27. Ukraine
This chapter considers policy developments until early February 2022. Russia’s large scale aggression against Ukraine implies a fundamental change in the policy context with the need to keep the agricultural sector functioning superseding all other agricultural policy concerns. As the situation continues to evolve, no 'Assessment and recommendations’ are provided at this stage.
Support to agricultural producers in Ukraine, measured by the producer support estimate (PSE), is low compared to other countries. The PSE was volatile over the past three decades, mostly due to fluctuations in market price support (MPS). In recent years, however, PSE fluctuations narrowed around zero, averaging 1.7% of gross farm receipts during 2019-21.
Over most of the past two decades, MPS was negative, with average producer prices below international reference levels but with significant variation across commodities and time. Due to tariff protection, domestic prices for meat products and sugar were above international reference levels, while those for most crops and milk were generally below world prices. In recent years, the overall impact of government intervention on prices was likely limited and, since 2018, total MPS for the sector has been slightly positive.
Single commodity transfers (SCTs) mostly comprise MPS, with sugar, rye, and pig meat receiving the highest support, while oats and, to a lesser extent, milk and sunflower seeds are implicitly taxed.
Budgetary support to producers, mainly in the form of tax benefits and input support for short-term loans and fixed capital formation, represents less than 1% of gross farm receipts but contributed to positive overall producer support during the last four years. Additional support was provided since 2020 in the context of the COVID-19 pandemic but remained small, representing 0.4% of budgetary support to producers in 2020 and 1.8% in 2021.
Support for general services increased since 2015 but remains low compared to other countries. During 2019-21, the general services support estimate (GSSE) averaged 0.6% of the value of agricultural production, half the levels of the early 2000s. Most of these expenditures go to inspection and control services, and agricultural schools. Total support to the sector increased slightly in relative terms, from an average of 0.4% of GDP in 2000-02 to 0.6% in 2019-21.
The government continued to develop legislation to strengthen the market for agricultural land. As of July 2021, citizens of Ukraine can purchase up to 100 hectares of land, while this possibility is scheduled to extend to purchases of up to 10 000 hectares from January 2024 by Ukrainian citizens and Ukrainian legal entities. New laws were adopted relating to land documentation, registration and valuation, and the management of state-owned land.
A new Fund for Partial Credit Guarantees in Agriculture was established, providing credit guarantees to small and medium-sized farms, and agricultural enterprises cultivating up to 500 hectares of land. Legislation was also passed introducing state support for agricultural insurance, reimbursing agricultural producers with up to 60% of the cost of insurance payments.
Several legal acts were put in place relating to the environment, including a National Action Plan for Environmental Protection until 2025, and laws to strengthen protection of forests and peatlands, encourage large-scale afforestation, and support the development of organic farming.
A new free trade agreement (FTA) between Ukraine and Turkey was signed in February 2022. Reforms were also introduced under Ukraine's Association Agreement with the EU to improve sanitary standards for the export of animal products.
Overview of policy trends
Prior to the 1990s, central planning regulated all sectors of Ukraine’s economy, including agriculture, as part of the Soviet Union. The state administered prices, and state enterprises controlled production, marketing of agricultural inputs and outputs, and processing and distribution of food (von Cramon-Taubadel et al., 2008[1]).
The first reforms began at the end of the 1980s, when the country started to transition towards a market-based economy. The ability to lease land from collective farms or individuals facilitated private agricultural production, enabling the establishment of family farms (von Cramon-Taubadel et al., 2008[1]).
However, Ukraine went through an economic crisis in the early 1990s, involving significant economic contraction and inflation that impacted the agricultural sector and resulted in substantial reductions in agricultural output and productivity. Consequently, several trade and price liberalisation policy reforms were reversed in the mid-1990s. Renewed reforms in agribusiness privatisation and collective farm restructuring intensified only after macroeconomic stabilisation in the 2000s (OECD/The World Bank, 2004[2]). While prior to the 1990s, the state owned all land,1 today about three-quarters of agricultural land is private property (StateGeoCadastre, 2017[3]).2
In 2005, the State Agrarian Fund was established as a state-owned public joint stock company (reorganised in 2013). Its initial mandate was to regulate grain prices through intervention purchases, to store grain in state-owned silos and sell it to bakeries to guarantee bread prices, and to provide loans to grain producers. The fund progressively became involved in other activities, such as state purchases and sales of a broad range of agricultural and food products; forward contracts; flour processing and wholesaling; and sales of fuel and mineral fertilisers to producers (OECD, 2015[4]). The government budget has not allocated funds to the State Agrarian Fund since 2016, resulting in fewer state interventions in agricultural markets.
Two key events helped shape agricultural policies in Ukraine. First, in 2008, Ukraine became a member of the WTO, setting its agricultural bound tariffs at an average of 10.8%, expanding its export opportunities, and contributing to changes in the system of state support for agriculture. Second, in 2014, the European Union and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) as part of their Association Agreement. The DCFTA formally entered into force in September 2017, and involves tariff reductions and duty-free import quotas to facilitate trade between Ukraine and the European Union, including in agricultural and food products.
From 1999 to 2016, the state provided significant support through VAT accumulation, based on an agriculture-specific VAT regime. Agricultural producers accumulated in special bank accounts the VAT due on their primary and processed products. The accumulated funds were directed to cover VAT on purchased inputs, with the residual available for any other production purpose. From 2014 to 2016, this mechanism provided 90% of total state support. Other domestic policy measures notably comprised input subsidies, tax concessions, price controls, import tariffs, non-tariff trade regulation, minimum purchase prices, direct state purchases, and preferential loans (Table 27.2).
A moratorium banning the sale of agricultural land was put in place in 2002, although leasing for cultivation was permitted. The moratorium was extended annually until and including 2019. It was not formally extended into 2020. From July 2021, a new law came into force that lifts the ban on the sale of agricultural land and grants individual citizens the right to purchase up to 100 hectares of land. From January 2024, larger purchases of up to 10 000 hectares will be permitted for Ukrainian citizens and Ukrainian legal entities.
Due to the negative market price support only partly offset by transfers to producers through tax concessions and other measures, support to agricultural producers was negative for most of the 1990s. While the level continued to fluctuate over the recent decade, it has been closer to zero (Figure 27.4). With little budgetary support to general services or consumers, total support to the sector remained small for most of the past 25 years.
Main policy instruments
The Ministry of Agrarian Policy and Food (MAPF) is the main executive body in Ukraine in charge of the development of agriculture. Between September 2019 and January 2021, MAPF was integrated into the Ministry of Economic Development, Trade and Agriculture (MEDTA). At the beginning of 2021, MAPF was restored. A resolution adopted by the Cabinet of Ministers of Ukraine (CMU) in February 2021 defines the functions of MAPF, including the formation and implementation of state policy in a range of areas including agriculture, fisheries, food security, rural development, and land management.
Ukraine’s agricultural policy measures are formulated in a number of major laws and decisions. The law On State Support of Agriculture in Ukraine, adopted in 2004, defines the key policy priorities and measures of agricultural support.
Agricultural producers are eligible for a Single Tax3 set as a percentage of normative agricultural land values established on 1 July 1995 and adjusted since with the general consumer price index. Introduced in 1998, the Single Tax originally replaced twelve taxes for which agricultural enterprises were liable as business entities. The scope of this tax has narrowed since. At present, the Single Tax replaces three taxes – profit tax, land tax (for land used in agricultural production), and a special water use fee – with agricultural producers liable for all other taxes previously included in the Single Tax. The Single Tax regime generates implicit tax benefits to agricultural producers, estimated to be around UAH 4.3 billion (USD 150 million) annually in recent years.
The annual law On the State Budget of Ukraine defines the financial scope of agricultural subsidy policies. In 2021, the allocation of subsidies to agricultural producers grew to UAH 4.7 billion (USD 166 million), a substantial increase in local currency terms compared with the allocation of UAH 4.0 billion in 2019 and 2020.
In addition to the Single Tax regime, the general budget programme On Financial Support of Agricultural Producers provides a range of ongoing measures targeted to specific activities, such as partial compensation for the costs of agricultural machinery and equipment, and interest rate subsidies on bank loans. For livestock producers, these also include interest rate support for loans funding livestock husbandry and breeding; partial reimbursement of costs related to the construction and reconstruction of animal farms and buildings; per head payments for cows to agricultural enterprises and for young cattle to rural households; and partial compensation to agricultural producers purchasing high-breeding animals, semen and embryos. In turn, on the crop side, support is provided in the form of reimbursements for different types of on-farm investments and debt repayments.
As per a CMU Resolution from June 2017, no market price regulation of food products has taken place since July 2017. However, the State Material Reserve of Ukraine (SRU) procures and holds emergency reserves for a range of products, including agriculture and food products. Purchases are made through open tenders.
The law On Agricultural Cooperation entered into force in November 2020, regulating issues related to the creation, management and dissolution of agricultural co-operatives. It eliminates the former differentiation between production and service co-operatives and defines co-operative education as a priority task of agricultural co-operatives.
Ukraine has been a member of the WTO since May 2008. The country charges import tariffs on most agricultural products, with applied most-favoured-nation (MFN) tariffs for agricultural products averaging at 9.1%, well above the average for non-agricultural products at 3.7% (WTO, 2021[5]). While most imports face ad valorem tariffs, Ukraine maintains a global tariff-rate quota for raw cane sugar. This quota was only used in 2011 and 2021, given the excess sugar supply on the Ukrainian market in other years. Export duties are applied to some oilseeds, live animals and raw hides, but have gradually decreased following Ukraine’s accession to the WTO.
The Association Agreement with the European Union, ratified by Ukraine in 2014, increasingly influences the country’s policies. On 27 June 2014, the European Union and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) as part of their Association Agreement. It applied provisionally from 1 January 2016 and formally entered into force on 1 September 2017. Trade liberalisation between the European Union and Ukraine is to be implemented over a transition period of seven to ten years. The European Union is to open tariff rate quotas (TRQs) for duty-free imports for Ukraine’s principal agro-food products, such as grain, meat and milk products, and sugar, and to grant free access for the others. Ukraine is to reduce import duties for a number of goods from the European Union. About 40% of agriculture-related import duties were reduced to zero immediately after the Agreement entered into force, and around half of import duties will be eliminated during the transition period. For about 10% of tariff lines – covering selected products in product categories such as dairy and eggs, sugar, miscellaneous edible products, animal oils and fats, and feeding stuff for animals – Ukraine maintains TRQs with zero in-quota tariffs. Since 1 January 2016, Ukraine applies three TRQs with zero in-quota tariffs for imports from the European Union of pig meat, poultry meat and poultry meat preparations, and sugar, respectively. The parties committed to apply no export subsidies for mutually traded agricultural goods.
The DCFTA incorporates fundamental WTO rules on non-tariff barriers, such as prohibition of import and export restrictions, and disciplines on state trading. However, Ukraine’s difficulty complying with EU food safety, veterinary and phytosanitary requirements remains a barrier for trade integration. Thus, the DCFTA contains provisions for technical regulations, standards and conformity assessments to harmonise with those of the European Union, as well as for technical co-operation in the field of regulations, standards and related issues between Ukraine and the European Union. In line with these provisions, the Comprehensive Strategy of Implementing Legislation on Sanitary and Phytosanitary Measures was approved in 2016 and provides a process for harmonisation of Ukraine’s SPS legislation with EU requirements.
Other free trade agreements (FTAs) with Ukraine include the FTA with the European Free Trade Association (EFTA) in force since June 2012, the multilateral FTA with the Commonwealth of Independent States (CIS)4 in force since August 2012 as well as bilateral ones with all CIS members, and the Canada-Ukraine FTA, in force since August 2017. FTAs with Israel and the United Kingdom entered into force in January 2021. In February 2022, Ukraine and Turkey signed a new FTA.
In July 2019, the CMU approved the Strategy for the development of exports of agricultural and food products for the period up to 2026. It focuses on product competitiveness, an expanded range of export products, Ukrainian food brands, and supporting information and analysis on agro-food exports.
Climate change mitigation policies in agriculture
In 2019, agriculture contributed 42.5 MtCO2eq or 12.8% of Ukraine’s greenhouse gas (GHG) emissions. Nitrous oxide (N2O) is the largest source of emissions (78% of total GHG emissions from agriculture), followed by methane (21%). Agricultural emissions have decreased by 51% compared to 1990 levels, but rose by 27% since 2010.
Ukraine signed the Paris Agreement of the United Nations Framework Convention on Climate Change in April 2016 and ratified it in September 2016. Ukraine’s updated Nationally Determined Contribution (NDC), approved by the CMU in July 2021, proposes to reduce economy-wide emissions by 65% relative to 1990 levels by 2030 and achieve carbon neutrality no later than 2060.5 The NDC covers a range of economic sectors, including energy, industrial processes and product use, agriculture, land use, land-use change and forestry, and waste (UNFCCC, 2021[6]). However, no sector-specific targets were set for agriculture. In October 2021, Ukraine joined the Global Methane Pledge, an initiative launched by the European Union and United States that aims to reduce global methane emissions at least 30% from 2020 levels by 2030, which could eliminate over 0.2˚C of warming by 2050.
In December 2016, the CMU adopted the National Concept for the Implementation of State Policy in the Field of Climate Change to 2030. The CMU approved the Action Plan for the implementation of this Concept in late 2017, while it approved the Strategy for Low Carbon Development of Ukraine to 2050 (SLCD) in July 2018. The SLCD defines a co-ordinated approach by various parties and provides a national vision for decoupling economic growth and social development from an increase of GHG emissions.
The goal of becoming a carbon-neutral country by 2060 is enshrined in the National Economic Strategy to 2030, approved by the CMU in March 2021. The strategy includes a State Policy in the Agri-Industrial Sector on Environmental Protection and Management of Natural Resources in Agriculture, which aims to approximate and harmonise national legislation and policy with the EU Green Deal, introduce a national report on GHG emissions in agriculture, and introduce economic incentives for sustainable land use and improving soil fertility.
The Law On Principles of Monitoring, Reporting and Verification of Greenhouse Gas Emissions came into force in March 2020 and applies from January 2021, reflecting Ukraine’s obligations under international agreements including the UN Framework Convention on Climate Change and the 2015 Paris Agreement. Ukraine’s GHG emission monitoring legislation will be adapted to EU legislation, in line with Ukraine’s EU Association Agreement. Following the adoption of this law, the Procedure for Maintaining the Unified Register for Monitoring, Reporting and Verification of Greenhouse Gas Emissions was approved by an order of the Ministry of Environmental Protection and Natural Resources (MEPR) in June 2021.
The Ministry of Agrarian Policy and Food (MAPF) and MEPR are developing measures in line with obligations under Ukraine’s EU Association Agreement to improve environmental practices, mitigate agricultural emissions and support the adaptation of agriculture to climate change. Policies and measures to support emissions reduction efforts in agriculture include (MEPR, 2021[7]):
introduction of minimum-tillage techniques and a ban on stubble burning in fields
support for land protection activities and the restoration of windbreaks
harmonisation with EU legislation of domestic regulations relating to the distribution and use of pesticides and agrochemicals
introduction of the best agricultural practices for zones vulnerable to nitrate pollution
support for returning and restoring degraded land (purchase by state or payment for decommissioning)
supporting the use of manure at all stages – production, processing, storage, transportation and application – and its utilisation in biogas production
supporting the development of organic agriculture and observance of crop rotations.
In line with these objectives, the Presidential decree On Some Measures for the Preservation and Restoration of Forests entered into force in June 2021. The decree outlines plans to implement the Green Country large-scale afforestation of Ukraine initiative, which aims to plant one billion trees over the next three years, and increase forested areas by one million hectares over the next ten years.
Domestic policy developments in 2021-22
Changes to the legal framework
The National Economic Strategy until 2030, approved by the CMU in March 2021, is the basis for the development of new legislation, action plans and strategic programmes by government ministries and other central executive bodies. It aims to establish Ukraine as one of the global centres of food security, and a world leader in the supply of high value-added food and technology-intensive services for the agri-food sector. The strategy includes seven strategic goals for the agricultural and food sectors: ensuring a stimulating and advisory agricultural policy (strengthening institutional capacity, improving the efficiency of policy making, improving the land market); providing market players with high quality infrastructure; improving access to inputs and technology; balancing the production of high and low-margin products to increase the profitability of the sector; facilitating the development of markets for processing; increasing sales of high-value products in domestic and international markets; and ensuring the production and export of safe and healthy agricultural and food products.
In March 2021, a new resolution On Approval of Model Statutes of an Agricultural Co-operative was introduced by the CMU. The new model constitutional documents regulate the legal status, rights, responsibilities and relations of members and associate members of co-operatives, as well as the formation, management and termination of economic activities of agricultural co-operatives.
Several legal acts have been put in place to regulate the development of a market for agricultural land:
The law On amendments to certain legislative acts of Ukraine concerning the conditions of turnover of agricultural lands was adopted by the parliament in March 2020. The law came into force on 1 July 2021, effectively ending the ban on the sale of agricultural land by granting individual citizens of Ukraine the right to purchase up to 100 hectares of land. From 1 January 2024, purchases of up to 10 000 hectares will be possible for Ukrainian citizens as well as for legal entities whose founders or final beneficiaries are Ukrainians, and which do not have businesses registered abroad or in offshore companies. The sale of land to foreigners remains prohibited and can become legal only through a referendum. The sale of state- or communally-owned agricultural land also remains prohibited. A Presidential Decree in October 2020 charges the CMU to work on facilitating the transfer of state-owned agricultural land to communal ownership, and on draft laws on the support to private farms, the improvement of land management and land deregulation.
The law On amendments to certain legislative acts of Ukraine on improving the system of management and deregulation in the sphere of land relations was adopted in April 2021 and entered into force in May 2021. The law transfers state lands outside of settlements to communal ownership of village, settlement and city councils, approves changes in the purpose of private land outside settlements by local governments, and ensures state control over the use and protection of land by village, settlement and city councils. It also streamlines administrative procedures relating to permits and land management documentation, reducing the time and cost of procedures related to land management.
The law On amendments to certain legislative acts of Ukraine concerning the sale of land plots and acquisition of the right to use them through electronic auctions entered into force in July 2021. The law calls for land auctions to be conducted through a state-owned electronic trading system, introduces a minimum guarantee fee for bidders, and outlines the procedures for the functioning and administration of the electronic trading system.
In June 2021, the CMU approved the resolution On approval of the procedure for verification of compliance of the purchaser or owner of agricultural land with the requirements specified in Article 130 of the Land Code of Ukraine. The resolution outlines the procedure for notarisation of data on the buyer of land, which was the final step in preparations for the opening of the land market.
The law On amendments to certain legislative acts of Ukraine concerning the stimulation of farms was adopted by the parliament in September 2021, and entered into force in October 2021. The law specifies the composition of farm lands and determines the recipients of state support. Newly created farmsteads, family farms, and farms located in mountain settlements are eligible for assistance from the state budget within the first three years of their establishment. The law also provides additional state support to family farms for the payment of their obligatory national social insurance fees, as well as financial assistance to farms that are headed by individuals under the age of 35.
In June 2021, the CMU approved the resolution On the functioning of the State Agrarian Register, which approves the procedure for maintaining and administering the State Agrarian Register and its data. The Register was created in November 2020 as a single state information system to integrate information on agricultural producers and their property.
The government resolution On approval of the methodology of normative monetary valuation of land plots was adopted and entered into force in November 2021. The resolution sets out new rules for calculating the normative monetary valuation of land, based on the unification of three previously existing valuation methods for land: settlements, non-agricultural purposes outside settlements, and agricultural purposes.
The law On the Fund for Partial Guarantee of Loans in Agriculture was adopted and entered into force in November 2021. The government established the Fund for Partial Credit Guarantee in Agriculture, a specialised non-bank financial institution that provides credit support and guarantees the repayment of loans to small and medium-sized farms and agricultural enterprises cultivating up to 500 hectares of land. The law defines the procedures for forming the authorised capital of the fund, convening and making decisions by the governing bodies of the fund, and determining the eligibility criteria for businesses to obtain partial credit guarantees.
The law On Amendments to Certain Laws of Ukraine on Improving the Legal Regulation of Insurance of Agricultural Products with State Support was adopted and entered into force in July 2021. The law introduces state support for agricultural insurance, reimbursing agricultural producers with up to 60% of the cost of insurance payments. It also identifies the rights and obligations of insurance market participants, as well as the requirements for issuing insurance contracts with state support.
Whilst the agriculture-specific VAT special regime was abolished in 2017, several new amendments to the Tax Code were introduced in 2021. A reduced VAT rate of 14% was applied to certain agricultural products from February to July 2021.6 Subsequently, the law On Amendments to the Tax Code of Ukraine on the Rate of Value Added Tax in the Taxation of Transactions for the Supply of Certain Types of Agricultural Products was adopted in July 2021, and entered into force in August 2021. The law restores the VAT rate at 20% for a range of products (live cattle; live pigs; live sheep; whole milk; rye; oats; flax seeds; other oilseeds; sugar beets), while maintaining the VAT rate at 14% for another group of agricultural products (wheat; barley; corn; soybeans; rapeseed; sunflower seeds).
The law On amendments to the Tax Code of Ukraine and other legislative acts of Ukraine to ensure balance of budget revenues was adopted in November 2021 and entered into force in January 2022. The law temporarily exempts certain agricultural producers, such as those involved in poultry, quail and ostrich breeding and production, from paying corporate income tax until 1 January 2027. At the same time, these agricultural producers will not be able to benefit from the simplified taxation scheme (the “single tax”).
A series of legal acts were put in place relating to environmental policies and organic agriculture:
The National Action Plan for Environmental Protection until 2025 was approved by the CMU in April 2021.
A law On Amendments to Certain Legislative Acts of Ukraine Concerning Strengthening Forest Protection, Prevention of Fires on Forest and Water Fund Lands, Peatlands and on Lands of Other Categories was adopted in February 2021 and entered into force in March 2021. The law increases the penalties for violations related to the burning of dry vegetation or its remnants.
Continuing the legislative work on the development of the organic products sector, the law On Amendments to Section XI “Transitional Provisions” of the Law of Ukraine “On the basic principles and requirements for organic production, circulation and labelling of organic products” was adopted in July 2021. The law includes provisions to legalise international organic labelling for Ukrainian producers of organic products, guarantee state support to producers, counteract the spread of fake organic products on the shelves of retail chains, and abolish fines for producers for violating the law On Basic Principles and Requirements for Organic Production, Circulation and Labelling of Organic Products.
The CMU resolution On approving the criteria for assessment of the level of risk arising from a certification body’s economic activity in the sphere of organic production, circulation and labelling, and determining the frequency of planned actions of state supervision (control) by the State Service of Ukraine on Food Safety and Consumer Protection entered into force in October 2021. The resolution defines and approves the criteria for assessing the level of risk from the certification body’s economic activity in the field of organic production, circulation and labelling of organic products.
The law On veterinary medicine was adopted in February 2021, introducing amendments to the law On animal by-products not intended for human consumption of October 2016. The law brings its provisions in compliance with the requirements of EU legislation by harmonising the relevant terminology, categorisation of animal by-products, procedures for handling various categories of animal by-products, and procedures for registering facilities.
Changes in agricultural support measures
Several new support programmes were introduced in 2021. These include:
per-hectare payments for crop losses due to emergencies and natural disasters
subsidies for cow herd expansion and subsidies for goats and sheep
partial compensation paid to potato growers for the cost of storage refrigerators and workshops for primary processing
partial compensation (per hectare payments) for irrigation sprinklers and drip irrigation
financial support for newly established farms to receive agricultural advisory services.
The state budget for partial compensation of the cost of agricultural machinery and the equipment of domestic production was continued at a rate of 25% of the cost of purchased machinery and equipment. However, the additional subsidy under this programme for agricultural service co-operatives was discontinued.
Several government support programmes were discontinued. The state budget programme Financial support for the development of farms was terminated in 2021. The Seed subsidy, which provided partial compensation to producers for the cost of seeds, was not applied in 2020 and 2021.
Domestic policy responses to the COVID-19 pandemic
The State Programme of Economic Stimulation to Overcome the Negative Effects Caused by Restrictive Measures to Prevent the Occurrence and Spread of the Acute Respiratory Disease COVID-19 caused by Coronavirus SARS-CoV-2 for 2020-2022 continued in 2021. The programme includes measures to provide access to finance for agricultural producers, ensure that agricultural products continue to be available on the market, enhance market monitoring for food products and other essential goods, develop a unified and simplified assessment of agricultural land values, develop digital tools to facilitate the sale and promotion of agricultural products and services, and improve conditions for the development of organic agriculture.
Long loaf (a type of white bread) and sunflower oil were added to the list of food products for which price increases of more than 5% must be declared in advance by food retailers. This measure was introduced under a CMU resolution from December 2021.
The CMU also introduced a resolution in December 2021 limiting the cost of natural gas for producers of flour, bread, milk, chicken and sunflower oil until April 2022, by setting the maximum level of surcharge on the price of government-produced natural gas at no more than 24%.
A number of economy-wide financial support measures were also introduced in response to the COVID-19 pandemic. For instance, the Entrepreneurship Development Fund provides low-interest loans and partial loan guarantees to support MSMEs across all sectors of the economy, including agriculture.
Trade policy developments in 2021-22
The Russian large scale aggression against Ukraine has created a significant change in the landscape of trade and trade policies in Ukraine. The material below is based on information collected prior to the Russian aggression against Ukraine and has to a large extent been overtaken by recent events. As outlined in the dedicated section in Chapter 2 of this report, the war, as well as subsequent policies implemented by Ukraine, have had and will continue to have significant implications for Ukraine’s ability to trade. Given Ukraine’s role as a major exporter of grains and oilseeds, this in turn affects international markets. The policy developments outlined in this section will therefore need to be understood against this background.
In February 2022, Ukraine and Turkey signed a free trade agreement. According to preliminary forecasts, the agreement will increase trade with Turkey from USD 7.5 billion to USD 10 billion over a period of five years.
A number of trade policy developments were driven by Ukraine’s obligations under the EU Association Agreement and DCFTA. On 1 January 2021, duties on wine imports from the European Union were reduced from 0.3-0.4 EUR per litre to zero. EU tariff rate quotas for animal products implemented under the DCFTA have not been fully used, and those for beef, pork and lamb have never been used at all. Aiming to increase exports of animal products into the European Union, Ukraine is working towards meeting the relevant sanitary standards. By February 2021, EU veterinary services had certified four poultry plants and 26 dairy processing enterprises, permitting them to export to the European Union. In parallel, the European Union has gradually increased its duty-free import quotas for Ukrainian poultry and processed poultry meat.
In October 2021, the Ukrainian Parliament adopted the law On amendments to certain legislative acts of Ukraine concerning the harmonisation of the legislation of Ukraine in the field of childhood nutrition with EU legislation. The law will come into force in May 2022, and aims to bring Ukrainian legislation on the production and sale of baby food in line with EU laws and regulations. This includes changes in product labelling, the abolition of ineffective and burdensome requirements, and strengthening compliance with relevant technical standards and regulations.
Since 2011, the MAPF has negotiated a Memorandum of Understanding (MoU) between the Ministry and key grain market participants on an annual basis, to ensure food security, avoid the application of export restrictions, ensure projections for grain exports are realised, and maintain stability in the Ukrainian grain market. The MoU between MAPF and grain market participants for the 2020/2021 marketing year was signed in July 2020. The Annex to that agreement was signed in August 2020, and indicates maximum export volumes of 17.5 million tonnes of wheat and 1 000 tonnes of rye. In June 2021, the maximum volume of corn exports was agreed at 24 million tonnes. A new MoU for the 2021/2022 marketing year was signed in July 2021, with its Annex agreed in October 2021. It indicates maximum export volumes of 25.3 million tonnes of wheat.
A ban on imports of agricultural goods from the Russian Federation and the suspension of trade preferences under the CIS FTA, in place since December 2015, was extended until the end of 2022. A CMU resolution adopted in April 2021 added wheat and sunflower oil to the list of banned agricultural imports.
The law On Amendments to Article 4 of the Law of Ukraine “On Pesticides and Agrochemicals” on the import of pesticides into the customs territory of Ukraine was adopted in June 2021 and entered into force in August 2021. It abolishes the mandatory state registration of pesticides that are imported into Ukraine for state testing and research.
Ukraine is classified by the World Bank as a lower-middle income economy. It has a comparatively large area of fertile arable land, contributing to agriculture’s position as a major sector of the economy compared to most other countries covered in this report. Although the sector’s relative importance has declined, it still accounts for 9% of the country’s economy and 14% of its employment. Agro-food exports represent around 45% of Ukraine’s total exports.
Four-fifths of Ukraine’s agricultural area is arable, and crops represent some three-quarters of agricultural output, up from two-thirds in the mid-1990s. Rural households and individual farmers accounted for 37% of Ukraine’s crop production and 53% of livestock production in 2018 (Nivievskyi, Iavorskyi and Donchenko, 2021[8]). Rural households are often subsistence-oriented, with a significant share of their produce being consumed without entering domestic markets and value chains. Corporate farms, mostly with limited liability or joint-stock companies, provide much of the remaining output.
Between 2013 and 2015, real GDP fell by 19% while annual inflation rates rose to almost 50%. From 2016 to 2019, the economy grew steadily at between 2.4% and 3.5% per year and inflation eased. In 2020, due to the COVID-19 pandemic and related restrictions to the economy, real GDP shrank by 4% while inflation decreased to less than 3%. The unemployment rate remained high, at 9.5% in 2020.
Ukraine is among the world’s leading exporters of agricultural commodities, in particular grains (wheat, barley, maize) and vegetable oils (rapeseed and sunflower oil). Its agro-food exports grew rapidly between 2000 and 2012, and export growth resumed after the drop between 2012 and 2015. Ukraine’s agro-food exports are mostly composed of primary and processed products for industry. Imports, in turn, are more mixed, with primary and processed products for final consumption representing about 68% of agro-food imports.
Both agricultural output and total factor productivity grew at rates significantly above global averages, at 2.8% and 5.6% per year respectively in the decade ending in 2019. Intermediate inputs and the use of primary factors, notably of labour, shrank over the same period.
Despite the declining importance of agriculture within the economy, agriculture’s shares in the country’s energy use and GHG emissions have increased over the past two decades. In contrast, the average nitrogen balance has declined since 2000 and remains well below the OECD average. Data also suggest a nation-wide negative balance for phosphorous, which may pose challenges for sustainability in the long run.
References
[7] MEPR (2021), Analytical review of the updated nationally determined contribution of Ukraine to the Paris agreement, Ministry of Environmental Protection and Natural Resources of Ukraine, https://mepr.gov.ua/files/images/2021/29042021/Analytical%20Report_%20Project_EN.PDF.
[8] Nivievskyi, O., P. Iavorskyi and O. Donchenko (2021), Assessing the role of small farmers and households in agriculture and the rural economy and measures to support their sustainable development, Kyiv School of Economics (KSE), https://kse.ua/wp-content/uploads/2021/02/KSE-Smallholders.pdf.
[4] OECD (2015), “Sector competitiveness strategy for Ukraine – Phase III. Review of Agricultural Investment Policies of Ukraine”, Project Report, OECD Eurasia Competitiveness Programme, http://www.oecd.org/eurasia/competitiveness-programme/eastern-partners/Agricultural_Investment_Policies_Ukraine_ENG.pdf.
[2] OECD/The World Bank (2004), Achieving Ukraine’s Agricultural Potential: Stimulating Agricultural Growth and Improving Rural Life, The World Bank, Washington, D.C., https://doi.org/10.1787/9789264055841-en.
[3] StateGeoCadastre (2017), Review of the State of Land Relations in Ukraine, https://land.gov.ua/wp-content/uploads/2017/03/Land-Review-Monthly_3_final-1.pdf (accessed on 27 February 2017).
[6] UNFCCC (2021), Updated Nationally Determined Contribution of Ukraine to the Paris Agreement, https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Ukraine%20First/Ukraine%20NDC_July%2031.pdf.
[1] von Cramon-Taubadel, S. et al. (2008), “Ukraine”, Distortions to Agricultural Incentives in Europe’s Transition Economies, (eds.) Anderson, K. and Swinnen, J., World Bank, Washington, DC, http://hdl.handle.net/10986/6502.
[5] WTO (2021), Tariff Profiles: Ukraine, https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/UA_E.pdf.
Notes
← 1. Article 3 of the Land Code of the Ukrainian SSR, https://zakon.rada.gov.ua/laws/show/2874%D0%B0-07/ed19920101#Text.
← 2. More recent estimates suggest that the share of private property in agricultural land is even higher, at 80%: Mykola Solsky (People’s Deputy, Chairman of the Verkhovna Rada Committee on Agrarian and Land Policy), “It’s all about the land”, 2 April 2020, https://www.epravda.com.ua/columns/2020/04/2/658911/.
← 3. Termed the “Fixed Agricultural Tax” before 2015.
← 4. Other members and associate members include Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, the Russian Federation, Tajikistan, Turkmenistan and Uzbekistan.
← 5. Ukraine’s first NDC submitted to the UNFCCC in 2016 committed to limiting its total emissions across sectors, including agriculture, to 60% of 1990 levels.
← 6. The law On Amendments to the Tax Code of Ukraine Concerning the Value Added Tax Rate on Transactions for the Supply of Certain Types of Agricultural Products was adopted by the parliament in December 2020, and entered into force in February 2021. The law introduces a reduced VAT rate of 14% for agricultural products belonging to certain product groups (live cattle; live pigs; whole milk; wheat; rye; barley; oat; corn; soybeans; flax seeds; rapeseed, sunflower seeds; other oilseeds; sugar beets).