Liquidating Agrarian Ministry: Why Ukraine's farmers need their own ‘portfolio’

Ivan Kyrychevsky

Agrarian sector analyst

The first working day of Ukraine’s ninth parliament shocked the agrarian community with news of the proposed absorption of Ukraine’s Agrarian Policy and Food Ministry to the Ministry of Economic Development and Trade (MEDT). Could this step be detrimental effect to the agricultural sector? Why do Ukrainian farmers need their own ministry?

Authors of the proposal cited to the experience of the United States, where only the United States Department of Agriculture (USDA) is involved in the agricultural sector. They also referred to the "problem" of Ukraine’s Agrarian Policy and Food Ministry, which they said lobbies the interests of only large agricultural holdings, instead of protecting the interests of small and medium-sized farmers.

Newly appointed government officials have a point. The issue of developing farming and rural entrepreneurship can really be delegated to the Ministry of Economic Development and Trade, and soil conservation and supervision of the use of agrochemicals would a separate department of Ukraine’s newly created Energy and Ecology Ministry.

If structural changes in the agricultural sector are not planned, a department of any government structure would be enough even to subsidize small agricultural producers. The unannounced liquidation of a separate agrarian ministry, however, may lead to unpredictable consequences for the country’s entire agroindustrial complex.

The absence of a specialized agricultural ministry does not prevent the United States from being the world’s leading agricultural producer. But the United States needed more than a hundred years of reform and the failure of modernization projects in order for the the government to minimize its interference in the development of agricultural production. During the beginning of the 20th century, American farmers learned to unite in self-regulating specialized associations, whose leaders could independently determine the schedule for issuing agricultural subsidies, as well as developing a strategy for both the farm as a whole and participants in the sector. The agriculture ministry could only lobby for a certain amount of financial support at the federal level. In Ukraine, this way of managing the agro-industrial complex has only discussed theoretically.

The U.S. government today supports agribusiness primarily with insurance and grants for young farmers. During the 1950s and 1970s, the federal government planned to turn the agricultural sector into a fully industrialized sector of the economy: they proposed stimulating fertility with safe radiation, cultivating fields with unmanned tractors and looking after crops with unmanned aircraft. The farmer was supposed to be something like an operator of a computerized control center in this grand endeavor. But there was simply not enough money for such a large-scale transformation, and farmers actively resisted attempts to break their traditional way of managing the land. In addition, during the 1970s, environmental protection became relevant in the civilized world and incompatible with aspects of industrial agricultural production. The Anglo-Saxon world is based, among other things, on laisse faire policy, that is, in the belief in the entrepreneurial talents of each individual that work exclusively for the benefit of society.

The Poles tried to copy mechanically the "American experience" from1990 to1994. The Polish agrarian community did not have an independent status. It was represented by a department within the Finance Ministry. This decision was part of the reform policy of the first government of a department from any government structure will really be enough, in which the state should completely get rid of its presence in the agricultural sector, and hand over the production of food to private hands. However, in 1994, the agrarian ministry in Poland was restored. The reason was because a department in government was not enough to solve the problem of shifting agricultural production to "organic" rails, adapting to EU norms and preventing "depopulation" of villages and monopolization of the arable land market.

In EU countries, which accounts for almost 40% of Ukraine’s agricultural exports, agriculture ministries work quite successfully to protect the interests of farmers. To dream about expanding Ukrainian agricultural exports without preserving a relevant ministry is both unrealistic and demagogic.

Let’s recall the history of the creation of the Ukrainian Ministry of Agrarian Policy and Food. Its primary task since its inception was to stimulate the agrochemical industry and agricultural machinery production, solve the problems of agro-logistics, develop rural infrastructure and improve the quality of life of the rural population. These complicated tasks arose primarily due to the fact that the agricultural sector could not develop without coordinating with other sectors of the economy.

From 1991 to 2015, the Ukrainian Ministry of Agrarian Policy and Food undertook to solve the problems of the Ukrainian agricultural sector in a somewhat Soviet style. They provided farmers with fertilizers, seeds and fuel for field work and helped maintain a stable level of prices for agricultural products by direct regulation and commodity interventions and regulation of agricultural exports.

The situation changed significantly from 2015-2018, when representatives of the real sector of the economy led the ministry and worked both at the operational and strategic levels. That is, the ministry’s functionaries began to deal not only with the needs of field work, but also deregulated the industry, opened new markets for Ukrainian agricultural products and actively discussed with parliament’s agrarian committee the development of individual agribusiness subsectors. The ministry began to perform the functions of macroeconomic regulation of agricultural production by market methods. For example, in 2018, the subsidy system was reformed in such a way as to stimulate the agrarians to develop, rather than to "eat up" resources. A separate type of subsidies is intended for the development of agricultural engineering in Ukraine. At the same time, the ministry assumed the role of "dispatcher" in grain logistics, helping deal with constant problems farmers encountered with Ukrzaliznytsya.

What additional functions would it be appropriate to entrust the ministry with?

The "reserve" for expanding the functions of the agrarian department is expansive. It includes the regulation of land turnover, which is controlled by agriculture ministries in all EU countries. This is a critical issue, because if we actually liquidate the agriculture ministry, will MEDT have the wherewithal to manage such a complex and responsible tasks? If we leave everything as it is, that is, we preserve the moratorium on farmland sales, issues of rural development would be managed by the Ministry of Regional Development.

There are reserves for optimizing the state’s participation in the agro-industrial complex: for example, unprofitable agricultural state-owned enterprises (SOE) should finally be put up for privatization, in the case of the Ukraine’s Academy of Agrarian Sciences, an audit of the property and activities of the institution as a whole is needed. But the profile agrarian ministry needs to be preserved as a separate institution, with expanded functions. It might make sense to introduce a separate post of vice prime minister for agribusiness under the Cabinet of Ministers.

Farmers should not only be interested in maintaining a specialized agrarian ministry. They must actively advocate for its preservation, if only in order not to increase the expenditure of resources for lobbying their interests in the MEDT, which will become a "super-ministry." For example, in June, Ukrzalyznitsia boasted that it had tested with Kernel routes for grain wagons, the passage of which delayed freight trains transporting goods of other market players. Since grain transport accounts for only 10% of the railway turnover, it will be difficult for farmers to convince MEDT that their "infrastructure" interests should be a priority. The current government has announced plans to lift the farmland sales moratorium, but possible restrictions or tolerances for future treatment of arable land remain unknown. Judging by their rhetoric, officials in the new government are more interested in the macroeconomic effect of land reform than in the specific interests of Ukrainian agricultural producers.

Farmers can try to apply for the protection of their interests supreme leader. Ukraine’s presidents in the past, however, have habitually overestimated their successes, in particular in the field of agricultural policy. For example, Leonid Kuchma in his famous book "Ukraine is not Russia," argues that the result of his agrarian reforms was the creation of "a strong layer of farmers in Ukraine" and "preservation of arable land for those who cultivate it." But since the early 2000s, domestic agricultural experts have been talking about the "agricultural holding" of the Ukrainian agroindustrial complex, and about the problem of the existence of individual farms "in the shadow" outside of macroeconomic turnover.

In the end, political decisions must be preceded by strategic developments. In our case, it would behoove the leaders of the new government to elaborate a strategy that would describe their vision of the development of the Ukrainian agro-industrial complex and to explain what benefits would be given if the agriculture ministry status is reduced to the level of a department.