Agriculture is crucial for the country's economy and food security. Today it contributes 12% to GDP and about 40% foreign currencies from exports. With this in mind, the Government needs to support an effective operation of this sector. It is small and medium-sized business in the countryside that has largest potential for its development.
Today Ukraine has about 33,000 farms. This is more than 70% of all economically active agricultural enterprises. However, the production and social potential of farms remains unrealized. Machinery and performance (for example, crop capacity) are usually much inferior to those available at medium-sized to large enterprises. The farms' estimated annual loss of export potential is at least $350 mln.
The main reason behind this is lack of working capital and the high cost of credit. As a result, farms have much more modest physical facilities, and their access to advanced technology, selection, modern plant protection products, and fertilizers is quite limited. It is for this reason that farms account for as little as 6% to 8% annually in the total structure of production of the gross agricultural product.
If small and medium-sized farms could receive adequate material and organizational resources, they would be able to boost their performance and make a greater contribution to the country's economy in general and to gross production of agricultural products in particular. Most importantly, the development of farming will drive the development of the countryside by creating new jobs, the productive and social infrastructure.
This is why the Government has approved the Concept of Development of Farms and Agricultural Co-operation 2018–2020 .
It is designed exclusively to support farms with an area of up to 100 hectares. This document was drafted by the Ministry of Agrarian Policy and Food in close cooperation with the Association of Farmers and Private Landowners — Ukraine's largest professional union of farmers.
The main goal of the Concept is to create organizational, legal, and financial conditions necessary to promote farms and agricultural co-operation. Government support of small and medium-sized agricultural producers will push Ukrainian farming to a qualitatively new level, improve performance and competitiveness of farms, fill the domestic market with high-quality food, and expand export geography. In addition, the promotion of farming will create the rural middle class, develop rural areas, and improve the welfare of country dwellers.
An unprecedented one billion hryvnias was allocated in the 2018 national budget to implement this Concept. As initiated by the Association of Farmers and Private Landowners, the Ministry of Agrarian Policy and Food has created the position of Deputy Minister on Supporting Farming and Developing the Countryside to more effectively coordinate support programs. It is held by AFPL Vice-President Viktor Sheremeta. The professional day, Farmer's Day, will be observed on June 19 starting in 2018 to enhance the nationwide status of the Ukrainian farmer.
This involves both expanding applicable lending and financial mechanisms and introducing new financial instruments. For example, there are plans to provide revocable financial support competitively to farmers through the Ukrainian State Farmers Support Fund. It also involves partial compensation of interest rate payments for bank loans raised in the national currency. In addition, farmers' government support will include lowering insurance premiums. Farmers will also be able to obtain government guarantees for investment projects and government support on financial lease terms. The Concept also involves funding partial compensation of agricultural producers' cost of acquisition of domestic agricultural machinery and equipment.
According to the Concept, land under organic crops needs to grow 10% in three years. Farms opting for this area of activity will be offered government support as a priority, for example, in terms of getting cheap loans and partial compensation of the cost of acquisition of agricultural machinery and equipment. The Concept also allows special land auctions for plots with characteristics suitable for organic farming.
Today over 90% farms are concerned with crops. Instead, the Concept proposes creating favorable conditions for increasing the number of livestock farms. For example, the Government will be offering partial compensation of the cost of construction and renovation of livestock farms and complexes to those who carry out such work. One will also be able to get a partial refund of the cost of finished farms. Partial compensation of costs is also available for the procurement of highly productive livestock for subsequent reproduction.
This area has been lacking attention in Ukraine until today. However, European experience suggests that small agricultural producers can substantially increase their performance by associating with other farmers.
The Concept offers financial support to agricultural service cooperatives that will carry out initial treatment and processing of farms' products. The Government will encourage farmers to create agricultural cooperatives both independently and together with members of subsistence farms. This will promote processing raw materials domestically and making agricultural products with a high added value. By co-operating with other producers, farmers will be able to sell their products more effectively both in domestic and foreign markets while competing with intermediaries.
Mechanisms need to be put in order whereby farmers can become owners of land plots, and the legal status of formerly collectively owned land needs to be determined. Special land auctions are to be held for lease of lands for growing fruit, vine, hop, and organic products. Farmers will also be able to get mortgage lending with land as collateral. This will help farms fund the implementation of new technologies in agricultural production, upgrade physical facilities etc.
The number of farms will be increased and up to half a million new jobs instead of the 100,000 currently employed people will be created in the next three years of implementation of the Government's Concept. As a result, the percentage of farms in the gross production of agricultural products should grow from the current six to eight percent to 12% percent annually. Areas that have stagnated or generated insignificant output so far, including livestock and organic farming, hop, fruit, and vine growing, will get a significant incentive for development and/or renovation.
Technical upgrades will improve the overall performance of farms. Encouragement of agricultural co-operation will give a new impetus for processing raw materials in Ukraine rather than abroad. 15 new facilities are to be created annually for the initial processing of agricultural products and 40 to 50 new cooperatives established by farmers independently or together with members of subsistence farms. Co-operation with other small and medium-sized producers will also enable farmers to improve their operational profit margins, reach new markets, and increase foreign currency sales from agricultural exports.