"The price level for basic foodstuffs has been stable over the past
five months... Beginning in August 1998 and until today prices have been
comparatively stable," Hryhory Diakon, Head of the State Price Control
Inspectorate, announced last week.
This will make any inquisitive reader wonder where to find at least
one Ukrainian grocery store or bazaar where prices have been "stable over
the past five months." Alas, he will find none, for there are none. They
exist on paper, in some of the documents issued by Ukraine's ill-famed
ministries and other cancerous bureaucratic formations. This presidential
elections year seems to make the difference between the "statistical" and
actual food prices even more dramatic. Incidentally, an anonymous Ministry
confirmed this in an interview with the Ukrainski Novyny Agency (albeit
not in so many words): "The political factor plays a certain role in the
food price-setting process. Besides, the enterprises in the field would
like to increase prices, but they cannot, considering the people's low
buying power." So they cannot, can they?
In 1999, the wholesale price increment is planned to reach 15.7%, with
20% inflation, but real costs will obviously be higher. Late 1998 indices,
according to First Deputy Minister of the Economy Viktor Kalnyk, speaking
at a news conference on January 20, show 35.4% wholesale and 20.4% retail
price increases. Mr. Kalnyk feared that wholesale prices will be ahead
of retail ones, and with reason, attributing his fear to the "dollarization"
of the economy. In fact, what is an established wholesale price today may
well require an increment in our "retail" payments tomorrow. "Given the
financial crisis, the dollar equivalent triggers off wholesale price jumps,"
he explains (i.e., considering that the triggering off is done by unprofitable
production which, while consuming resources and budget subsidies, makes
all this money spent on them "empty," thus stimulating inflation).
Obviously, the Cabinet has a different view on the situation, because
on December 18, 1998, it passed a resolution ruling that all prices be
in hryvnias. Accordingly, the government set hryvnia prices for goods and
services previously valued in dollars like rail transport, natural gas
transport, electricity, and those of a number of goods originating from
the mining and steel sector. Yet experts at the Ministry of the Agroindustrial
Complex saw no threat in this dollarization, just as they thought nothing
of billions worth of losses sustained in previous years. They are still
sure that there will be no sharp food price increase in 1999. Suppose we
try to understand their reasoning.
In all likelihood, the main reason for the inalterability of "official"
costs of agricultural products will be the unchangeable agribusiness performance.
Last week the Cabinet declared it was going to cancel barter deals in this
sector. On January 14, a working interdepartmental group on agrarian policy
discussed the possibility of replacing barter contracts on material-technical
supplies to agricultural producers with mutual exchange contracts. In particular,
the Cabinet instructed the Ministry of the Agroindustrial Complex, Ministry
of the Economy, Pension Fund, and National Exchange Association of Ukraine
to introduce mutual contract vehicles, meaning that from now on purchase
and sale contracts will be executed in the form of agrarian exchange contracts
specifying the cost of goods, Viktor Andriyevsky told the working group.
In the meantime, the companies supplying material-technical resources
are skeptical about such new vehicles. "Agricultural producers do not operate
on exchanges for want of current assets," explains Anatoly Pidorych, deputy
head of the Ukrahrobiznes (Ukrainian Agribusiness) Concern, and the man
knows what he is talking about.
The reader should recall that agrarian exchanges were originally intended
as a tool for the advance subsidization of agricultural production; agricultural
producers would sell "planned" amounts of grain at an agrarian exchange
in return for live money. Now that the agricultural producers cannot mortgage
plots of land to receive low-interest bank loans, selling their future
crops is the only source of pecuniary income in the countryside. In other
words, access to real money is the main precondition for true progress
in the agricultural sector. At the same time, it is the biggest threat
to all those currently exploiting it.
Starting in 1994, the government has regularly spent between Hr 1 billion
and Hr 2.5 billion on grain procurements, with the producers never receiving
a singly hryvnia of the proceeds. Why? Because to receive money entities
such as the state joint stock company Hlib Ukrainy (Bread of Ukraine) and
Ukrahrotekhservis (Ukrainian Agicultural Technical Service) were set up,
alongside quasi-private entities like the Slavutych Concern, et al. Money
thus received would be further channeled in three directions: the purchase
of fertilizer, machinery, and fuel, setting their costs in the countryside.
Grain costs would also be determined by such intermediaries. Naturally,
the costs would be overstated for the former and understated for latter,
the inevitable result being that the countryside never has enough crops
to make settlements with all those intermediaries at their gouging prices.
But then agriculture's well-wishers invented yet another source of revenue
by lobbying for debt write-offs.
Why, then forgive agricultural producers' debts if that same Hr 2.5
billion was never received by them? So they could get their profit twice.
Getting back to the agrarian exchange business. Its decline began precisely
when it should have reached its apex. First people of means were lured
to the exchange, promising them free exports of grain. A short while later
(toward summer) the exchange's export licensing was canceled (instead local
administrations were authorized to ban them at will, even though exports
were by then officially free) and trade volume dropped abruptly. By 1997
a mere 1% of salable grain was been sold on agrarian exchanges. Toward
the end of 1997 state contracts were nullified (being the leitmotif of
regional restrictions) and the government promised to buy all grain on
the exchange. This did not happen because the Cabinet preferred barter
deals, so in 1998 such tenders were purely symbolic, as was, de facto state
contract cancellation, because the state, represented by hand-picked intermediaries,
continued to claim grain on account of resources and equipment provided.
Expert estimates showed that such claims amounted to 10 million tons in
1998, 75% of all grain sold, or 1.7 times more than stipulated by the 1997
state contract.
Summing it all up, by 1999 the government, acting via friendly government-run
and private entities, had regained full control over Ukraine's agricultural
output, leaving the producers their work force and debts, while the customer
had resources and commodity-monetary charts. Of course, one could dream
of a new man at the head of agribusiness who would wish to introduce some
innovations in the redistribution of roles. But what would he actually
be able to do? Very little if at all, for a thousand of reasons like elections
and prices, profits, and interests (see further), and finally due to one's
own mentality with its persisting Soviet stereotypes of agricultural management.
Incidentally, last week made it clear that the newly appointed bureaucrat
in charge of the agrarian sector is not going to change anything, except
that maybe old business favorites will be replaced by new ones, because
the pattern of "cooperation" with agribusiness will remain the same.
Take a simple example. A Cabinet resolution of December 10, 1998, envisions
2 million tons of Ukrainian tons to be allocated for the 1999 output, along
with 500,000 tons of gasoline, and 620,000 tons of diesel fuel for agribusiness.
At the same time, supplies are expected to be made via the Ahronaftoprodukt
(Agricultural Oil Product) network of government-run companies set up based
on regional organization departments of the Ukrahrotekhservis Concern.
By way of comparison, non-government companies supplied 2,141 tons of fuel
to agricultural enterprises, the private-government-list topped by Hlib
Ukrainy. Now this company is being watched closely by the Antimonopoly
Committee and Clearing House.
The reader may wonder, of course: why do food prices remain so relatively
low, considering that their actual cost is made up of staggeringly expensive
imported resources, monopolies' excess profits, and unrecoverable losses
incurred by the incompetent managers of collective farms? There are two
reasons. First, food prices are a political issue (low prices for a poverty-stricken
populace and making businessmen pay for any profits made "on the side"
are a must under the circumstances). Secondly, one must not forget that
the rural proletarians work for their Red lords for practically nothing.
By Iryna KLYMENKO, The Day






