Paper presented at the IAMO Forum 2005
“Formation of Market Mechanism In Agricultural Sector of Ukraine”
16-18 June 2005 Halle (Saale), Germany
FORMATION OF MARKET MECHANISM IN AGRICULTURAL
SECTOR OF UKRAINE.
Prof. Anatoliy Tkach
Abstract
Reforming of economic relations in agricultural sector of Ukraine as well as
depending between reforming of ownership and the adequate development of
market mechanisms is analyzed in the article.
The reasons for sluggishness of farm enterprises, peculiarities of peasants’
psychology, mal development of market self-regulation mechanisms and low
efficiency of agricultural undertakings are investigated.
Key words:
profitability.
ownership,
market
mechanism,
infrastructure,
farming,
1. Introduction.
According to the classic economics private ownership of land is based on the
mechanism of market cooperation among transactior units. However,
privatization of land and property in agricultural sector of Ukraine hasn’t
spurred the mechanism of market self-regulation yet.
The reasons are the following.
Unlike the countries with deep-rooted private ownership, historically the
Ukrainian peasants’ family has never been an economic unit. From
generation to generation it used to be either a collective enterprise or a
state one.
Implementing market relations at administrative level by replacing formal
rules of economic management and particularly land relations does not
influence the proper reconstruction of informal relations (“the rules of the
game”) in agricultural sector.
_______________________
* Melitopol Institute of State and Municipal Government of the UH
“ZISMG”, Melitopol, Ukraine, e-mail: [email protected]
Creating competitive environment depends to a great extent on the level
of development of market infrastructure.
2. Results of investigation
2.1. Privatization in agricultural sector of Ukraine does not have direct influence
on the adequate improvement of market relations and encouragement of
business activity because economic relations in agriculture of Ukraine have
some peculiarities.
2.2. The first consequences of reforming of farming relations in Ukraine have
proved that the individual is rather “homo economics” than a social subject and
his expediency has rather social than economic motives.
2.3. Managing agricultural sector under the existing administrative type
hierarchy slows down and occasionally hinders the establishment of market selfregulation mechanism in agricultural sector of Ukraine.
2.4. Sluggishness of new forms of cooperation (farm economy and agricultural
holding association, cooperatives) in agriculture and corresponding implicit
forms of market self-regulation slows down the implementation of social capital
in this sector of economy.
The present stage of market mechanism in agricultural sector of Ukraine is
characterized by high disorganization and uncertainly concerning property
rights, utilizing the considerable part of agri-oriented land, machinery and
equipment, which used to be collective property. The existing appraisals of
Social and Economic Research Centre (SERC) attest that the higher agricultural
output in 2001-2002 has nothing to do with the latest reforms (Table 1).
Table 1: Basic indicators for agricultural production activity
2000
2001
2002
2003
Capital assets (at present prices) bln. hrv.
87.7
71.7
60.1
52.2
Profitability, %
9.0
5.0
-1.9
-0.03
Share of unprofitable enterprises, %
34.5
43.9
53.8
50.5
Average number of hired workers a year, 2475
thous.
2131
1744
1436
Average monthly wage of hired workers
(before taxes), hrv.
111
151
178
210
Agricultural products, bln. hrv.
55.7
61.4
62.1
55.6
The presidential decree of 1999 and the new land code of 2001 laid down the
legal foundation for reforming property and developing the market of land lease.
According to the World Bank of Reconstruction and Development some positive
tendencies (including average cost reduction, higher labor productivity, higher
efficiency of distribution of resources) have emerged in agriculture of Ukraine.
However having analyzed the latest data of State Committee of Statistics
profitability of agricultural undertakings in the period between 2000 and 2003
fell from 9% to –0.03% and the share of unprofitable enterprises increased from
34.5% to 50.5% [2, p. 155 – 160].
2.5. The development of competitiveness in agricultural sector of Ukraine is
facing some considerable difficulties and rather related to encouragement than to
a greater number of new enterprises and administrative “sharing off” the
existing collective enterprises.
2.6. The most important function of market infrastructure is establishing “the
rules of the game”, developing competitive environment, fixing equilibrium
market prices by improving market institutions and wholesale markets of
foodstuffs. The infrastructure support of agricultural sector of Ukraine has
increased due to expanding commodity exchanges. Between 1991 and 2003 the
number of exchanges increased from 28 to 201, agri-industrial ones – from 4 to
31 (Figure 1)
Figure 1: Dynamics of exchanges in Ukraine (1996 = 100%).
1000
all types of
exchanges
800
600
commondity
exchanges
400
200
agro-industrial
exchanges
0
2000
2001
2002
2003
In order to provide conditions for the effective market mechanism in agricultural
sector of Ukraine it is necessary to establish the following institutions:
Forming entrepreneurial class based on private ownership of land;
Creating competitive environment;
Building market infrastructure;
Equilibrium pricing.
The continuous increasing number of self-sufficient farm enterprises is an
important sign of entrepreneurship as well as creating competitive environment
in agricultural sector. According to single state Register of Enterprises and
Organizations of Ukraine for the last five years (1998 – 2004) the number of
self-sufficient agricultural enterprises increased from 57.8 ths. to 81.9 ths.
among which 53.5 ths. or 70.4% are incorporated as private enterprises [1, p.
26].
According to State Committee of Statistics of Ukraine for 2003 operating
enterprises in agricultural sector amounted to 59.9 ths. including private
enterprises – 6.7%, farm enterprises – 71.8%, economic unions – 14.5%,
production cooperatives – 3.2%. At first sight the number of farm enterprises
(Table 2) makes the major part of the enterprises [3, p. 118]. However farm
enterprises include the form of business activities by establishing the legal entity
who whish to be engaged in agricultural production and processing for profit
purposes [4, p.78]. According to article 114 of Economic Code of Ukraine
peasant and farm enterprises are doubtfully considered as identical.
Table 2: Number of private farms agricultural land area.
80
70
60
50
32,0
40
34,8
35,4
35,9
35,5
35,9
38,4
41,6
43,0
43,0
27,7
30
20
14,7
10
19,9
20,1
21,9
22,6
23,6
25,9
29,0
32,4
56,1
62,2
65,6
67,4
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
0
area of agricultural land per farm enterprise, ha
number of farm enterprises, ths.
To create market self-regulation mechanism it is necessary:
To make register of a register of rights to land and property rights under
the present law of Ukraine.
To carry out organizational work concerning selling rights at lease of agrioriented land and promote the mortgage.
To implement structural reforms through purpose oriented programmes,
which involve building up and financing tangible infrastructure (transport
communications, information network, silos, refrigerators, etc.)
References
1. Федієнко П.М. Розвиток підприємницьких структур – перспектива
аграрної економіки // Економіка АПК, 2004, №6.
2. Statistical Yearbook of Ukrain for 2003. Kiev, Publishing house
„Konsultant”, 2003.
3. Ukrain in Figures in 2002. Short Statistical Reference. Kiev,
„Konsultant”, 2003.
4. Хозяйственый кодекс Украины. – Харьков, 2004.