Agrarian improvisations

Ukrainian lawmakers have lately made a few attempts to amend grain market regulation. Proposals, as always, were “from the bottom of one’s heart” and not “of convenience.” They ranged from a total export ban to export stimuli. It is obvious that such spontaneous attempts to innovate, particularly in the heat of the business year, do not add stability, but only increase the oscillations on the agrarian market, which are excessive even now. These proposals are nothing close to European standards. They cannot be said to be scientifically grounded. So, perhaps we should look at how the grain, milk, and sugar markets are regulated in Europe?

The modern agrarian policy of European countries, even of the most recent members of the EU, has a distinct structure and principles. Despite ordinary and understandable, and also deeply respected national distinctions, the policies regarding the agrarian sphere and the village have more similarities than differences. The regulation of the agrarian market is a verified and detailed element of this policy.

Today a rather integral and unified regulation scheme works in the EU countries, supported by corresponding institutions at national and Union-wide levels.

Let us consider the development and formation of the European model of the agrarian market regulation based on the example of the Czech Republic. Don’t be surprised by this choice, the situation in the remaining 26 countries is quite similar.

Almost immediately after independence, in the course of the economic reform of 1991, the State Market Regulation Fund (SMRF) was set up. This fund: a) determined the list of products to be regulated; b) determined the level of price intervention; c) determined the duration of regulation for each product; d) determined the level of export subsidies; e) determined the level of variable import duties; f) carried out an expertise of submissions for export and import licenses.

Another peculiarity is that despite the industrial character of the country, Czechs didn’t try to regulate everything. The list of regulated products is announced in advance, and as a rule it is very limited: only bread, grain products, dairy products (except for butter and dry milk), and, from time to time, young pigs, some kinds of cattle meat, hop, and potatoes, for technical purposes. The experience of the Czech Republic shows that preventive measures on limiting production are the best way of regulation, rather than purchasing excess produce.

As we see, this transitional model of the State Market Regulation Fund would be acceptable in our conditions during the period of preparation to join the EU. To achieve this, one can modernize and restructure the Agrarian Fund and form a new normative legal basis for it. The most important is to ensure observing of at least the following, principal requirements: a) double subordination to the Ministry of Agrarian Policy and the Ministry of Finance under the general supervision of the Verkhovna Rada (with a clear representation of the opposition) and interested professional unions; b) a single and exhaustive list of agrarian market regulation mecha-nisms within the framework of this institution; c) a public and open character of activities, based on competition, partial self-repayment and economic expediency; d) restrictions on interferences of all branches of the government, introducing amendments and other rules only before the beginning of an economic year.

Establishing a new institution on the basis of the SMRF — the State Interventional Agricultural Fund — became the obvious consequence of the agrarian policy development in the Czech Republic for improving the agrarian market regulation and conforming it to the EU requirements. This is not just a tri-bute to the changes, but essentially approaching the European institutions (the European Agricultural Guarantee Fund). From now on the SIAF has the following tasks: a) ensuring financial assistance for market regulation; b) purchasing selected kinds of products at the intervention price; c) financing and storing and possibly processing of this production; d) selling the accumulated stockpiles of the production; e) providing subventions to support export, introducing a system of production quotas.

At the same time one should remember that agrarian market regulation is not cheap, and the very regulation doesn’t tolerate typical Ukrainian irregularities. Everything must act as a well-lubricated and well-attended mechanism with a tightly set spring. Just a few deviations will be enough to break the market’s balance, and money will be wasted. However, in return for their market regulation Czech, Polish and French agrarians do not rely solely on domestic resources. Already now about a quarter of the fund’s expenses are covered by the costs of the common EU budget. And very soon, as the Czech Republic is still in a transitional period, this share will increase to 70 percent. That is a good argument for our “dear foes” of European integration! If only our farmers could see, or even better — personally experience all this. Polish, Czech, or Slovak grain producers not only experienced all this, but already profit from it!

It’s interesting that the fund manages its affairs as a skillful financial institution, therefore it is not constantly begging for money from the budget. Already now it is a major participant of the financial market with a total capital of over 11 billion korunas and considerable goods reserves. The personnel exceeds 700 employees, and it is obvious that all of them work not just formally, but for the cause. The SIAF already covers almost a tenth of the expenses on its own, but it doesn’t feel shy to get loans if needed (30 percent). Everything as it should be in a market economy. Here is one more curiosity: the management even involves a famous international consulting group as an outside consultant.

And the result, as they say, is palpable. For each regulation the SIAF establishes control efficiency indicators. For example, in 2002 the task of regulation was determined as “stabilization of market, increasing prices and costs income in the food chain.” Correspondingly, efficiency indicators were as follows: “increasing prices for agricultural producers” and “increasing income for producers.” What results were achieved? In terms of statistics, the purchase prices for milk increased by 4.1 percent. The overall increase of income of agricultural producers exceeded 530 million korunas. It is not difficult to realize that the fund fulfilled the task and justified the expenses.

The successful activity of the SIAF and similar institutions arouse the trust of the European Commission, therefore such structures often become payment agencies of the EU. That is done precisely through the so-called general union’s payments, as of today — direct subsidies for area of land and heads of cattle owned. Such payments are the main financial resource of the fund, constituting up to 50 percent of its budget. Despite the seeming prosperity, the SIAF carries out a savings policy and rational financial management. Judge for yourselves: a share of management expenses to maintain a rather considerable personnel and managing bodies of the fund constituted only about three percent of all expenses. That’s an example of rational expenses of public funds with the appropriate organization of the institutional constituent and distinct public control!

It is clear that Ukraine, developing its own system of agrarian market regulation, must take into account the experience of the countries of the European Union. The formation of an integral controlled public institution and its regional network is the basis of the European model.

The Ukrainian agrarian system should be integrated into the European economic area. This is impossible without an appropriate adaptation and modernization of domestic agrarian policy. At this, it seems that the development of institutions is the most important constituent of reforming agrarian policy.

Yurii HUBENI holds Ph. D. in Economy, is a professor, academician of the Ukrainian Academy of Economic Sciences, and independent expert on agrarian policy