deputy General Director of Twarynprom Ukrainian Corporation:
“Recent sheer rise in prices for fodder negatively affects the development of pig breeding in Ukraine. Fodder grain is bought from farms at UAH/MT 200, and is resold to us in 3-4 months at UAH/MT 400, and today – even at UAH/MT 700. Therefore, prime cost of pork is going up, but we are not able to lift sales price, since the solvency of population is low.
The aforementioned situation caused steep reduction in pig livestock at big farms. It is quite difficult to keep female reproductive stock and to feed young animals until the new harvest is received.
I am sure that, starting from the new harvest, farms will keep optimal livestock, which they will be able to feed at their land, since pork production using fodders bought somewhere else is unprofitable.
Today, meat processing plants has also raised purchase price (some UAH 4.30 per 1 kg of live weight), though even this price does not cover all the expenses. For the development of pig breeding in Ukraine to become possible, the price should total at least UAH/kg 6.”
Yuri VDOVYCHENKO, Head of the Laboratory of the Institute of Meat Animal Breeding with the Ukrainian Academy of Agrarian Sciences, Candidate of Agrarian Sciences:
“ There is a perspective of animal husbandry development in Ukraine. After the lands were divided, part of them is not cultivated any more. Now they are used as pastures. New Ukrainian meat cow breeds have been created: Ukrainskaya, Polesskaya and Volynskaya, and 3 more are coming. 8 foreign breeds were imported to Ukraine. So, we have the breed market.
Prospects of the sector’s development lies in power saving technologies and using noncultivated areas as pastures.
The whole animal husbandry sector is unprofitable for today. In particular, this relates to meat animal breeding. We do not gain any revenues for three years – this is the period required for raising a cow. All over the world, this sector receives donations, but not in Ukraine. Along with that, prospects of development of meat animal husbandry exist, and it will become profitable in future. Today, some 1,700 farms are engaged in this business, and their number increases. The number of livestock, which is raised in compliance with technologies of meat animal husbandry accounts for 120,000 animals.
Meat animal husbandry in Ukraine is quite young. 1993 can be considered as a year of its foundation, when the first breed - Ukrainian Meat – was tested; in 1994-95, the second Ukrainian breed – Volynskaya – was tested, and in 1998 – Polesskaya. Today, 3 more breeds await probation.”
Viktor YUSHCHENKO, Prime-Minister of Ukraine:
“The question of ownership on land is quite topical for today. Its settlement will allow to resolve problems faced by agricultural producers. Another problem is creation of infrastructure. This problem is much more complicated and requires a lot of time and resources.
We have conducted a number of meetings on this topic and outlined some objectives for the revival of each market: dairy, meat, grain and eggs. We discussed a possibility of creating an optimal model, which would bring processing enterprises and consumers closer to producers.
Creation of agrarian market infrastructure is the main task in the second half of 2000.
Situation on the meat market significantly influenced the present inflation. Along with that, we understand that, in March and April, cattle became the last resource, which ensured sowing works without the state support. If to look at this phenomenon as a temporary one, and not to pay attention to critics, this can be considered as the market’s choice. Reduction in the number of livestock this year should be compensated by bank resources. For this purpose, bank rate should be lowered. At the moment, it is as high as 32-34%. In case it is diminished down to 20-25% in the forthcoming month or two, it would be possible to start speaking of the serious alternative resource without using material or “live” assets. If the financial market recognizes the effiency of giving loans to agricultural producers, we would not be forced to slaughter livestock.”
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