AGRARIANS HOLD CONFERENCE ON THE EVE OF SPRING SOWING

Last week had only four workdays but was still rich in economic sensations. Presidential Advisor Halchynsky made a startling statement about a new inflation strategy being worked out in terms of 35-40% annual price growth. Quite recently we heard about 16% from ex-Minister Suslov and 18% from NBU President Yushchenko a little later. This 35-40% increment sounds almost blasphemous by comparison. Another sensation was caused by a summit of the former Soviet fraternity appointing Boris Berezovsky CIS Executive Secretary. There were other smaller sensations that do not seem worth reciting because they were an overture to the gala of the EBRD annual convention in Kyiv, meaning straightening things out with local rackets, catching and putting to sleep stray dogs, and postponing the Chornobyl Power Unit 3 startup.

There were also other less sensational but still meaningful events. An All-Ukrainian Election Conference representing heads of “collective agricultural enterprises” [the current official jargon for Soviet collective farms] was held April 28. As befitted this “post-Soviet” event, its official purpose was to elect a collective farm nomenklatura, but the occasion was also used to discuss the most pressing agrarian issues. Also lending importance to the event was the presence of the President and Prime Minister of Ukraine. In fact, their attendance turned the conference into a major political economic convention.

Premier Pustovoitenko, addressing the delegates, said the Cabinet was working on a bill called On the Specificities of the Taxation of Agricultural Commodity Producers, stipulating a single land tax instead of the current 18 levies, to be collected at a fixed rate valid for the next five years, determined according to the monetary value of arable land and improvements. Of course, such a uniform land tax could be very helpful in the agrarian sector, but taxation is not the biggest problem facing the countryside, so this Cabinet initiative is not likely to be met with banners and cheers there. Most Ukrainian peasants pay no taxes and make no contributions to the Social Insurance, Chornobyl Relief, or Pension Funds. Their average wage is stated to be Hr 95.65 (about $42 vs. Hr 186.07 in industry, about $93). This statistic does not take into account wages being paid those working for cooperatives, small farm businesses, and collective agricultural enterprises. General losses in the agrarian sector have increased almost 2.5 times, rising to Hr 3.3 billion. In 1997, compared to 1995, the prime costs of basic agricultural products rose 2-3 times while selling prices went up by only 10%. In addition, over the two past years livestock and poultry output has dropped 1.5-2 times, with fodder expenses, electricity, and petrochemical costs per product rising about as much.

It is anyone’s guess what first triggered off this lamentable situation in the agrarian sector. Oleksandr Borovyk, Chairman of the All-Ukrainian Council of Collective Agricultural Enterprises, thinks that the agrarian crisis that has enveloped Ukraine since becoming independent is because there has been no clear-cut official agrarian policy. He believes that production has become unprofitable because of the disparity of the prices the producer has to pay for the industrial goods used agriculture and what he is paid for his produce. As of January 1, 1998, agricultural enterprises’ overall losses are estimated at Hr 5.4 billion. Mr. Borovyk says that 10,600 enterprises (87% of the total in agribusiness) lost money last year.

Western experts, while generally agreed about the government’s incompetence in agriculture, see the agrarian tasks facing the Cabinet in a different light. Administratively evening out prices or instituting high import duties will not change the nature of Ukraine’s agricultural output. Meanwhile, the real and very high costs of agricultural product is due to hidden taxation, payment arrears for products (de facto interest-free loans), underpaid and thus unmotivated labor, hidden allocations for personal plots (using collective farms’ equipment, seeds, fertilizer, etc., at artificially low prices), barter deals oriented toward maintaining output volume rather than actual costs, etc. Hence, agricultural reforms must be primarily oriented toward establishing a competitive agrarian sector with effective business entities which can produce high harvest yields and livestock output. This cannot be achieved without promoting competition and setting up rural market infrastructures.

Well, what awaits the agrarians? First, they will be offered government aid in price supports and revenues. Premier Pustovoitenko says this will “secure conditions for developing agricultural output and upholding agribusiness growth.” Secondly, the Cabinet will pass a resolution adopting a three-year program to form an agricultural commodity market infrastructure. This program is expected to take effect in 1999, and to help solve a number of problems related to the creation of an exchange market as well as regulating export and import transactions. Finally, the President signed an edict on Ukraine’s agribusiness guidelines in 1998-2000. Interfax-Ukraine reports that this document envisions “measures to supply domestic needs in terms of foodstuffs, raw materials, and increase their export. Priorities have been determined in attracting foreign investment, new approaches developed toward price-setting, taxation, land reform, and progressive transformations in the countryside.”

In addition, Mr. Kuchma promised to personally monitor efforts by central and local authorities aimed at easing “financial pressure” on the agricultural producer. The President thinks that there are two ways to improve the influx of loans in the agrarian sector: (a) looking for soft-loan sources - “at least” along the priority agribusiness lines, and (b) instituting mortgage as a major hard cash income. Unfortunately, Mr. Kuchma forgot to mention yet another way of getting credit resources for the countryside, something agrarian export firms have been using for the past several years with direct and indirect government support. This method is known here as “commodity crediting” and is one of the basic survival techniques in the agrarian sector, with all the implied consequences.

Summing up the conference, one has to admit that no intellectual breakthrough has occurred and the general public was once again presented with a controversial and inconsistent program of agrarian reforms. Maybe we are wrong in mistaking yet another election program for something else.