EC4NR AGRICULTURE POLICY NOTE #11
Agricultural Production, Pricing,
and Marketing Structures in Ukraine
Natural Resources Management Division
Country Department IV
Europe and Central Asia Region
May 28, 1997


CURRENCY EQUIVALENTS
Currency Unit =      Hryvnia (Hrv)l
US $1         =      1.87 Hrv (February 1997)
Currency Unit =      Karbovanet
US $1         =      177,500 Krb
FISCAL YEAR
January 1 - December 31
WEIGHTS AND MEASURES
ha                   Hectare
Kg                   Kilogram
Kwh                  Kilowatt hour
ABBREVIATIONS
CAE           Collective Agricultural Enterprise
C.I.F.        Cargo, Insurance, Freight
ERP           Effective Rate of Protection
F.O.B.        Freight on Board
FSU           Former Soviet Union
GDP           Gross Domestic Product
IMF           International Monetary Fund
NPR           Nominal Protection Rate
PSE           Producer Subsidy Equivalent
This report was prepared as a part of the EC4NR economic sector work program.
Alberto Valdes was the principal author, supported by Claudia Romano, and M.
Lundell, N.Olsen and A. Kaliberda. G. Fox, C. Csaki, and I. Shuker provided
valuable insight over the course of the report preparation. A report on protection
indicators in Ukraine by B. Schaeffer was an important reference.
'On September 2, 1996, Ukraine introduced its new currency, the Hryvnia. Its former
currency, the Karbovanets (Krb) was exchanged for the Hryvnia at 100,000 Krb = 1 Hrv.


CONTENTS
Chapter 1    Introduction  ..........................................................  1
Chapter 2    Salient Features of Production and Marketing Structures in Ukraine .......... 4
Production  Structure  ..................................................  4
Internal Liberalization  and  Inputs  ................................... ......  5
Internal Liberalization  and  Outputs  .........................................  5
External Liberalization  ..................................................  7
Implications of Barter Exchange for Market Prices  ............................ 7
High Transaction Costs and Continued Price Distortions ........................ 8
Chapter 3    Issues in the Calculation of Protection and Subsidy Indicators in Ukraine ....... 9
Nom inal ProtectionRate  .................................................  9
Effective Rate  of Protection  .............................................  1
Producer Subsidy  Equivalent.............................................  13
Chapter 4    Main Findings on the Effect of Market Regulations on Income Transfers ...... 14
The Average Tax on Agriculture was High..................................  14
The Transfers Out of Agriculture have been Enormous ........................ 16
The Pattern  of Intervention  ..............................................  18
How  Much State Support is being Given?  .................:................  19
The Main Reform Lessons Derived from these Analyses ....................... 20
Policy  Recommendations  ...............................................  22
Bibliography
Tables:
Table 1      Procurement by State Enterprises in Ukraine as a Share of Production ...... 6
Table 2      Crop Areas Sown inUkraine  .......................................  8
Table 3      Effect of Price and Trade Policies in Gross Agricultural Output Value ..... 14
Table 4      Transfers Through Input and Credit Subsidies ......................... 15
Table 5      Net Effect of Price and Transfer Policies in Terms of Agricultural Output
Value  in  Ukraine  ................................................  17
Table 6      Agriculture Protection Indicators  ...................................  19
Appendix Tables
1


ii&


Chapter 1
Introduction
1.     How and to what extent does the government of Ukraine intervene in agriculture, and
through which policy instruments? How transparent are these policies, and are they based on
clear rules, or are they discretionary? What has been the net impact of these interventions on
production incentives and net income of farmers and processors in the various products in the
food chain? How level is the playing field? Is the environment conducive to a restructuring of
agriculture and marketing towards a private sector-led agriculture that is integrated in the world
economy? These are basic questions about Ukraine's agricultural sector and current agricultural
policy that are addressed in this report, with the purpose of guiding the country's reform process
in the near future.
2.     This report examines the impact of marketing and trade policies on production incentives
in Ukrainian agriculture during 1994 and 1995. Seven agricultural activities with enormous
export potential are considered (wheat, wheat flour, sunflower seed, sunflower oil, sugar beet,
refined sugar, and pork), with the purpose of gaining insight into agricultural output
performance, the effects of policies on farm income, and the consequences for farm
restructuring.
3.     A system of periodic monitoring and surveillance of trade and market interventions and
their effects on various indicators can "improve" policies and help promote a more competitive
market structure, which is particularly important during periods of major policy reform. The
transparency achieved by quantifying the effects of prevailing trade and market policies would
foster a more complete understanding of the costs and benefits of those policies by the
government and the public. We hope that this study can serve as a first step in establishing such a
monitoring system.
4.     Traditionally the debate is centered around the evolution of the present terms of trade
relative to a base period sometime in the past. The sector's deteriorating terms of trade has often
been used to justify the need for subsidies. The indicator most commonly used in transition
economies is the ratio of output to input prices. Another indicator is the purchasing power of
outputs relative to specific inputs (e.g. tons of grain per tractor, or the price of grain relative to
the price of fertilizer). While these indicators reflect the evolution of relative prices, they do not
capture the misalignment of the prevailing price structure when the price structure of the base
period was badly distorted.
5.     As a proxy for an indicator which more accurately captures the effect of farm policy on
producers' profitability, we focus instead on the effect of policies and market structure on net
value added per unit of output for selected activities, measured relative to world prices of output
and tradable inputs. In this net price comparison, a special effort is made to adjust for quality
differences, distortions in marketing, transport, and other relevant variables. No adjustment is
made for a possible exchange rate misalignment.


2                                                                           Chapter 1
6.     Three complementary indicators are used, the Nominal Rate of Protection (NPR), the
Effective Rate of Protection (ERP), and the Producer Subsidy Equivalent (PSE). The NPR is the
simplest and most widely used indicator, defined as the difference between the domestic price
and the appropriate border price at the prevailing nominal exchange rate, and expressed as the
tariff equivalent of tariffs, explicit export taxes, and non-tariff barriers. A more relevant indicator
in determining the effect of price-related policies on the profitability of production is the ERP,
which reflects the impact of interventions on the price of intermediate inputs, in addition to
measures of protection (or taxation) on the end-product. The PSE is computed in order to capture
the net effect of both price-related and non-price related transfers attributed to government
policies (credit subsidies, direct payments, and others).
7.     A complexity in this analysis arises from the difficulty of quantifying the effect of
noncompetitive market structures on agriculture, particularly in the areas of agroprocessing,
distribution, input delivery, storage, and transport. In computing the indicators mentioned above,
considerable effort was made to adjust for "excessive" marketing margins in these operations,
captured by the "equivalent tariff' measure. This distinction between trade and price policy
(which can be corrected quickly) and structural flaws in the market (which take longer to
correct), is relevant from a policy perspective. Moreover, barter arrangements are common and
present another difficult challenge in the computations of the three indicators.
8.     Ukrainian agriculture consists of three types of producers; Collective Agricultural
Enterprises (CAEs), household plot farms, and individual private farms. Access to inputs and the
structure of marketing channels vary widely among the three types. Ideally, one would compute
the ERP, NPR, and PSE for each subsector, but this data was not available for all three types. We
therefore computed the relevant indicators for the type of farm which are the principle producers
of the products we analyze.
9.     As with any analysis of implicit or explicit income transfers, a logical first question is
who benefits from, and who pays, for the transfer. The answer to this question would reveal
much about the motives behind government intervention and about the forces we find arrayed
against reform. A simple analytical framework suggests that the winners and losers tend to be
divided between urban consumers (who benefit through lower food prices), industry (in this case
agroprocessing, which benefits from cheap raw materials), the government (which receives net
revenues, but which is also likely to have to finance the losses generated by state procurement
enterprises), and primary agricultural producers. Of course, the question of who benefits from,
and who pays for, income transfers may vary by product. However, estimates of the income
transfers for the aggregate of the products examined here do provide a useful and relevant
measure of the direction of the transfers involved. For example, a significant income transfer out
of agriculture does not necessarily represent a gain in real income to consumers if much of these
transfers end up absorbed by high marketing margins and implicit rents in the processing and
distribution of agricultural products.
10.    The report is structured into three main sections, with an appendix containing
quantitative background information. The first section presents salient features of agricultural
production and the marketing structure in the Ukraine for the two years examined. This is
necessary for the interpretation of the various findings. The second section examines issues in
the calculation of the various indicators as they applied to the seven activities analyzed. The third


Agriculture Production, Pricing, and Marketing Structures in Ukraine              3
section presents the main findings regarding the effect of market regulations on levels of
protection (or taxation) and income transfers and presents a number of policy recommendations.


Chapter 2
Salient Features of Production and Marketing Structures in Ukraine
I1.    The Ukrainian agricultural sector consists of four types of producers; collective
agricultural enterprises (CAEs), collective farms, individual private farms, and a small number
of state farms. Together, collective farms, household plot farms, and individual private farms
account for 95% of gross agricultural production. However, access to inputs, the structure of
marketing channels, and opportunities to export, are all quite different for each type of farm. To
understand the behavior of different actors in the sector, we need to recognize the differing
incentive structures that these three types of farms face. Thus, features of the sector which are
not quantified, but which affect the interpretation of the analysis of market policies in
agriculture, are briefly described below.
Production Structure
12.    Collective agricultural enterprises (hereafter CAE's) were created from the privatization
of state and collective farms. Land and property shares were issued and most former state and
collective farms have been restructured into CAE's, as joint stock companies or partnerships. Yet
most still operate like the traditional state and collective farms, with little change in work
practices or management structure. These farms are relatively diversified, producing mainly
crops and livestock products; they produce over 90% of Ukrainian grain, according to official
statistics. The average farm size is 2,000 hectares, and livestock holdings average 1,000 head of
cattle. CAE's produce approximately 50% of the country's gross agricultural output.
13.    A large number of small private farmers produce over 45% of gross agricultural output
on what were previously household plots. These farmers produce vegetables and livestock
products (mainly pigs and milk), as well as some sugar beets. Average farm size is about two
hectares. While much of this production is for subsistence, there are substantial commercial
sales. The household plot farms dominate the production and sale of fruits, vegetables, and pork.
These farms are labor intensive, pay very minimal taxes, and receive many inputs from the CAEs
with which they have close ties. Most household plot farmers remain active members of the
collective, while others are retired members who maintain close relations, paying the collective
in kind for plowing and harvesting services and for inputs such as seed and fertilizer.
14.    A small proportion of agricultural output is produced by individual private farms. There
are currently approximately 38,000 farms of about twenty hectares each. These farms utilized
about 2% of Ukraine's agricultural land in 1995. They tend to specialize less in livestock and
vegetable products than the household plot farms. Rather, they are more focused on grains
crops, as well as so-called industrial crops such as sunflower and sugarbeet.
15.    Because of the very different conditions under which the different types of farms
operate, ideally, separate computations of protection indicators should be undertaken. While this
is not necessary for grain (as most grain is produced by the relatively homogenous CAE's),
production systems for pork and sunflower oil are very different. However, disaggregated data


Salient Features of Production and Marketing Structures in Ukraine                 5
are not available. In this study, computations for pork represent only the production of CAE's.
Computations for sunflower are based on both collective and individual private farms.
Internal Liberalization and Inputs
16.    Inputs are readily available to CAE's through old production structures, in which state
suppliers provided inputs to state farms. The payment system is flexible; farms may pay for
inputs in kind (usually with wheat, but also with seed), and they obtain money by selling
machine services (plowing and harvesting) to small private farmers.
17.    Many of the household plot farms procure inputs from the CAE's or through buyers of
their output. With fewer links to the collective subsector, individual private farms rely on non-
state sources of inputs. There are a growing number of large private suppliers. The private sector
provides and distributes most of the agrochemicals in use, and foreign companies and joint
ventures are heavily involved (Carana Corp., 1997). The distribution of nitrogenous fertilizer
remains nominally controlled by the state, although the private sector is increasingly active in
distribution of other fertilizers.
18.    Border tariffs for imported inputs are low. Many herbicides and pesticides are imported,
but two of the three major fertilizers used are produced domestically. It is necessary to
distinguish between inputs produced domestically, and those that are imported. Inputs which are
produced or processed domestically (for example fertilizer and diesel which are sold cheaply by
Russia and processed in Ukraine), are sold by state-owned enterprises at close to border prices.
Imported inputs are sold by both private and state suppliers at world market prices. Tariffs are
rising for products Ukraine wishes to produce domestically. For example, because of the high
level of mechanization on CAE's and the desire to produce tractors domestically, tariffs on
tractors are increasing. The domestic price of domestically produced exportable inputs, on the
other hand, contains a subsidy. For example, fertilizer exports are permitted if producers (almost
all fertilizer plants are state owned) sell in the domestic market at below border prices-this acts
as an implicit license system.
19.    Throughout the country the use of fertilizer and seeds is constrained by lack of finance
rather than access; farmers have severe liquidity constraints. Thus, farmers often prefer to obtain
inputs through the barter system. Given the capital constraints, the individual private farms tend
to be self-financing or input supplier-financed,.
20.    In Ukraine, agricultural producers who sign contracts with the state for delivery of grain
receive credit advances from the budget, which typically are made at less than market interest
rates. The credit is given to processors, grain elevators, and some input suppliers who should
pass on this subsidy to the agricultural producers they service. In reality, however, it is estimated
that roughly only 50 to 70% of the subsidy for credit advances reached producers, and virtually
all of such subsidies accrue to the CAE's.
Internal Liberalization and Output
21.    The state continues to procure a large proportion of agricultural production, particularly
grain, through the state contract system. At least 50% of marketed grain was procured by the


6                                                                         Chapter 2
state in 1996 (equal to approximately one-sixth of total grain production). While state contracts
have decreased, regional governments began to sign separate contracts in 1995. Fuel companies
are also heavily involved in the grain trade because grain is used to purchase imported natural
gas. The state-owned elevator system is regarded as the critical control point along the chain of
distribution. State producers do not pay for services (except drying), and they receive priority
over private users who often cannot get their goods transported, or regularly experience delays,
thus requiring further high trading margins. Private traders must also pay storage costs, which
are far higher than they are in the West, reaching a high of 5% per month of the value of the
grain. (Carana Corp., 1997) Different prices faced by the various players greatly increase the
economic costs of trade. Table 1 shows the proportion of production procured by state
enterprises, as reported by the OECD (1996).
Table 1: Procurement by State Enterprises in Ukraine as a Share of Production, 1990, '94, and '95
1990                          1994             1995
All grains'           30.2                          31.0             17.1
Wheat                37.9                          38.0             25.6
Barley               17.6                          24.7             7.4
Rye                  29.4                          43.2             33.1
Oats                 12.2                          22.0             6.9
Maize                14.8                          10.9             6.6
Sugar beet            97.8                          69.9             -
Sunflowers            79.3                          15.7             -
Fiber flax            97.9                          100.0            93.8
Potatoes              11.0                          2.1              1.0
Vegetables            58.1                          16.3             7.6
Meat                  73                            44               24
Milk                  73                            46               35
Eggs                  54                            27               7.6
1 "All grains" are wheat, barley, rye, oats, maize, millet, buckwheat, unmilled rice, and pulses.
Source: OECD "Agricultural Policies, Markets, and Trade in Transition Economies," 1996: Paris
22.    CAEs sell much of their grain to the state because they continue to receive inputs as
advance payment for this grain. Fertilizer and fuel are often received as advance payments. The
central government arranges delivery of inputs as part of the state contract. Advance payments in
kind account for 50% of crop inputs on CAEs. Household plot farmers are less involved with
selling to the state because they do not produce much grain.
23.    To create incentives to enter into state contracts in 1995 and 1996, farms under state
contracts were permitted to deposit 30% of revenue from output sale in special bank accounts.
Unlike other bank accounts in Ukraine, these accounts cannot be accessed to retrieve unpaid
taxes and outstanding liabilities.
24.    The state contract system is plagued by problems of late payment; in 1995 and 1996, on
average, payment was made six months after the sale. The fact that CAEs received inputs as
advance payment for output reduces the loss implicit in a payment delayed by six months.
Moreover, because payment is made in US dollar equivalents on the day of payment, the cost of
delayed payment due to inflation is not necessarily eliminated, but it is reduced considerably.


Salient Features of Production and Marketing Structures in Ukraine              7
But the implicit financial cost of delayed payment remains. Hence, delayed payment remains a
disincentive to enter into state contracts.
External Liberalization
25.    In 1993-94, Ukraine imposed export quotas and licenses for most commodities,
including grain, meat, sugar and sunflower oil. Export taxes of 20-75 % reduced domestic prices
relative to world market prices. Quotas were distributed to a range of institutions such as
departments of the Ministry of Agriculture, the Academy of Agricultural Sciences, and state-
owned trading involved in arranging state contracts. Frequently these quotas were not applied
since state enterprises experienced difficulties in procuring agricultural commodities from farms.
Since these quotas were not officially traded, private traders did not have access to quotas unless
they approached the Ministry of Agriculture, where they could be granted a quota if they agreed
to sell agricultural inputs via the Ministry. The quota system dissuaded private traders from
exporting and generally caused exports to be less than available exportable surpluses. This
further depressed domestic agricultural prices.
26.    In late 1994 when export quotas on all commodities except grain were removed, a
system of indicative prices for exports was introduced. Indicative prices were set significantly
above border prices thereby rendering exports noncompetitive. In economic terms, the system of
indicative prices as applied from late 1994 through early 1996 operated as an implicit export tax.
In early 1996, the system of indicative prices was discontinued for most products, including
virtually all agricultural products. Currently, live cattle and hides are the only agricultural
commodities subject to indicative prices (they are also subject to export taxes).
27.    In February 1995 the Kiev Agricultural Commodities Exchange was established, based
on an auction system. By late 1996, roughly twenty regional exchanges were also in operation.
Indicative export prices were not enforced for items purchased through the commodities
exchanges. In 1995, traders would sell grain to the exchanges, buy it back along with the export
license, and export. In 1996, export quotas on grain were eliminated. However, exports remained
low due to a widespread unofficial ban on private movements of grain imposed by regional and
local governments (ostensibly imposed due to the 20% drop in grain production from 1995 to
1996). Trade through the commodity exchanges had almost stopped by late 1996 due to this
unofficial ban.
Implications of Barter Exchange for Market Prices
28.    In the first few years of economic reform, Ukraine experienced very high rates of
inflation (1,210%, 4,735% and 842% in 1992, 1993, 1994 respectively). As a result, barter trade
became a major means of exchange. Market prices for inputs may contain only limited
information due to the large share of barter in market transactions. Barter activity from 1994 to
1996 was pervasive. Certain government interventions have caused the continued resorting to
bartering. Bank deposits are not secure (tax authorities have direct access) and authorities must
approve withdrawals. As a result, cash transactions outside the banking system are preferred. The
difference in value between money in cash and money in the bank can be quite large. However,
transactions through the banking system are unavoidable for state and collective enterprises and


8                                                                        Chapter 2
all farms entering into state contracts. As a result, markets are segmented, and it is difficult to
obtain the relevant prices in the different marketing channels (von Cramon and Koester, 1996).
29.    The combined effect of inflation and government market interventions can slowdown
adjustments in production. Under high inflation, in adjusting their cropping patterns towards
most profitable activities, producers have a hard time distinguishing between changes in relative
prices and the rise in the general price level. At planting time, farmers often have no idea what
output prices will be at harvest, and high inflation makes it difficult for farmers to formulate
price expectations. Added to this uncertainty are the additional concerns derived from erratic
price and marketing interventions by the government. The end result is an excessively slow
process of adjustment in cropping patterns - much too slow for high productivity agriculture. In
Ukraine, as shown in Table 2, cropping patterns are indeed very much as they were under central
planning.
Table 2: Crop Areas Sown in Ukraine (thousands of hectares)
1990                          1994             1995
Total Sown Area      32,406                        31,008           30,693
All grains           14,583                        13,527           14,126
Wheat               7,576                         4,562            5,506
Barley              2,729                         5,192            4,464
Rye                 519                           490              613
Oats                492                           625              569
Maize               1,223                         668              1,176
Sugar beet           1,607                         1,485            1,466
Sunflowers           1,636                         1,784            2,019
Fiber flax            173                          85               98
Potatoes             1,429                         1,532            1,533
Vegetables           456                           457              506
1 "Sown area" is total area ever seeded during the calendar year. It is therefore inflated by any area re-
seeded (after winterkill, for instance). The harvested area is likely to be somewhat smaller
Source: OECD "Agricultural Policies, Markets, and Trade in Transition Economies," 1996: Paris
High Transaction Costs and Continued Price Distortions
30.    Most analysts from international organizations working in Ukraine agree that Ukraine
has failed to create an institutional framework conducive to effective market liberalization (von
Cramon and Koester, 1996). The higher the transaction costs, the more prices vary between
producers/firms, and the greater the distortions in resource allocation. In Ukraine, liberalization
has not reduced transaction costs due to an institutional framework which lacks stable policies,
transparency, due process, and impartiality (i.e., good governance). To cover transaction costs
associated with domestic and international trade, traders apply margins of roughly 20-25%
(compared to 5% in international agricultural commodity markets and 10% in Hungary). These
very high margins result in reduced export parity prices and sub-optimal investment in
production and infrastructure. There are incentives for corruption and for commercial
transactions to remain outside the formal economy.


Chapter 3
Issues in the Calculation of Protection and Subsidy Indicators in Ukraine
31.    The methodology used in this report to calculate protection indicators follows a standard
technique which has already been applied to many countries, including various developing
countries (see Valdes, 1996). The methodology is a careful quantitative assessment which
incorporates all basic costs associated with production, all the steps in the marketing chain, and
all taxes and subsidies associated with them. Therefore, the calculations should reflect the
underlying system of incentives in the sector. The objective of this exercise is to identify the
"true" value received by farmers as compared to what they could receive if there were no public
policy interventions or overall marketing structure inefficiencies in the economy. In order to
achieve that objective, the analysis is carried out always comparing domestic and world prices,
not only of outputs and inputs used in production, but, to the extent possible, also of service
margins such as port fees and traders charges.
32.    Although conceptually the calculations involved in getting the economic indicators used
in this study are fairly simple, the underdeveloped information system and the transition status of
production and marketing structures in Ukraine pose complex challenges in collecting and
interpreting the indicators. The economy is in the midst of a transition between a system where
the government had control over various stages of production and marketing, to a more
decentralized market economy. Most state and collective farms have been transformed into
collective agricultural enterprises (CAEs), and household plot farms and individual private farm
have started to expand in the production of certain commodities. The role of state enterprises in
marketing of both inputs and output is still important. However, private sector transactions now
dominate the market, but comprehensive price data on private firms are not available. Moreover,
high inflation, particularly in the earlier years such as 1993 can distort the calculations of the
indicators, considering that prices and the real value of credit subsidies and other transfers can
have very different values depending on inflation rates.
33.    This section presents a brief definition of the three indicators used and presents a
summary of the important issues to consider when computing each of the protection indicators,
using various examples to illustrate how some of the problems were approached in this study.
Nominal Protection Rate
34.    The Nominal Protection Rate (NPR) is a measure of the direct distortion of output
prices. When the NPR is negative, the output prices received by the farm for the particular
commodity is less than that obtainable on international markets. The estimation of the NPR for
any commodity, exportable or importable, is based on the comparison between domestic and
world prices. To obtain comparable prices, however, world prices must be transformed into a
local currency value, and then be adjusted to account for all costs/subsidies associated with the
export or import of the commodity. Additionally, a point in the marketing channel must be
selected from which prices can be contrasted. The domestic price at that selected comparison
point must be identified, and the border price must be adjusted for all costs, as well as


10                                                                       Chapter 3
taxes/subsidies in all marketing and processing of the commodity from the port of entry/exit to
the selected comparison point. The point of comparison for the calculations in this study is either
the farm (for crops and meat production) or the ex-factory wholesale point (for processed goods).
Another critical step in calculating this protection indicator is the identification of the
commodity as an importable or exportable commodity.
35.    The commodities included in this study are all exportable, but some are only marginally
so. For example, hard wheat for pasta is imported while soft wheat is exported; sunflower seeds
are exported, while the oil is both imported (higher quality) and exported (lower quality); pork is
exported, but a number of higher value added meat products are imported. These commodities
are treated as exportables, and the f.o.b. price is the basis for the border price calculation. If they
were to become importables, the c.i.f. prices would be used and a downward adjustment would
be made to the producer price at harvest time (relative to the import price at the actual time
which imports take place) to cover domestic storage costs.
36.    Which border price? The next step is to choose the border price. This depends basically
on two issues. One is the quality and grade of the commodity under analysis. The world price
used should refer to a commodity of similar quality to that produced in, or exported from, the
country analyzed. The second issue is the location where the commodity is quoted. Since
transportation costs vary, the location where the commodity is priced should be the closest
possible to the entry/exit port for the product being analyzed.
37.    The first adjustment to the border price is to transform it into domestic currency. The
exchange rate used must reflect the actual rate received by exporters of that particular
commodity. Two issues must be considered here. First, if there are multiple exchange rates, the
one applicable to the type of commodity in question should be identified. Second, the exchange
rate should be approximately that of the time of the year when most exports of the commodity
take place. In economies where inflation is a major factor and currency devaluations are frequent
and large, the difference in rates between the beginning and the end of the year can be
significant. For example, since the wheat harvest takes place between July and September we use
the geometric average of monthly rates in the last quarter of each year.
38.    After the border prices have been identified and transformed into domestic currency, all
costs related to transport, storage, handling, loading, and marketing, as well as taxes or subsidies
to export/import the commodity in question must be subtracted/added to the border price up to
the point in the marketing channel where prices will be compared. In Ukraine in 1994, most
quotas and tariffs to exports were removed. However, a currency exchange finance charge of 2%
and a customs charge of 4% over the value exported are incurred at the border.
39.    Part of the cost related to the trader's margin is an implicit tax on agricultural exports. In
Ukraine, due to the high risks involved in exporting commodities, traders charge a very high
margin (20%). The international average margin is 5% and in Hungary, a country with more
similar infrastructure and market characteristics to Ukraine than to western countries, the rate
charged by traders is 10%. The total cost of the trader's commission can, therefore, be divided
into two parts: the reasonable service margin (which is "proxyed" here by the rate in Hungary),
and the implicit tax on exports due to the inefficiencies in the market structure and anti-export
biases of public policy. For example, the government controls the transportation system and it
gives priority to the transport of products purchased by state-owned procurement enterprises.
This has caused uncertainty as to the time commodities exported privately will actually be


Issues in the Calculation of Protection and Subsidy Indicators in Ukraine       11
delivered. Due to this 'extra' uncertainty, traders charge higher margins. This is an implicit
export tax.
40.    Which Domestic Price? Identification of the domestic price is also dependent on at least
two main issues: the quality of the commodity sold, and the marketing channel used in the sales
transaction. Since the government still plays an important role in Ukraine as purchaser of wheat,
the purchase price can vary considerably between contracts with private enterprises versus state-
owned procurement enterprises. The domestic price used in this analysis of wheat, for instance,
is the state procurement price offered by Ukrainian state-owned procurement enterprises. Since
most of the wheat bought by these procurement enterprises is of milling quality (approximately
75% of all purchase), the domestic price used in this study does not account for the other
qualities of wheat that are also produced in the Ukraine. This bias could be a problem, but since
most of the exported wheat is also of milling quality, the procurement prices are the appropriate
domestic comparison in this analysis.
41.    In Ukraine the marketing channels for domestic sales of agricultural commodities
include purchases by state-owned procurement enterprises, the private cash market, and barter
transactions. An estimated 45% of the total amount of milling quality wheat produced each year
is sold or bartered in the private market. In the case of pork, only 20% of the total output is
purchased by state-owned enterprises (Ukraine Technical Report, October 1995). For various
reasons, the differences in the prices obtained in each market can be substantial. First, payments
by state agencies can be delayed by months, while the delay in the private market can be much
shorter (M. Lundell, A. Kaliberda, personal communication). Secondly, all contracts with state
agencies involve the banking system, while. private and barter transactions do not. Bank
transactions have many disadvantages because private bank accounts are controlled by the
government, and the money in the accounts can be blocked if the firm or individual in question
owes taxes or has not complied with state agencies' contracts. For both these reasons, the
accepted price in cash or barter transactions can be significantly lower than procurement prices.
42.    Despite its importance, the difficulties in calculating the average commodity prices in
barter arrangements prevented their incorporation in the numerical analysis presented in this
study. Private market prices, however, were taken into account whenever relevant and possible.
The reader should, therefore, be aware of the omission of barter prices, which tend to
overestimate domestic prices, and therefore underestimate the taxation rate.
Effective Rate of Protection
43.    In order to determine the effect of protection (or taxation) on the productive structure,
the effect of interventions on the price of intermediate goods used in agricultural production
must be included, in addition to measures of protection to the end-product. This is what is
measured by the Effective Rate of Protection (ERP). If the ERP is negative, the internal value
added is less than that obtainable on the international market. Effective protection would thus be
expected to produce a displacement of nonspecific resources from activities receiving a
relatively low rate of protection towards those receiving a high rate, depending on the rate of
factor mobility. For an "efficient" productive structure in agriculture, the net price (or value
added) to be paid to producers in an activity is that which makes ERP zero. This implies that at
the given exchange rate, given the level of trade restrictions in force, the value added per unit at
internal prices equals the value at international prices. The value added concept used here is a


12                                                                       Chapter 3
residual value, representing the sum of the return to all non-traded inputs such as labor, land, and
some capital services.
44.    The calculation of production costs at world prices, as described above, does not account
for the possibility of substitution among inputs due to changes in relative prices of inputs. This
may result in biased cost estimates at world prices because farmers could substitute higher priced
inputs for lower prices ones as relative prices changed with trade liberalization or removal of
price interventions. That is, the input share would change as the relative input prices changed.
Given that we do not have information regarding the degree of substitutability between inputs,
we must assume that they are fixed, and thus we are very likely overestimating the cost of
production at world prices. Of course, this overestimation depends on the degree of
substitutability between inputs and the magnitude of the relative price change; the higher these
are, the larger the overestimation.
45.    It is possible, however, to obtain an idea of the direction and intensity of change in input
use due to price changes when one looks at the change in input shares over time. In Ukraine,
between 1991 and 1994, the price of fuel increased substantially relatively to other inputs,
particularly after 1993. It is not surprising therefore to observe that the share of fuel in the
production cost of one ton of wheat, for example, was lowest in 1993. The use of mineral
fertilizers in wheat production has also decreased in the period between 1991 and 1994, from
38.6 to 19.8 kg per ton of output.
46.    Again in analyzing the costs of production, one should make a distinction between the
cost structure of private farms and CAEs. Among private farms there is also a difference
between household plot farms and individual private farms. The CAEs still are connected to the
state supply system and have, therefore, more access to inputs at subsidized prices. Machinery
and other capital equipment are also more readily available to the CAEs. Private farms have to
rely either on non-subsidized private input suppliers, or have to obtain some services from the
CAEs themselves.
47.    The data available at the time this report was prepared only allowed for the analysis of
the costs of production for CAEs. Very little is known about the private sector. Some evidence,
however, suggests that for various commodities the profitability of private and CAEs is very
different. The case of pork production is an example. While household plot farms are increasing
their production of pork, CAEs have been showing negative profits, as indicated by the negative
value added for 1995, both for the domestic and world prices calculations (see Appendix Table
6).
48.    Moreover, there was no data on the opportunity cost of machinery use for any of the
commodities. Although some statistics included the costs of maintenance and repair of
machinery, there were no figures for the "value," or opportunity cost value of the machinery.
This omission can be significant, as can be seen in Appendix Table 1, where a comparison of
the input shares for different countries is shown. In Poland, for instance, the share of machinery
(machinery & transport) in wheat production is approximately 6%. It is also noticeable that the
input shares for Ukraine seem to be much smaller than for the other countries. For Poland, for
instance, fertilizers costs (organic and mineral) amount to 14% of output price, while the
reported fertilizer share in Ukraine is 6.2%.


Issues in the Calculation of Protection and Subsidy Indicators in Ukraine       13
Producer Subsidy Equivalent
49.    To capture the net impact of interventions of both price and non-price interventions on
farmers net income at the individual commodity level, that is the effect of price and trade
interventions on input and output prices (price) and the income transfers through credit subsidies
and direct payments (non-price), we present estimates of the Producer Subsidy Equivalent (PSE).
In this report, this coefficient is expressed as percentage of the value of production of the
particular commodity.
50.    In Ukraine, since 1994, credit subsidies have become the main public transfer vehicle to
producers. In 1993, because of an annual inflation rate that reached four digits, the fixed annual
interest rate (in the order of two digits) applied to subsidized credit resulted, in reality, that the
total amount of credit given constituted a direct transfer. In 1994, inflation was at lower levels,
but only about 30% of the real value of all loans was paid back. The amount of credit subsidy
included for 1994 therefore includes the 70% of credit advanced from the budget and the amount
of investment money given to state and collective farms (around 34 million Hryvnia (US $18.18
million), M. Lundell, personal communication).
51.    One should, however, be careful in analyzing the effect of these subsidies on farmers'
income. First, most of the credit subsidies are distributed in the form of advanced input supply
within a contract for output purchase at harvest. The CAEs are the ones which benefit from such
credit, not the private farms. Second, the advanced credit is first given to the input suppliers who
only later transfer part of it to the farmers. Usually farmers receive only between 50% and 70%
of the total credit given.


Chapter 4
Main Findings on the Effect of Market Regulations on Income Transfers
The Average Tax on Agriculture was High
52.    This report has focused on the effect of policies and market structure on value added,
rather than on output prices, or on terms of trade, because in most cases, price and market
interventions extend beyond output prices and into input markets. Measuring the effect on value
added accounts for these interventions, and has the advantage of being the closest measure to
capture the effect of interventions on farm income and on resource allocation. Producers respond
to changes in returns as a means of increasing profits and income. The effects impinge not only
on the use of land and labor, but also on the inputs farmers purchase from the rest of the
economy.
53.    The most revealing way to view these numbers is to examine first the effect of price
interventions on gross value of output. For 1994 and 1995, Table 3 presents the total support (+)
or tax (-) in billions Krb, and then as percentage of agricultural GDP. The two most important
findings are the following; first, the high and negative effect of interventions for the wheat,
sunflower and sugar sectors during 1994; and second, the improved price situation (reduced
implicit taxation) in 1995 relative to the 1994 prices for these products. For example for wheat
in 1995, the value of output at domestic prices is 67% of its value at border prices (it was 51 %
in 1994). It is about the same ratio for wheat flour. The same comparison gives a figure of 76%
for sunflower seed, 54% for sugar beet, and 81 % for pork production. This is a huge direct tax
on producers via output price and marketing interventions.
Table 3: Effect of Price and Trade Policies in Gross Agricultural Output Value (billion Krb)
Quantity   Output value  NPR (%) Output value in  Total    Support or tax
produced   in domestic            world prices  support(+) or as share of ag.
(000 Tons)    prices                             tax (-)       GDP'
Commodity    Yr      (1)         (2)        (3)    (4)=(2)/[1-(3)]  (5)=(2)-(4)
Wheat      94       13,857       66,514   -49       130,420      -63,906       -36%
95       16,273      185,857   -34       281,602     -95,745        -13%
Wheat Flour   94        5,140       19,804   -56       45,009       -25,205       -14%
95        5,470      117,161   -33       174,867      -57,706       -8%
Sunflowerseed  94        1,569      11,456    -68       35,800       -24,344       -14%
95        2,289       71,737   -24       94,391       -22,654       -3%
Sunflower Oil  94         630       10,450    -40       17,417       -6,967        -4%
95         920        65,497   -17       78,912       -13,415        -2%
Sugarbeet    94       19,612       19,360    -80       96,800       -77,440      -44%
95       29,650      126,791   -46       234,798      -108,007      -15%
Refined Sugar  94        3,340      53,275   - 0.2      53,382        -107         -0%
95        3,710      130,645   -41       221,432      -90,787       -13%
Pork       94        1,245      45,391    -17       54,688       -9,297        -5%
95        1,163      111,384   -19       137,511      -26,127        -4%
1/ Agriculture GDP figure of 175,418 and 718,191 billion Krb for 1994 and 1995, respectively.
2/ Input structure data for sugarbeet is from another source: as in Appendix table 1, source B


Main Findings on the Effect of Market Regulations on Income Transfers     15
54.    Table 4 examines the extent to which producers were partially compensated for this
income loss via subsidies on input markets, disaggregated into the effect of input price
interventions, credit subsidies, and direct payments to producers. The bulk of the input market
related transfers took place through input and credit subsidies. The results show that some of the
income loss was compensated via input and credit subsidies - restricted of course to those
producers with access to input and credit from official sources.
Table 4: Transfers through Input and Credit Subsidies
Quantity  Value of  Value of  Value of   Transfer  Transfer   Total    As %
produced inputs per  inputs  transfer due  through  through  Transfer  of Ag.
(000     MT of    per MT    to input    credit    direct    (million  GDP
Tons)   output in of output  subsidies  subsidies  payments  Krb)
domestic    in   (million Krb)  (million  (million
prices   border                Krb)      Krb)
(000 Krb)  prices
(000
Krb)
Commodity   Yr     (1)      (2)       (3)       (4)=       (5)       (6)        (7)-
(1)* [(3)-(2)]                  (4)+(5)+(6)
Wheat     94      13,857     1,315  1,904   8,161,773  15,558,000  530,000  24,249,773  13.8
95     16,273     5,615  6,358   12,091,062  16,484,000  1,466,000 30,041,062  4.2
Wheat Flour  94      5,140     2,007  8,353   32,643,824  2,696,000  124,000  35,463,824  20.2
95      5,470    15,215 20,483   28,831,764  2,155,000  190,000  31,176,764  4.3
Sunflower   94      1,569     4,541  6,465    3,018,756    4,000    88,000   3,110,756  1.8
seed
95      2,289     14,598  18,978  10,025,820   4,900    615,000  10,645,720  1.5
Sunflower   94       630     13,416 23,110    6,083,954     0       744,000  6,827,954  3.9
Oil
95        920    64,150  80,483   14,954,495     0         0     14,954,495  2.1
Sugarbeet'  94     19,612      246.6  1,983   34,050,747  4,321,400    0      38,372,147  n.a.
95     29,650      1,068  8,589  222,998,832  1,647,350    0     224,646,182  n.a.
Refined    94      3,340    14,638 26,683   40,254,390  4,783,000     0     45,037,390  25.7
Sugar
95      3,710    48,424  56,097  28,438,056      0         0     28,438,056  4.0
Pork      94      1,245    21,900  41,135  23,953,346     0       1,164,000 25,117,346  14.3
95      1,163    116,857 132,173  17,814,040     0      1,060,000  18,874,040  2.6
1/ Input structure data for sugarbeet is from another source: as in Appendix table 1, source B


16                                                                     Chapter 4
The Transfers Out of Agriculture Have Been Enormous
55.    What was the net effect of interventions on output and input markets on agriculture value
added? The results are presented in Table 5. For each activity, the first column presents the
effect of output price and marketing interventions on gross value of output. Without exception,
these are all negative values during both 1994 and 1995. This means that, relative to the border
price as a reference, producers obtained prices substantially below those that would have
prevailed under a more competitive market structure with no government interventions. The
second column presents the transfers to producers and agroprocessing through input and credit
subsidies. Without exception, all the figures are positive numbers, that is, all these activities
received subsidies through input markets. In absolute numbers, the main beneficiaries of these
subsidies were wheat and wheat flour, refined sugar, and pork. The third and fourth columns of
Table 5 present the net effect of input and output market interventions on value added, both in
absolute values and relative to the economic size of the agricultural sector, measured by
agricultural GDP. Later in the text we present the PSEs values in Table 6. That is, the same
measures as in Table 5 but expressed relative to the size of that particular activity, rather than
agricultural GDP.
56.    The two most important findings are the: (a) extraordinarily high net income transfers
from farmers induced by the market interventions during 1994 (both positive and negative); and
(b) the extraordinarily different, highly discretionary economic treatment afforded to the various
activities. Wheat and sunflower seed producers together suffered an income loss equivalent to
one third of agricultural GDP. In the same year, the sugar refining activity alone captured a net
transfer of one fourth of agricultural GDP. These are huge numbers, which must have had a
powerful impact on investment - pulling resources out of wheat and sunflowers where Ukraine's
agricultural comparative advantage is potentially highest.
57.    On the positive side, the net transfer values for 1995 (as percent of agricultural GDP) are
lower than for 1994. However, these are still negative, and in fact extraordinarily high on the
output price side (as shown in Table 3). If one just looks at output price interventions, these
activities continued to be taxed very heavily in 1995. It is true that there is a partial
compensation via input subsidies, but this is highly discretionary and directed to certain activities
only. There are at least two important limitations to the effectiveness of a system partially
compensating producers via input and credit subsidies. One, given the experience elsewhere in
the world, input subsidies which are costly to provide are always rationed to a particular subset
of producers, thus not relevant for a large segment of producers. Two, producers perceive
considerable uncertainty about whether they will continue to receive such subsidies in the future.
Thus, given the long-term dynamics of growth of the sector, producers investment decision
significantly discount the value of such subsidies. Not many rational producers will make
investments which typically have a fairly long gestation period based on today's input subsidies,
which, by their very nature are uncertain and probably transitory, because they are fiscally
expensive and so selective in their allocation to the various activities.


Main Findings on the Effect of Market Regulations on Income Transfers        17
Table 5: Net Effect of Price and Transfer Policies in Terms of
Agricultural Output Value in Ukraine
Value of Price Total Transfer in  Total Transfers  Total Transfer
Support     Credit, Budget    (million Krb)   as percentage of
(million Krb)   and Input                         Agricultural
Subsidies (million                      GDP
Commodity     Yr       (1)            (2)          (3)=(1)+(2)
Wheat       94    -63,906,000      24,249,773    -39,656,227       -22.61%
95    -95,745,000      30,041,062     -65,703,938       -9.15%
Wheat Flour   94    -25,205,000      35,463,824     10,258,824         5.85%
95    -57,706,000      31,176,764     -26,529,236       -3.69%
Sunflowerseed  94    -24,344,000       3,110,756    -21,233,244        -12.10%
95    -22,654,000       10,654,720    -11,999,280       -1.67%
Sunflower Oil  94      -6967000        6,827,954     -139,046          -0.08%
95      -13415000       14,954,495     1,539,495         0.21%
Refined Sugar  94       -107,000      45,037,390     44,930,390        25.61%
95    -90,787,000      28,438,056     -62,348,944       -8.68%
Pork       94     -9,297,000       25,117,346    15,820,346         9.02%
95    -26,127,000       18,874,040    -7,252,960        -1.01%
1/ Agriculture GDP figure of 175,418 and 718,191 billion Krb for 1994 and 1995, respectively.
58.    Even with conservatively low values for the producer response to decreased prices, these
high levels of taxation must have had a significant effect on inducing a grossly distorted,
inefficient growth pattern in the sector. There is strong evidence in the OECD countries, as well
as in less-developed countries, which indicate that significant differences in the degree of
protection by commodities have important effects on resource allocation (Johnson, 1991). The
continuation of such gross disparities between the relative incentives in domestic vis-A-vis
international markets prevailing in the Ukrainian agricultural and agroprocessing sectors greatly
inhibits the country's integration to the world economy, and will undoubtedly result in a
significant slowdown in the growth of the agricultural sector relative to its potential.
Furthermore, the substantial income loss to rural producers from such market regulations reduces
their employment and income generation opportunities in a sector, which, by general agreement,
has great growth potential for sales in both the domestic and foreign markets. Thus, producers,
laborers, and providers of auxiliary services in the agricultural related chain are poorer compared
to their income opportunities that would prevail under a market structure in which domestic
relative incentives more or less equate those prevailing in the international markets most relevant
for the Ukraine.
59.    It is important to stress that, unlike the case of most western industrial countries, the
implicit taxation which occurs in Ukraine is not primarily the result of direct trade and price
policies which, hypothetically, could be removed at the stroke of a decree.. In fact, some of these


18                                                                   Chapter 4
direct trade interventions have already been removed. As in several other transition economies at
the moment, the complexity of this analysis is largely the result of the difficulty in being able to
distinguish clearly between the effects of: (a) policy as such; (b) problems in the implementation
of the policies; and. (c) that gray area which we call "market structure" in agroprocessing and
distribution. A high proportion of this third element is captured as a residual effect which
essentially reflects the costly market structure for input delivery and output marketing and
processing. It results from a complex web of market regulations. from the poor capacity of the
food chain to generate and transmit consistent prices and from a situation where real competition
in the behavior of a large segment of the agroprocessing industry has been slow to emerge. This
high margin is what one would expect as result of immature and underdeveloped transport,
marketing, distribution, and foreign trade price information systems which allow fragmented
local markets to persist with limited arbitrage between them.
The Pattern of Intervention: Trade and Domestic Market Interventions Continue to Tax
Agricultural Exports Heavily
60.    The nominal rate of protection (NPR) is the simplest and most widely used indicator,
defined as the difference between the domestic and the appropriate border price, expressed as the
tariff equivalent of tariff and non-tariff barriers. This NPR, or tariff equivalent concept, does not
necessarily coincide conceptually with the explicit export tax or import tariff that the
government may impose. In interpreting the NPRs, a distinction must be made between a formal
rate, as stated in the tariff schedule or as an explicit export tax, and the ad-valorem tariff
equivalent of this rate and of other trade and marketing related "mark-up" factors that increase
internal marketing margins. Given the incidence of non-tariff/export tax trade restriction in the
Ukraine, the tariff-equivalent measure is used through the report.
61.    The evidence presented in this study shows that a strong anti-export bias prevailed
during 1994 and 1995. As shown in Table 6, the NPRs analysis reveals exceptionally high
negative values for 1995, reaching values of -34% for wheat, -24% for sunflower seed, -46% for
sugar beet , -46% for beef and -19% for pork. These are extraordinarily high negative values
which, although somewhat lower than in 1994, are among the highest negative observed
anywhere in the world.
62.    To determine the effect of the policies on production incentives, the effect of
interventions on the price of purchased inputs must be included, in addition to measures of
protection/taxation of the end product. This is what is measured by the effective rate of
protection (ERP). This indicator's advantage is that it is better measure of the direction of
resource allocation effects of the price-related interventions. Previous work has shown that
identical NPRs can, in fact, imply very different ERPs, depending on how much the tradable
inputs are taxed or subsidized and how important they are in the production process. In fact, the
analysis in other countries has shown cases when the effective protection rate was negative even
though the nominal rate was positive.


Main Findings on the Effect of Market Regulations on Income Transfer.       19
Table 6: Agriculture Protection Indicators
NPR                 ERP                   PSE
1994      1995       1994     1995         1994      1995
Wheat             -49       -34        -54       -46          -60       -31
Wheat Flour       -56       -33        48        -29          53        -22
Sunflower Seed    -68       -24        -83       -24          -186      -16
Sugarbeet'        -80       -46        -76       --          -210       91
Refined Sugar     -0.2      -41        -75       -97          84        -49
Pork              -17       -19        470       -            36        -7
Milk2              -        -          -         -88          80        9
Beef              -58       -46        -         -            62        -25
VEstimates use input structure as in -Agriculture Trade and Trade Policy: Multi-country Analysis -
Technical Report," October 1995
2/Estimates from new Ukrainian Report
Missing Values for ERP are due to negative value added either domestic or international
63.    The high and negative ERPs found for 1994 and 1995 for practically all the activities
analyzed (see Table 6) is the most dramatic finding in this study. Such high negative values are
practically without precedent in other countries for which detailed analysis is available.
Considering that the ERP measures are expressed as a fraction of . value added they are
generally quite sensitive to year-to-year changes in prices. To some extent this was the case for
Ukraine during 1994 and 1995. However, this variability is centered around extremely high
negative values. One implication of the higher ERPs values relative to the NPRs for most
products, is that there is considerable scope for cost reductions through more competition in the
input markets via market deregulation and trade liberalization on intermediate inputs.
How Much State Support is Being Given?-
64.    In addition to price and marketing interventions in inputs and the final products,
government policies also influence producer's income through other non-border types of
assistance, such as credit subsidies and government expenditures on extension, research,
investments in irrigation, land reclamation, etc. The producer subsidy equivalent (PSE) captures
the sum of these price and non-price related interventions, expressed as percent of producers
gross income in each particular activity or product.
65.    As shown in Table 6, the PSE values for 1994 and 1995 present major differences in the
magnitude and effect of intervention among the various activities. During 1995, one observes
high and negative values for wheat and wheat flour, sunflower, refined sugar, pork and beef, in
contrast to positive values for sugar beet and milk production. During 1995, all six activities
received input subsidies,.but most of the transfers to producers through input and credit subsidies
went to wheat, wheat flour, refined sugar and pork, in that order, while sunflower captured a
smaller share (Table 4, columns 4 and 5). Direct payments represented a much smaller value.
66.    Another striking finding is the change in sign and magnitude of the PSE values between
1994 and 1995 observed for pork, wheat flour and refined sugar. For some activities the PSE
values changed from positive to negative between 1994 and 1995. For example for wheat flour,
the PSE for 1994 is +53%, while in 1995 it is -22%, and the ERP values for 1994 and 1995 also
changed drastically from +48% to -29%. What explains this change in the ERP value is the


20                                                                   Chapter 4
reduction in input subsidization of the raw material (wheat): in 1994 the domestic price of wheat
was equivalent to 25% of the border price. while in 1995 it rose to 75%.
67.    Pork is another product for which the PSE went from positive to negative between 1994
and 1995. In this case, both the NPR and the ERP explain this change. In !994 pork production
was taxed on the output price and subsidized through input prices. However, in 1995. the
domestic price of feedstuff increased substantially relative to border prices.
68.    Refined sugar faced another major change from positive to negative PSE between 1994
and 1995. Here the main reason is the sharp increase in output taxation between 1994 and 1995,
during which the NPR changed from -0.2 in 1994 to -41% in 1995. In addition. the ERP values
also reflect a reduction in input subsidization.
The Main Reform Lessons Derived from these Analyses
69.    Agricultural policy in Ukraine is not yet focused to increase domestic marketing
competitiveness. The government has contradictory goals. Some interventions increase farm
income, while others depress it. The government taxes exports but loses foreign exchange and
imposes huge income transfers away from agriculture. The government subsidizes credit and
fertilizer to help agriculture but gives most of the transfers to collective agricultural enterprises
(CAEs), ignoring the private sector. Government operations through state-owned procurement
enterprises are still pervasive, slowing down the development of marketing alternatives through
private marketing channels. There is a complex web of market regulations and a poor capacity in
the food production chain to transmit consistent prices. Real competition in the behavior of a
large segment of the agroprocessing sector has been slow to emerge. In Ukraine, liberalization
has not reduced transactions costs because the existing institutional framework lacks stable
policies, transparency, due process, and impartiality. The end result is very high transactions
costs, and an incentive for corruption, and for commercial transactions to remain outside the
formal economy.
70.    The slow approach to economic reforms has meant continuing subsidies for uneconomic
activities and discriminatory taxation for promising export production. The evidence presented
in this report shows that during 1994 and 1995 the net average tax on agriculture was huge, and
the implicit income transfers out of agriculture have been enormous. Based on the evidence of
the output supply response in agriculture from other countries, the implication of these findings
is that agricultural growth and particularly the production of export products has been reduced
significantly by the implicit agricultural taxation prevailing during these years.
71.    Agricultural price interventions have been implemented predominantly through highly
discretionary and selective state interventions. This is the case with direct price regulations
(such as the minimum export price for wheat), discretionary export and import restrictions,
highly discretionary input and credit subsidies, and continued state purchases through state-
owned procurement enterprises. All these instruments tend to be excessively complex and
difficult to administer. They also tend to defy understanding by producers, processors, and the
general public. The evidence presented in this report indicates that the present pattern of market
interventions is highly selective, discretionary, providing a very different and highly uncertain
economic treatment to producers in the different products.


Main Findings on the 'ffect of Market Regulations on income Transfer    2
72.    A reform effort towards a less capricious pattern of interventions seems warranted. It
should be based exclusively on simple and transparent policy instruments such as low and fairly
uniform tariffs on imports and no export taxes, quotas or licenses. Unlike quantitative
restrictions and implicit export taxes in the form of high minimum export prices and preferential
financial policies for purchases by state-owned procurement enterprises, a system based
exclusively on explicit and stable tariffs and low export taxes would uncover the hidden income
transfers and provide transparency on the policies. A dynamic. better integrated market strategy
for agriculture requires a more visible and explicit system of price signals to reallocate resources
and accelerate output response. A proclivity for non-transparent and arbitrary interventions will
breed skepticism, corruption, and encourage lobbying for special treatment.
73.    The high risk and uncertainry in trading caused by the operations of state-owned
procurement enterprises inhibits the development of private-led agents and slow down
integration with international markets. For example the continued situation of delayed payment
for grain purchases - and the restrictive and unpredictable export regime on crops has very
adverse effects in terms of integrating commodity markets both within the Ukrainian economy
and with the world economy. This is particularly the case with wheat, sunflower seeds, and
sugar. This uncertainty has significantly increased the margins in which the traders operate,
relative to other countries.
74.    The significantly preferential and discretionary treatment afforded to CAEs and state
enterprises (such as access to state elevators), vis-A-vis private farms and agroprocessors raises a
fundamental policy dilemma. It significantly raises the economic cost of transactions for private
agents and inhibits the market development by such agents. Just one example of this
discriminatory treatment is the case of state grain procurement contracts. During 1995 and 1996,
farms under state contracts were permitted to deposit 30% of the revenue from the sale of their
output in special bank accounts. Unlike other banks accounts, in Ukraine these accounts cannot
be accessed to retrieve unpaid taxes and outstanding liabilities.
75. Government interventions have caused continued resorting to barter trade in the Ukraine.
Barter activities during 1994 and 1996 were pervasive; as a result market prices do not
accurately reflect relative scarcities. Bank deposits are not secured (tax authorities have direct
access) and authorities must approve bank withdrawals. As a result, cash transactions outside the
banking system are preferred.
76.    In 1995, producers of wheat, which represents about half of total grain production, paid
large implicit subsidies to consumers, suffering an income loss equivalent to 34% of this
subsector's gross output value (down from 60% in 1994) and equivalent to 4.2% of agricultural
GDP. On the other hand, pork producers have been taxed the least, with a net transfer to
producers equivalent to 36% of gross output value in 1994, which declined to a net negative
transfers of 7% of gross output value in 1995.
77.    Trying to compensate a subset of producers for taxation on output prices via input and
credit subsidies is a self-defeating strategy. Its is fiscally costly, and unlikely to lead to higher
rate of on-farm and agroprocessing investment. Input subsidies are costly to provide and thus are
always rationed. Thus, under a transition process towards a relatively more market-oriented
economy, producers perceive an inherent uncertainty as to whether they will continue to receive
such subsidies, if they were among the lucky ones to qualify. Thus, producer investment
decisions significantly discount the real value of such subsidies. By their very nature, they are


22                                                                    Chapter 4
uncertain and perceived as transitory, because they are fiscally expensive and so selective in their
allocation to the various activities.
78.    To a large extent, we speculate, the huge implicit taxation to agriculture was not
anticipated by policy makers. It is largely the unintended consequence of a complex web of
contradictory and highly discretionary regulations and policies. The paradox is that it could well
be that the implicit transfers out of agriculture do not result in any significant real income gains
to consumers. A large fraction of the implicit transfer is probably absorbed by high marketing
margins. In short, a net loss for society.
Policy recommendations
79.    A major objective of agricultural policy reforms in Ukraine is to support rapid
development of a more efficient agricultural sector through reforms that increase private,
market-based activities well integrated into world markets. The findings in this study point to
major problems in the marketing of farm products, and thus the need to concentrate efforts on
enhancing modernization and competition in agroprocessing and distribution. This means there
is a great need for a comprehensive reform program, reducing the role of the state as a
marketing and processing intermediary, and reorienting the role of government to truly "public
goods" activities.
80.    Market and price liberalization needs to be continued by removing any remaining profit
and marketing margins in the grain and bread products sector, making government procurement
contracts open to a wider scope of private intermediary enterprises, and actively reducing the
trade policy and macro-economics risks which input supply and marketing enterprises face.
Above all, this means containing and reducing inflation by ensuring strict adherence to the
Presidential decree limiting budgetary expenditures for state procurements to only those
purchases (including those of agricultural goods) necessary to meet the needs of social sector
organizations such as hospitals, educational facilities, and the armed forces. To promote
agricultural markets in which both private and state-owned enterprises can participate, all state
agricultural procurements need to be executed on a competitive basis, through open tenders and
purchases on commodity exchanges. Intermediaries and marketing enterprises need to be
encouraged to participate more widely in the agricultural commodity exchanges to increase
competition for output from agricultural enterprises, which do not usually have the trading
expertise to access the commodity exchanges directly themselves.
81.    The grain distribution system and grain trading in general, is a critical component of
agriculture markets in Ukraine. Grain and especially wheat is viewed as a strategic commodity
for reasons of food security as well as for its role as one of the commodities used in trading of
imports of natural gas. These factors are used as rationale for maintaining a major state role in
the grain trade, most notably the establishment of Khlib Ukrainy as a state holding company with
control over most elevator and grain processing facilities, and the continued use of state orders
for grain/wheat and fertilizer. The grain/wheat system in Ukraine can be greatly improved
through demonopolization and privatization of the Khlib Ukrainy structure and the elimination
of state orders. Demonopolization can pragmatically be accomplished by accelerating the
distribution and sale (through the existing Agro-industrial complex privatization scheme) of
shares in Khlib Ukrainy holdings, while also decreasing the number of holdings in which the
state retains any ownership. Demonopolization also requires vigorous policy monitoring and


Main Findings on the Effect of Market Regulations on Income Transfers,    23
advocacy to ensure a "level playing field" among state and private enterprises. Specific
recommendations for strengthened trade and marketing policies to achieve the above objectives
include:
- delinking government input supply from state orders for commodity purchases;
- implementing all government purchases through the commodity exchanges;
- permanently eliminating all export quotas, bans and licensing requirements; and
- removing minimum export prices.
82.    Increasing the level of international trade is crucial to improving farm-gate prices for
Ukrainian agricultural output. Without strong links of agriculture to export markets, the prices
which farms receive for their output will continue to be out of balance with the world market
prices they pay for inputs. Allowing real farm-gate prices to increase through greater access to
foreign markets would be more successful than attempts to support agriculture through
subsidized credit to state agricultural procurement enterprises and input subsidies. The removal
of virtually all export quotas on agricultural products in December 1994 was an important step in
righting the imbalance between Ukrainian farm-gate prices for outputs and the prices of
agricultural inputs (which have risen to world market levels). This will likely be the most
important source of higher profits and greater working capital for farms in the short term. The
Ukrainian Government should remove all remaining export taxes (on live animals) and refrain
from imposing any export taxes, export quotas, or indicative prices on export contracts.
83.    Like many sectors in the Ukrainian economy, the agro-industrial sector (AIS) is
characterized by a high decree of monopoly. These are not firms which for technological and
cost reasons could be considered natural monopolies. On the contrary, they are artificial
monopolies which have been administratively created from separate firms to facilitate the
execution of central plans. Having been freed from a centrally planned pricing structure, they try
to compensate for their low productivity in processing and marketing by offering low prices
(below border prices ) for farms' commodities and charging comparatively high prices for
agricultural inputs sold to farms. Price liberalization and reduced government intervention in
commodity markets will not be fully successful in transmitting world price levels into Ukraine
for agricultural commodities unless input supply and output marketing is substantially
demonopolized.  The Anti-Monopoly Committee has begun demonopolizing agricultural
industrial enterprises deemed to be monopolists rather than simply regulating their prices. This
effort needs to be intensified.
84.    Developing a commercial market approach for privatizing agroprocessing and input
supply, and ensuring that the privatization process be transparent, consistent and comprehensive
is another important need. Further measures to accelerate the transformation in agro-processing
need to include three main components. First, the methods of privatization of AIS firms should
be adjusted to permit earlier recapitalization of these firms with new investment through open
joint-stock enterprises. Second, and equally important, is the acceleration of the pace of
privatization of AIS enterprises via explicit Government targets for the number of firms to be
privatized in the short and medium term. Without these measures, too many AIS enterprises
would be decapitalized and go bankrupt over the next two to three years. Third, the Government
needs to institute rapid demonopolization of agro-processing, input supply, and product


24                                                                     Chapter 4
marketing systems immediately and enforce current regulations which define permissible levels
of concentration in the agro-industrial sector.
85.    The Government should also concentrate on the provision of modern physical
infrastructure (roads, ports, etc.), a regulatory framework consistent with a market based
economy, grades and quality standards, the capacity to rationally apply sanitary and
phytosanitary controls, encourage the development of private farm advisory services, and
rationalizing research and education. Improving the macro-economic environment to support
agricultural reform is critical also. Low inflation, competitive exchange rates, low industrial
protection, and reform in the financial sector which result in lower real interest rates are
ultimately very influential determinants of the output response of agriculture and agroprocessing.


Bibliography
Carana Corporation, "The Distribution of Grain in Ukraine: The Need for
Demonopolization and Privatization (final report)", submitted to USAID, January 1997.
Shpychak, O.M., Team Leader, "The System of the Monitoring ofPrice and Trade
Policy," The Institute for Agricultural Economics of the Ukrainian Academy of
Agricultural Sciences, Kiev, 1996.
Johnson, D. Gale, " World Agriculture in Disarray" (chapter 6), St. Martin's Press, New
York, 1996.
Johnson, Stanley, Team Leader, "Agricultural Trade and Trade Policy: a Multi-Country
Analysis," prepared at the Center for Agricultural and Rural development, Iowa State
University for the World Bank, July 15, 1995.
Kaliberda, Aleksander, discussions at the World Bank, February and March 1997.
Schaeffer, Barry, "Analysis ofAgricultural Price, Trade and Government Interventions,"
Consultant's Report for the World Bank, July 25, 1996.
Valdes, Alberto, "Surveillance ofAgricultural Price and Trade Policy in Latin America
during Major Policy Reforms," World Bank Discussion Paper No. 349, 1996.
Von Cramon-Taubadel, Stephan and Ulrich Koester, "Official and Effective
Liberalisation in the Former Soviet Union: The Example of Ukrainian Agriculture." Kiel
University, 1996 (draft).


Appendix Tables


Table 1: Cost structures of crop production Ukraine, Poland, Romania and Selected Latin American Countries
Input                                                     Share of cost in output value (%)
Ukraine (1994)     I   Poland (1995)  Romania (1996)1 Argentina (1993) I  Chile (1993)  lColombia (1992)
lWheat   Sugarbeet Sunflower Wheat  Sugarbeet Wheat      JWheat    Sunflower Wheat   Sugarbeet Wheat
seeds                  2                          4.6     6.4        20.1       11.6                                7.5
mineral/chemical fertilize  4  11.1      0.7      9.5     10.4        19                          10.5     8.3     9.8
organic fertilizer     2.2                        4.5      8.3
herbicides/pesticides  1.1      7.2      2.3      3.6      6         11.3       14.6     15.1     4.9      11.2    15.5
fuel                   1.5      6.7      4.2                                     6.2     6.3
tractors and transport                            8.7     11.5
machinery maintenance                             6.5     4.8
machinery and transport                           6.3     2.5         40         14      11.6     2.7      10      14.6
building and melioration                          1.4     0.2
depreciation and repair  1.8


Table 2: Comparative Cost Structure for Pork and Beef Production in Ukraine,
Poland, Romania and Selected Latin American Countries
Commodity input               Share of cost in output value (%) by country
Ukraine* Poland  Romania Colombia
(1995)   (1995)  (1996)   (1992)
Pork
Feed grain/concentrates  28.7    32.2     80.9
Feed potatoes                     9.6
Forage/other feed                   3
Breeding animals                    5
Animal health                     1.4
Tractors/transport                1.1
Machinery/building                3.8
maintenance
Services/heating                  1.7      1.4
fuel/utilities
Fuel and lubricants      4.8
Electricity              0.5
Beef      Feed (general)           166
Feed grain and concentrates      10.8               0.6
Feed potatoes                     4.7
Forage and other feed              25
Breeding animals                  3.9
Animal health                     0.3               0.6
Tractors and transport            1.6
Machinery/building maintenance    4.2                4
Fuel/energy              59.7     0.5
Salt                                                3.5
Seeds                                               0.5
Fertiliser                                           0
Pesticides                                          2.8
Panacur/Soforen
* for Ukraine, pork cost structure estimates are CR using Yuri's data, beef cost structure estimates
are from the new Ukraine report, 1996.
sources:
Poland: Safin and Guba, Agricultural Price Policy Impacts in Poland, Dec. 1996
Romania: Metzel and Salinger, Agricultural Effective Protection Analysis, Dec. 31, 1996
Ukraine: CR estimates and new report (beef)
(there are no inpput costs given for Argentina)


Table 3: Comparative Cost Structures for Milk Production
in Ukraine and Selected Countries
Input                Share of cost in output value (%)
Ukraine* Poland  Romania Colombia
(1995)   (1993-4) (1996)  (1992)
Feed                       60       31     71.7     27.6
Breeding animals                   2.1
Animal health                      2.1      0.1
Salt                                                 1.6
Machinery                                            6.5
Tractors and transport                      1.2
Fuellenergy/water        42.2      0.9      2.9
Fertilizers                                          10
Pesticides                                           1.8
* milk is not included in this analysis of Ukraine;
these statistics are from the new Ukraine report
percentages add up to more than 100% due to negative value-added


Table 4: Producer Prices of Selected Commodities by Country in USS Equivalents
(US$/MT)
Commodity             Ukraine  Romania Poland*  Argentina Colombia
(1993)   (1992)
Wheat            1994    59      134      138      81.5     258
1995    68      106      150
Sunflowerseed    1994    63      191               127
1995   172      209
Sugar beet       1994    9        27       24
1995    23       26      33
Pork             1994   586      1130     904
1995   591      1360     1064
Milk*            1994    49       26      127              238.7
1995    79       30      182
Beef*            1994   247               694     782.5
1995   335               957
Exchange rate    1993                               1      640
applied          1994 commodity-  1655    1815
1995  specific  2062    2424
*Polish prices are in 1993 and 1995
" prices for milk and beef in Ukraine are from new report


Table 5: Beef and Milk Producer Prices in Ukraine
Beef            1994                               1995
qi       q2      q3       q4      q1       q2       q3      q4
domestic price  4667    10908    15118   17080    19905   46530    64485    74233
exchr.         30185    37928    42402   91039   121324   134875  156796   177394
price is US$    154.6   287.6    356.5    187.6   164.1    345.0    411.3   418.5
annual avg                                246.6                             334.7
Milk
domestic price   1910    1774     1715    4149    10958    11321    9854    14281
exchr.         30185    37928    42402   91039   121324   134875  156796   177394
price in US$     63.3    46.8     40.4     45.6    90.3     83.9    62.8     80.5
annual avg                                 49.0                              79.4


Table 6: Cost structures of production in Ukraine from various studies
Share of cost in output value (%)
Year Input                      C.R. estimates - Yun's data  C.R. estimates - Ukraine reoort data  Barry Schaffer's report
1994                      Wheat Sugar   Sunflower Pork  Wheat Sugar    Sunflower Pork  Wheat Sugar   Sunflower Pork
beet   seed                   beet   seed                    beet   seed
seeds                   2                             5.9            4.9            4.3     0       0.4
mineral/chemical fertilizer  4  11.1   0.7            11.2           14.9           35.7   27.6     6.6
organic fertilizer      2.2
herbicides/pesticides   1.1    7.2     2.3            0.3            34.5
fuel                    1.5    6.7     4.2     4.8    6.8            7.9     20.3   25.2   22.6    11.6     4.8
electricity                                    0.5     0                     1.9
feed                                          28.7                           37.9                          42.7
feed supplement                                                                                             3.5
1995
seeds                   2                             10.3                          4.3     0      0.4
mineral/chemical fertilizer  4  11.1   0.7            19.3                          31.4   15.9    3.9
organic fertilizer      2.2
herbicides/pesticides   1.1    7.2     2.3            11.2
fuel                    1.5    6.7     4.2     4.8    0.8                   22.3    16.1    9.1    4.7      4
electricity                                    0.5    0.2                    4.5
feed                                          28.7                          95.3                           35.8
feed supplement                                                                                             4


Table 7: Agriculture Protection Indicators
NPR                        ERP                       PSE
1994       1995           1994       1995            1994       1995
Wheat                    -49        -34             -54        -46            -60       .-34
Wheat FIoUr              -56        -33             48         -29             53        -22
Sunflowerseed            -68        -24             -83        -24            -186       -16
Sunflower Oil            -40        -17             -64        -67            -0.2        2
Sugarbeet 1              -80        -46             -76         -             -210        91
Refine Sugar             -0.2       -41             -75        -97             84        -49
Pork                     -17        -19             470         -              36         -7
Milk 2                     -         -               -         -88             80         9
Beef2                    -58        -46              -          -              62        -25
1/ Estimates use input structure as in "Agricultural Trade and Trade Policy: Multicountry Analysis-Technical eport, October 1995
21 Estimates from new Ukranian new Report.
Missing values for ERP are due to negative value added either domestic or international


Table 8: Comparison of protection indicators for 1994 and 1995
Wheat        Sunflowerseed        Pork
1994   NPR       A         -31             -75               -16
B         -55            -66               -17
C         -23             -39              -23
D         -49            -68               -17
ERP       A         -52             -79               113
B         -45            -63               -38
C         -1              -32               -
D         -54            -83               -470
PSE       A        -141            -475              -134
B         -65            -121               35
C         42              -57               63
D         -60            -186               30
1995   NPR       A         -51             -40              -19
B         -34             -19              -19
C         -19             -19               10
D         -34             -24              -19
ERP       A         -65             -41               107
B         -4              15               -47
C         -2              -6
D         -46             -24               -
PSE       A        -191?           -133?             -47?
B         -6              -15               17
C          2              -34               35
D         -34             -16               -7
1/ A=Figures by Barry Schaeffer (after his changes done October 1996); B=Figures use input structure
as in "Agricultural Trade and Trade Policy:Multicountry Alalysis",Ukraine Technical report, Oct.1995;
C=Figures from "new Ukrainian report'; D= this reports figures
Missing figures for ERP are due to negative value added estimates


Table 9: Total Effect of Price and Transfer Policies in terms of
Gross Agricultural Output Value
Value of  Total Transfer in             Total Transfer
Price    Credit, Budget  Total Transfers  as percentage
and Input
Support     and          (million Krb)  of Agricultural
(million Krb)  Subsidies
(million Krb)
Commodity   Yr     (1)          (2)        (3)=(1)+(2)
Wheat     94  -63,906,000    24,249,773   -39,656,227    -22.61%
95   -95,745,000   30,041,062  -65,703,938     -9.15%
Wheat Flour 94  -25,205,000     35,463,824  10,258,824      5.85%
95  -57,706,000    31,176,764  -26,529,236      -3.69%
Sunflowerseed 94  -24,344,000     3,110,756  -21,233,244     -12.10%
95   -22,654,000   10,654,720   -11,999,280     -1.67%
Sunflower Oil 94   -6967000      6,827,954    -139,046       -0.08%
95    -13415000    14,954,495    1,539,495      0.21%
Sugar     94     -107,000    45,037,390   44,930,390      25.61%
95  -90,787,000    28,438,056  -62,348,944      -8.68%
Pork     94    -9,297,000    25,117,346  15,820,346       9.02%
95  -26,127,000     18,874,040  -7,252,960      -1.01%
1/ Agriculture GDP figure of 175,418 and 718,191 billion Krb for 1994 and 1995, respectively.


Table 10: Effect of Input and Credit Subsidies in terms of
Gross Agricultural Output Value
nputs Value of iTransfer                              Transfer               Total transfer as
peraTntioupyt           per MT of  transfer due  Trnfrrnse
proucedit  per MT of output  put n bor  to iu  through credit through direct Total Transfer percentage of
produce  in domestic prices   in border  to input  subsidies    payments   (million Krb)  agricultural
(000 Tons)               prices  (000   subsidies                                           GDP
(000Krb)                 (million Krb) (million Krb)  (million Krb)
Commodity   Yr    (1)         (2)            (3)     (4)=(1)*((3)-(2)]  (5)       (6)     (7)=(4)+(5)+(6)
Wheat     94    13,857           1,315    1,904      8,161,773   15,558,000   530,000    24,249,773     13.8%
95     16,273          5,615    6,358      12,091,062  16,484,000   1,466,000   30,041,062     17.1%
Wheat Flour 94      5,140          2,007    8,353      32,643,824  2,696,000    124,000     35,463,824     20.2%
95     5,470          15,215   20,483      28,831,764  2,155,000    190,000     31,176,764     17.8%
Sunflowerseed 94     1,569          4,541    6,465      3,018,756     4,000       88,000     3,110,756      1.8%
95     2,289          14,598    18,978     10,025,820    4,900      615,000     10,645,720     6.1%
Sunflower Oil 94     630          13,416    23,110      6,083,954      0         744,000     6,827,954      3.9%
95       920          64,150   80,483      14,954,495     0            0        14,954,495     8.5%
Sugar     94     3,340         14,638    26,683     40,254,390   4,783,000      0        45,037,390     25.7%
95     3,710          48,424   56,097     28,438,056      0            0        28,438,056    16.2%
Pork     94      1,245         21,900   41,135      23,953,346     0         1,164,000   25,117,346     14.3%
95      1,163        116,857   132,173    17,814,040      0         1,060,000   18,874,040     10.8%
1/ Input structure data for sugarbeet is from another source: as in Appendix table 1, source B


Table 11: Effect of Price and Trade Policies in.terms of
Gross Agricultural Output Value
Output                                  Support or
Output value  Total      tax as
pucedt    doesic   NPR      in world   support(+) percentage
produced  domestic  NPR (%)s              rta -)       O
(00 os)                       picsprices                    or tax (-)    of
(ilo Tos) Krs    (billion Krb) (billion Krb) agricultural
(billion Krb)                               GP
GDP'
Commodity   Yr    (1)       (2)      (3)   (4)=(2)/[1-(3)] (5)=(2)-(4)
Wheat     94     13,857    66,514  -49      130,420    -63,906     -36%
95     16,273   185,857   -34     281,602    -95,745     -55%
Wheat Flour 94      5,140     19,804  -56      45,009     -25,205     -14%
95      5,470   117,161   -33     174,867    -57,706     -33%
Sunflowerseed 94     1,569     11,456  -68      35,800     -24,344     -14%
95      2,289    71,737   -24      94,391    -22,654     -13%
Sunflower Oil 94      630     10,450   -40      17,417    -6,967       -4%
95       920     65,497   -17      78,912    -13,415     -8%
Sugarbeet 2  94    19,612     19,360  -80      96,800    -77,440     -44%
95     29,650    126,791  -46     234,798    -108,007    -62%
Sugar     94      3,340    53,275  - 0.2     53,382     -107        0%
95      3,710    130,645  -41     221,432    -90.787     -52%
Pork     94      1,245     45,391  -17      54,688     -9,297      -5%
95      1,163    111,384  -19     137,511    -26,127      -15%
809,072
1/ Agriculture GDP figure of 175,418 and 718,191 billion Krb for 1994 and 1995, respectively.
2/ Input structure data for sugarbeet is from another source: as in Appendix table 1, source B


OTHER REPORTS IN THIS SERIES INCLUDE:
EC4NR Agriculture Policy Note #1:
Armenia Agricullure Policy Update - December 1995
EC4NR Agriculture Policy Note #2:
Land Registration and Land Titling Projects in ECA Countries - May 1996
EC4NR Agriculture Policy Note #3:
Latvia Agriculture Policy Update - July 1996
EC4NR Agriculture Policy Note #4:
Current Status ofAgricultural Reforms in EC4 Countries - July 1996
EC4NR Agriculture Policy Note #5:
Moldova Agriculture Policy Update - September 1996
EC4NR Agriculture Policy Note #6:
Land Reform and Private Farms in Georgia: 1996 Status - October 1996
EC4NR Agriculture Policy Note #7:
With Farmer's Eyes: A Grassroots Perspective on Land Privatization
in Moldova - October 1996
EC4NR Agriculture Policy Note #8:
Land Reform and Private Farms in Armenia: 1996 Status - December 1996
EC4NR Agriculture Policy Note #9:
Land Reform and Private Farming in Moldova - January 1997
EC4NR Agriculture Policy Note #10:
Estonia Agricultural and Forestry Policy Update - February 1997
Additional copies of this report and the policy notes listed above can be obtained
from Ms. Phyllis Harrison at extension 32189.