Agrarian relations and land rent

In Ukraine agriculture output is distributed through various market channels, including sales to processing enterprises, organizations of consumer co-operation, at market, to the population as wages, to the shareholders as a rent payment, on commodity exchanges and auctions, etc. Data on sales are available from statistics on agricultural enterprises (excluding small enterprises) as well as on purchases of the processing industry (including amounts sold by households). Shares of market sales in the Ukraine vary considerably between 77% for oilseeds, 75% for sugar beet, 60% for grains, 7% of vegetables and a negligible amount of only 2% for potatoes. From livestock production shares of 82% for meat and 40% of total milk production are sold (Figure 2.1).



Figure 2.1

Production and sale of agricultural products in Ukraine, 2010

For today, the Ukrainian economy is characterized by a certain loss degree of all sectors of the economy, and agriculture in particular (Figure 2.2). The reason is unstable economic environment and a large number of destabilizing factors that directly affect on the agricultural sector of Ukraine and the composition and structure of resources in particular.

Agricultural sector suffers losses from depreciation of receivables. It is necessary to raise the issue of establishing a system of accounts receivable management, which would have provided the tools and schemes of timely repayment. Prolong of funds in accounts receivable was due to financial difficulties of buyers. Research of resources turnover indicates that the resource efficiency of the individual enterprise of agricultural sector depends on the sector and the economy as a whole.

The agriculture industry is now forced to continue its current model of development, in which competitiveness is determined by low production costs (including lease fees and wages) instead of seeing the modernisation and efficiency improvements. Furthermore, Ukraine's low output per hectare will be compensated through economies of scale and extensive production; for example, of crops with a high rate of return, whose cultivation - coupled with short lease terms - will lead to a further degradation of soil.

Figure 2.2

Dynamics of value losses of the agricultural sector of Ukraine, mln. grn.

CHAPTER 3. DIRECTIONS OF IMPROVEMENT OF AGRICULTURAL DEVELOPMENT IN UKRAINE

3.1 Agrarian reform in Ukraine: the present status and current tendencies

The main purpose of agrarian reform is to create conditions for the development of efficient, highly productive and competitive agricultural sector, which generally contribute to economic growth and the welfare of the population.

For all goals and nature of changes that were made in the agricultural sector Ukraine most scientists divided into two stages, namely: phase of reform and post-reform phase. Each is characterized by the features of structural reform, domestic agricultural and trade policies [19].

Agrarian reform in Ukraine is characterized by a certain sequence and phasing of implementation, the main ones are:

· land reform and the reform of property relations in agriculture;

· providing the post-reorganization support of reformed and newly forming households and formation of market infrastructure in agriculture;

· modernization of production, creation of competitive (at the domestic and foreign markets) farms;

· improving the mechanisms of state regulation of the agricultural sector.

The process of private ownership establishment in the country objectively requires a radical change in the forms and methods of state regulation in the agro-industrial complex. The strategic direction of these changes should envisage termination of direct administrative interference by state bodies at all levels into economic activity, the setting and guaranteeing of stable rules for all actors in the agrarian sector and state regulation through market levers.

The main unsolved task of agrarian reform is uncertain relations of land ownership, disparity in prices for agricultural and industrial products and the lack of funding mechanism that would provide expanded reproduction of production in agriculture.

During the years of reform in the agricultural sector have been substantial changes in property relations and management. Agrarian reform included the denationalization and privatization of land and the creation of legal forms of market type. The result was the privatization of land with transfer of it to the ownership of collective farms and formation of private ownership of land.

In the post-reform phase of agrarian reform the main task was the transition to the market economy, to improve the efficiency of agricultural production. However, in the agricultural sector during the years of market relations, the socio-economic impact was negative comparing to other sectors. Resource potential is substantially destroyed, that applies to the entire economy.

The reason for the decline of agriculture was that agrarian reform is not regulated by the state and was not comprehensive, and has been stretched in time. This was due to the fact that it was carried out in conditions of general economic crisis.

At the present stage of land reform, in the absence of relevant legislation, it is advisable to introduce temporarily as subject of pledge not the land, but only the right to use it, the lease; transfer land to private ownership individually.

A number of negative factors, including the violation of interbranch equivalent of exchange, inflation, low purchasing power of population, poor material and technical base of production, lack of adequate market infrastructure did not allow for such a short time most of the newly privatized agricultural enterprises of food industry fully adapt to the stringent requirements of the market economy [20, p.5].

In the longer term, development of the land market should be gradual, in the way to increase the number of land owners and the establishment of appropriate infrastructure. In order to avoid buying of land share certificates for a pittance expedient to temporarily prohibit their sale and donation. Such prohibitions must be implemented, including through the introduction of temporary prohibition of the right to land share in authorized funds of societies.

To improve land relations, it is necessary to streamline the system of registration of individuals and legal entities on land, creation of a mechanism of state acts on the land, that means the inclusion of land in the economic cycle, protection of rights and interests of landowners, the formation of market infrastructure, including the organization of land auctions and land bank. The process of economic self-determination of farmers continues and for its acceleration we need comprehensive help from state authorities.

The strategic direction of development of farms should be strengthening of their role in the agricultural sector and improving the efficiency of their operation. This requires, first of all, to solve the following problems:

· expand the land use area, increasing them by preferential land lease of state reserves to rational;

· increase the volume of state support for farmers;

· develop a national program of financial support for young farmers;

· provide an opportunity for farmers to include land in the economic cycle to obtain long-term loans;

· ensure preferential insurance of crops;

· encourage the economic interest of farmers in the development of industries that are unprofitable today, including stockbreeding [22].

It should be noted that in modern conditions agricultural sector extends volumes of agricultural production and food, financial results are improved, gradually emerging market environment for the effective functioning of the agricultural market of Ukraine.

The measures taken by the State have given the opportunity to stabilize and gradually increase production main types of products of the sector.

The main goals in implementing new mechanisms of state regulation in the agro-industrial complex should be:

· provision of a stable regulatory-legal base for the creation of predictable conditions for business development in the agro-industrial complex;

· non-interference by state executive bodies in the day to day activity of business entities, with the exception of cases provided by law;

· support for reformed enterprises, encouragement of the agriculture market infrastructure, production of critical agricultural produce ensuring Ukraine's food security;

· formation of pricing, tax and credit mechanisms with account of the specificity of the agro-industrial complex as a sector with a slow capital turnover and a low rate of profit;

· promotion of a national network of advisory agricultural services and agricultural monitoring.

Changes in the state's regulatory functions within the agro-industrial complex are manifesting themselves in the establishment of new functional divisions within the Ministry of Agrarian Policy of Ukraine, namely: the Department of Agrarian Economy Development Strategy; the Department of International Integration, Investment Policy and Agricultural Business Development; the Department of Agriculture Reform; the Department for the Development of Entrepreneurship and Agricultural Market Infrastructure; the Department of Cattle Breeding Produce Markets; the Department of Crop Production Markets and Seedage Development. Within the newly established Department of Agriculture Reform, the Division of Strategy and Methodology of Agrarian Reform, the Division of Agricultural Enterprise Reform and Restructuring and the Division of Advisory Agricultural Service Co-ordination have all stepped into action.

The Government of Ukraine has charted a course towards increased responsibility of agricultural enterprises for the results of their work by banning further write-offs or restructuring of tax and duty arrears, budget loans, credits under governmental guarantees, and termination of moratoria on bankruptcy of agricultural enterprises. At the same time, the present regulatory role of the state with respect to the agro-industrial complex is still of a transitional nature (from the administrative-command system to the market economy). Hence, it is based on many temporary and transitional levers. This is confirmed by the substance of the Law of Ukraine "On Encouragement of Agricultural Production in the Period of 2001-2004", adopted by the Verkhovna Rada of Ukraine on January 18, 2001, which laid down the fundamentals of state regulation of the agro-industrial complex in the conditions of emerging market relations38.

Formation of market relations in the agroindustrial complex is being accompanied with a change of the functions of state bodies: from direct control to establishment of favourable conditions for business in rural areas. However, the state's regulatory role is still undergoing transformation. During the introduction of changes, mistakes could not be avoided. In particular, agrarian reform was undertaken in the absence of any significant success in administrative reform. Despite the great number of adopted regulatorylegal acts, they failed to resolve many key issues of the agro-industrial complex. Some steps were not backed with organizational, human and financial resources [23, p.12-13].

In general, evaluating the results of reforms in the agrarian sector of Ukraine should be emphasized that the role of government in the implementation of this process is not economically reasonable and justified, resulting in failures in implementation of policy reform have not given the hoped improvement of agricultural economy.

3.2 Problem of improving the investment climate in the agricultural sector of the Ukrainian economy

Agricultural land in Ukraine is one of the best mid and long-term investment opportunities in the world. While many arable land plots worldwide get deteriorated by intensive conventional (chemical) farming practices, Ukraine's black soils, aka Chernozem, have managed to stay much less harmed by humanity's most dangerous and delusive “inventions”: toxic pesticides and synthetic chemical fertilizers.

Ukraine's diverse farming climatic zones provide an exceptional opportunity for fully-diversified, complete-cycle farming ventures with their own livestock, seed production and premium field crops and row crops production of export-scale harvest volumes.

Investing of agrarian sphere as the investment processes in other industries is versatile and complex phenomenon. By its economic nature investment activity is the process of realization of additional investments of the most effective means to increase production and create conditions for economic growth.

Sustainable development and economic growth in the agricultural sector is a priority task of economic policy. The intensive type of development helps to improve economic indicators; the main ones are labor, land, capital, entrepreneurial skills, science and information. Exceptional value for the expansion of agricultural production is the problem of providing agricultural investment both regionally and at the macro level [24].

Ukraine, by its investment attractiveness, is characterized as the country with negative investment image and, at the same time, with a high investment potential.

The main factors, which form a negative image of Ukraine in the global investment and credit markets, are:

· an imperfect legislative base;

· unstable political situation;

· imperfect tax legislation;

· underdevelopment of financial markets;

· the slow pace of privatization;

· deceleration of market reforms;

· imperfections of market mechanism;

· lack of investment insurance system.

The most attractive investment sector of agriculture is crop production (grain production, potato and sugar beet).

Slightly worse situation in the fields of dairy farming and fruit growing.

In the middle zone of investment attractiveness are the production of eggs, vegetables and beef cattle.

The lowest rates of investment attractiveness fixed in pig farming and viticulture, sheep farming and poultry meat production.

To increase the investment attractiveness of the agricultural sector of Ukraine should to realize a system of measures at the national, regional and sectoral levels, the main of which are:

· the improvement and aligning of legislation, which govern investment activities;

· to ensure stability and transparency of tax laws;

· improvement of land legislation;

· stabilization of the national currency;

· improvement of the amortization policy;

· creation of conditions for revitalization of investments of individuals and legal entities;

· development of the stock and insurance markets and strengthening their investment direction;

· improvement of pricing system in agriculture;

· completion of the restructuring of agricultural enterprises and improvement of organizational forms of management;

· improving agricultural cooperation and creation of new integrated forms of management;

· extension services in agriculture.

Improving the investment attractiveness of agricultural production is possible providing that we use both external and internal reserves. However, the low level of attractiveness of sectors of the agricultural sector for investors does not allow the full use of environmental factors.

Investments attractiveness of an enterprise in the agricultural sector of Ukraine represents a level of satisfaction with financial, production, institutional and other requirements or interests of the investor in respect to specific agricultural enterprise (private/ large farm), which may be expressed or measured by values of relevant indicators.

Policy Objectives:

* to improve the investment attractiveness of Ukrainian agricultural sector;

* to increase inflow of foreign investments into agricultural sector;

* to enhance the rates of the agricultural sector development;

* to increase presence of the Ukrainian agricultural products in the world

agricultural markets.

These objectives can be achieved through implementation of a number of specific auxiliary objectives:

Short-term sub-objectives (1-2 years):

* to make changes in the Land Code of Ukraine, which would stipulate that the land may be the subject of trade that is to be bought and sold;

* to create a legislative framework in the sector of agro business insurance so that it will envisage procedures, conditions, presence or absence of preferences for agro business enterprises when concluding insurance contracts;

* to amend the Law of Ukraine “On the regime of foreign investment activity”, which would obligatorily include a provision for simplified system of registration of foreign direct investments;

* to secure appropriate coordination of actions of all governmental regulation authorities and to improve their norms and regulations so that the current legal framework for regulation of foreign investments in Ukraine will provide a clear mechanism for implementation of safeguards and guarantees granted by the state to investors as it is required by the Law of Ukraine “On the regime of foreign investment activity”;

* to amend Article 7 of the Law of Ukraine “On taxation of profits of enterprises“, and, in particular, its section on “Peculiarities of profit taxation of enterprises with foreign investments”, as well as clearly define the conditions and procedure for repatriation of profits by the enterprises with foreign investments;

* to develop Land Cadastre (regulating assessment of the land value, availability of land, its quality, types of lands), the data of which should be obligatorily used in the process of conclusion of contracts for the sale or purchase of land which would encourage and stimulate formation of the land market [24];

* to create “investment portrait” of the regions, which would give detailed information about the state of agriculture in each region, including quantitative and qualitative data, capacity of the investment market in the region and future trends of its development as well, etc.

Medium-term sub-objectives (4-7 years):

* to improve investments attractiveness of the agricultural sector;

* to increase inflow of foreign investments in the agricultural sector by 5-7%;

* to raise the level of mechanization (to increase the quantity and quality of the park of agricultural machinery and mechanisms) in agriculture using investments made by foreign investors.

Long-term sub-objectives (7-10 years):

* to increase foreign investments in the Ukrainian agriculture to the level of contribution of the agricultural sector to national GDP, that is to 14% (nowadays, only 2% of the total investments volume are invested into the agricultural sector, but the contribution of the agricultural sector to national GDP makes up 14%);

* to improve the level of production in the agricultural sector as a whole and in its individual branches [14];

The main attention in finding ways to improve the investment attractiveness of the agricultural sectors should focus on internal resources to improve the system of agriculture, which contributed to the growth of production and reducing of costs and increasing of profitability of certain products [25, p.83].

The reasons for relatively small amounts investment in enterprises of agrarian sphere is not optimal structure, low overall level of economic services in agricultural enterprises, the lack of an enabling environment and reasonable concept of economic development, in particular the concept of investment strategy for the future, taking into account regional differences. Growing influence and such factors as lack of an established system of marketing agricultural products.

CONCLUSIONS

The instability of agricultural production, inconsistency and indecisiveness of executive bodies in the process of agricultural reforms led to a deep crisis in national agriculture.

In conditions of social andeconomic restructuring of agriculture of Ukraine, integration to various political, social, economic, technical and other associations and organizations significantly important improvement of state management of some of its subcomplexes, directed to their establishment, functioning and economic development.

The main goals of restructuring of agriculture are: implementation of agrarian reform, the development of various forms of ownership and management, improvement of the sectoral structure of agriculture, the priority development of processing industry of agricultural raw materials, creation of small businesses in rural areas to solve the problem of rural employment.

The main foundation of reforms in the agricultural sector is the implementation of land reform. Land reform aims to create conditions for equal development of different forms of management, rational use and protection of land.

Today the national economy of Ukraine is in a difficult situation. On the one hand, we must transform our economy from command to market, on the other. On the other, external factors influence us, such as integration into the world global economy, which is life-saving for us.

In this difficult period of stabilization raises the task to stabilize the national economy, including agriculture. This requires, first of all, to stabilize agricultural production, creation of a modern base for processing and storage of agricultural products.

APPENDIXES

Appendix 1

Ukraine's agriculture in Europe and globally - selected produce

Type of produce	Production volume	Rank in Europe/globally	Export volume	Rank in Europe/globally
Corn	22.8 million tonnes	Europe:1 Globally:7	7.8	Europe:1 Globally:4
Wheat	22.38 million tonnes	Europe:4 Globally:11	4.1	Europe:4 Globally:8
Barley	9.18 million tonnes	Europe:3 Globally:5	2.1	Europe:3 Globally:5
Rye	0.68 million tonnes	Europe:4 Globally:4	-	-
Rapeseed	1.48 million tonnes	Europe:4 Globally:9	1.0	Europe:2 Globally:4
Sunflower seeds	8.78 million tonnes	Europe:2 Globally:2	0.4	Europe:3 Globally:3
Sunflower oil	-	Europe:2	2.7	Europe:1 Globally:1
Potatoes	24.28 million tonnes	Europe:2 Globally:2	-	-
Sugar beets	18.78 million tonnes	Europe:4 Globally:5	-	-

Appendix 2

Gross agricultural production by regions in Ukraine, 2010

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