Agricultural Policy Monitoring and Evaluation 2021

27. Ukraine

Support to agriculture

Ukraine’s support to agricultural producers, as measured by the producer support estimate (PSE), is low compared to other countries. The PSE was volatile over the past three decades, mostly due to fluctuations in market price support (MPS). During the past decade, however, PSE fluctuations narrowed around zero, averaging 2.1% of gross farm receipts during 2018-20.

In most years, total MPS was negative – reflecting average producer prices below international reference levels – but with significant variation across commodities and time. Due to tariff protection, domestic prices for meat products and sugar were above international reference levels, while those for most crops, as well as for milk, were generally below reference prices. In recent years, the overall impact of government intervention on prices was likely limited and, since 2018, the total MPS for the sector was slightly positive. Single commodity transfers (SCTs) mirror the MPS across commodities, with sugar, rye, and pig meat receiving the highest support, while oats and, to a lesser extent, sunflower seed and milk are implicitly taxed.

Budgetary support in the form of tax benefits and input support continues to be relatively small, representing less than 1% of gross farm receipts, but contributed to positive overall producer support during the last three years. Additional support was provided in 2020 in the context of the COVID-19 pandemic, mostly in the form of investment aid and payments for keeping cows, but such transfers remained small, representing less than half a percent of budgetary support to producers in that year.

Support for general services increased since 2015 but remains low compared to other countries. During 2018-20, the general services support estimate (GSSE) averaged 1.7% of agricultural value-added, well below levels seen in the mid-1990s. Most of these expenditures go to inspection and control services, and to agricultural schools. Overall, total support to the sector increased slightly in relative terms, from an average of 0.5% of GDP in 2000-02 to 0.7% in the most recent three years.

Recent policy changes

New legislation passed in 2020 ended the ban on the sale of agricultural land. As of July 2021, citizens of Ukraine will be permitted to purchase up to 100 hectares of land, while from January 2024 this possibility will extend to purchases of up to 10 000 hectares, available to legal entities whose founders or final beneficiaries are Ukrainians and which do not have business abroad or in offshore companies. This law follows the end of the moratorium on the sale of agricultural land in late 2019, along with legislation related to land documentation and illegal land appropriation.

Legislation was also passed related to climate change and environmental policies. In particular, this concerns the monitoring, reporting and verification of greenhouse gas (GHG) emissions, the use of ozone-depleting substances and fluorinated greenhouse gases, irrigation, and drainage. A new law, in force since early 2020, provides a strategy on environmental policies and lists indicators for measuring environmental policy effects and compliance with environmental targets.

Two new free trade agreements (FTAs) entered into force in January 2021, including the Ukraine-Israel FTA, and the Political, Free Trade and Strategic Partnership Agreement between Ukraine and the United Kingdom. Both agreements facilitate bilateral trade in agricultural products, among others.

In response to the COVID-19 pandemic, a 2020 State Program of Economic Stimulation provides a number of measures that target the agricultural sector. In particular, these concern access to financial resources, enhanced market facilitation and market monitoring, further facilitating organic agriculture, and specific subsidies for capital investments, dairy producers and social insurance for family farms. During the first half of 2020, Ukraine also imposed temporary bans on the export of buckwheat (2 April to 1 July 2020) and undenatured ethyl alcohol (23 March to 15 May 2020).

Assessment and recommendations

• With low levels of producer support overall, most-distorting policy interventions in Ukraine’s agricultural markets became less dominant in recent years thanks to the reduction of both positive and negative MPS. However, domestic prices for some export commodities, notably sunflower seed and milk, remain below world price levels. Export duties applied to some of the products, market activities (though limited) of state-owned enterprises, and limitations in export infrastructure may each contribute to this negative support. In order to take advantage of its agricultural competitiveness, Ukraine should take additional steps to facilitate exports, including continued investment in logistics and transportation systems, in line with growing export volumes.

• At the same time, the re-emergence of MPS for potatoes in the context of bad harvests in 2019 points to the distortive effects of import tariffs even in markets where trade has remained marginal for some time.

• In addition to abolishing VAT regimes that supported agricultural input use, the integration of agricultural producers into the economy-wide VAT system since 2018 should increase efficiency in the sector and reduce the administrative burden. Ensuring well-functioning input markets remains key to improving farmers’ access to agricultural inputs.

• Investments continue to be supported through grants and concessional loans. In recent years, the scale of this support increased, including in the context of the COVID-19 pandemic. While investments in productive capacity are essential for raising the sector’s productivity and competitiveness, public support may crowd out private sector investments and should not be seen as a substitute for well-functioning credit markets.

• Productivity in agriculture grew quickly over the past decade. However, the deterioration of capital stocks despite investment aid – likely caused by economic and political uncertainties – threatens future productivity growth. Ensuring macroeconomic and political stability will be critical for maintaining and developing a productive agricultural sector.

• The end of the moratorium on the sale of agricultural land, which had been extended annually between 2002 and 2019, is a welcome step towards removing rigidities in the land market that prevent this agricultural resource from being optimally allocated. The expected entering into force of new legislation on the turn-over of agricultural land should enable land sales in the future. While much will depend on the implementation, this legislation is important to improve efficiency in the sector.

• Public expenditure on general services started to recover after the economic depression of 2014‑15, but remain low in relative terms. The focus on the country’s inspection and control system is necessary to support the export-oriented sector. In light of changing climate conditions, however, also ensuring a well-functioning and sufficiently funded knowledge and information system would help the productivity of Ukraine’s agricultural sector.

• Ukraine’s Nationally Determined Contributions (NDCs) to the 2016 Paris Agreement on Climate Change commit the country to not exceed 60% of its 1990 GHG emission levels in 2030, including from all agricultural and other land use sources. The Action Plan that came into force in early 2020 should help implement multisectoral monitoring, reporting and verification of GHG emissions. With agriculture responsible for more than 12% of national emissions, specific reduction targets and related policy action will need to complement this Plan to achieve the emissions-reduction objectives.

Figure 27.1. Ukraine: Development of support to agriculture

Note: *Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 27.2. Ukraine: Drivers of the change in PSE, 2019 to 2020

Note: The producer price change and the border price change are not calculated when the negative price gap occurs at the commodity level for the current or previous year.

Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 27.3. Ukraine: Transfer to specific commodities (SCT), 2018-20

Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 27.1. Ukraine: Estimates of support to agriculture

Million USD

	2000-02	2018-20	2018	2019	2020p
Total value of production (at farm gate)	9 619	33 508	31 469	34 265	34 791
of which: share of MPS commodities (%)	86.8	83.8	82.7	83.9	84.8
Total value of consumption (at farm gate)	8 841	23 717	21 066	25 394	24 692
Producer Support Estimate (PSE)	53	726	668	1 025	484
Support based on commodity output	-415	408	357	690	178
Market Price Support1	-531	408	357	690	178
Positive Market Price Support	388	559	437	897	344
Negative Market Price Support	-919	-151	-80	-207	-166
Payments based on output	116	0	0	0	0
Payments based on input use	203	125	120	120	135
Based on variable input use	169	24	10	23	39
with input constraints	0	0	0	0	0
Based on fixed capital formation	31	101	109	97	95
with input constraints	0	0	0	0	0
Based on on-farm services	2	0	0	0	0
with input constraints	0	0	0	0	0
Payments based on current A/An/R/I, production required	265	192	191	214	172
Based on Receipts / Income	265	161	158	166	160
Based on Area planted / Animal numbers	0	31	33	48	12
with input constraints	0	0	0	0	0
Payments based on non-current A/An/R/I, production required	0	0	0	0	0
Payments based on non-current A/An/R/I, production not required	0	0	0	0	0
With variable payment rates	0	0	0	0	0
with commodity exceptions	0	0	0	0	0
With fixed payment rates	0	0	0	0	0
with commodity exceptions	0	0	0	0	0
Payments based on non-commodity criteria	0	0	0	0	0
Based on long-term resource retirement	0	0	0	0	0
Based on a specific non-commodity output	0	0	0	0	0
Based on other non-commodity criteria	0	0	0	0	0
Miscellaneous payments	0	0	0	0	0
Percentage PSE (%)	0.5	2.1	2.1	3.0	1.4
Producer NPC (coeff.)	0.95	1.01	1.01	1.02	1.01
Producer NAC (coeff.)	1.01	1.02	1.02	1.03	1.01
General Services Support Estimate (GSSE)	121	222	221	222	224
Agricultural knowledge and innovation system	51	69	68	68	71
Inspection and control	26	136	130	138	141
Development and maintenance of infrastructure	36	7	14	6	2
Marketing and promotion	1	0	0	0	0
Cost of public stockholding	1	3	3	4	3
Miscellaneous	7	6	6	6	7
Percentage GSSE (% of TSE)	69.5	23.5	24.9	17.8	31.6
Consumer Support Estimate (CSE)	384	-394	-270	-700	-214
Transfers to producers from consumers	478	-351	-240	-638	-175
Other transfers from consumers	-38	-39	-24	-56	-38
Transfers to consumers from taxpayers	0	0	0	0	0
Excess feed cost	-55	-4	-6	-6	-1
Percentage CSE (%)	4.3	-1.6	-1.3	-2.8	-0.9
Consumer NPC (coeff.)	0.95	1.02	1.01	1.03	1.01
Consumer NAC (coeff.)	0.96	1.02	1.01	1.03	1.01
Total Support Estimate (TSE)	174	948	889	1 246	708
Transfers from consumers	-440	390	264	694	213
Transfers from taxpayers	651	597	649	609	533
Budget revenues	-38	-39	-24	-56	-38
Percentage TSE (% of GDP)	0.5	0.7	0.7	0.8	0.5
Total Budgetary Support Estimate (TBSE)	705	539	532	556	530
Percentage TBSE (% of GDP)	1.9	0.4	0.4	0.4	0.4
GDP deflator (2000-02=100)	100	1 368	1 315	1 422	..
Exchange rate (national currency per USD)	5.38	26.67	27.20	25.85	26.96

.. Not available

Note: p: provisional. NPC: Nominal Protection Coefficient. NAC: Nominal Assistance Coefficient. A/An/R/I: Area planted/Animal numbers/Receipts/Income. 1. Market Price Support (MPS) is net of producer levies and excess feed cost. MPS commodities for Ukraine are: wheat, maize, rye, barley, oats, sunflower, sugar, potatoes, milk, beef and veal, pig meat, poultry, and eggs.

Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Description of policy developments

Overview of policy trends

Prior to the 1990s, central planning regulated all sectors of Ukraine’s economy, including agriculture, as part of the Soviet Union. The state administered prices, and state enterprises controlled production, marketing of agricultural inputs and outputs, and processing and distribution of food (von Cramon-Taubadel et al., 2008[1]).

The first reforms began at the end of the 1980s, when the country started to transition towards a market-based economy. The ability to lease land from collective farms or individuals facilitated private agricultural production, enabling the establishment of family farms (von Cramon-Taubadel et al., 2008[1]).

However, Ukraine went through an economic crisis in the early 1990s, involving significant economic contraction and inflation. These impacted the agricultural sector and resulted in substantial reductions in agricultural output and productivity. Consequently, several trade and price liberalisation policy reforms were reversed in the mid-1990s. Renewed reforms in agribusiness privatisation and collective farm restructuring intensified only after macroeconomic stabilisation in the 2000s (OECD/The World Bank, 2004[2]). While prior to the 1990s, the state owned all land,1 today about three-quarters of agricultural land is private property (StateGeoCadastre, 2017[3]).2

In 2005, the State Agrarian Fund was established as a state-owned public joint stock company (reorganised in 2013). Its initial mandate was to regulate grain prices through intervention purchases, to store grain in state-owned silos and sell it to bakeries to guarantee bread prices, and to provide loans to grain producers. The fund progressively became involved in other activities, such as state purchases and sales of a broad range of agricultural and food products; forward contracts; flour processing and wholesaling; and sales of fuel and mineral fertilisers to producers (OECD, 2015[4]).

Two key events helped shape agricultural policies in Ukraine. First, in 2008, Ukraine became a member of the WTO, setting its agricultural bound tariffs at an average of 10.8%, expanding its export opportunities, and contributing to changes in the system of state support for agriculture. Second, in 2014, the European Union and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) as part of their Association Agreement. DCFTA involves tariff reductions and duty-free import quotas to facilitate trade between Ukraine and the European Union, including in agro-food products.

From 1999 to 2016, the state provided significant support through VAT accumulation, based on an agriculture-specific VAT regime. Agricultural producers accumulated in special bank accounts VAT due on their primary and processed products. The accumulated funds were directed to cover VAT on purchased inputs, with the residual available for any other production purpose. From 2014 to 2016, this mechanism provided 90% of total state support. Other domestic policy measures notably comprised input subsidies, tax concessions, price controls, import tariffs, non-tariff trade regulation, minimum purchase prices, direct state purchases, and preferential loans (Table 27.2).

Table 27.2. Ukraine: Agricultural policy trends

Period	Broader framework	Changes in agricultural policies
Prior to 1990s	Planned economy	Planned agricultural production Controlled value chain, including trade, of agricultural production, including inputs and outputs
1990-2000	Transition economy: gradual reforms towards market economy Interrupted by deep economic crisis in the early 1990s	Increased import tariffs for agricultural and processed food products Land reform to allow private ownership Gradual dismantling of centralised marketing schemes Reversal of reforms during economic crisis
2000-present	Renewed reforms towards an open economy	Reduction of agricultural tariffs following WTO accession Export taxes and quotas for main exported products, successively eliminated or replaced by MoUs State Agrarian Fund (price controls, production controls, marketing, loans, etc.) with market interventions through minimum reference prices and state food purchases successively reduced Sugar production quotas until 2018 Various subsidies for inputs, interest support and tax concessions

Due to the negative market price support only partly offset by transfers to producers through tax concessions and other measures, support to agricultural producers was negative for most of the 1990s. While the level continued to fluctuate over the recent decade, it has been closer to zero (Figure 27.4). With little budgetary support to general services or consumers, total support to the sector remained small for most of the past 25 years.

Figure 27.4. Ukraine: Level and PSE composition by support categories, 1995 to 2020

As a percentage of gross farm receipts

Note: A/An/R/I:Area planted/Animal numbers/Receipts/Income.

Payments not requiring production include Payments based on non-current A/An/R/I (production not required) and Payment based on non-commodity criteria. Other payments include Payments based on non-current A/An/R/I (production required) and Miscellaneous payments.

Source: OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

Main policy instruments

Ukraine’s agricultural policy measures are formulated in a number of major laws and decisions. The law On State Support of Agriculture in Ukraine, adopted in 2004, defines priorities and measures of agricultural policy. The 2017 Concept of development of farms and agricultural co-operatives for 2018-2020 sets out to create new rural jobs, provide support to private farms, encourage agricultural co-operation, create affordable credit conditions for farms, and increase real rural incomes through agricultural land leasing.

Agricultural producers are eligible for a Single Tax3 set as a percentage of normative agricultural land values established on 1 July 1995 and adjusted since with the general consumer price index. Introduced in 1998, the Single Tax originally replaced twelve taxes for which agricultural enterprises were liable as business entities. The scope of this tax has narrowed since. At present, the Single Tax replaces three taxes – profit tax, land tax (for land used in agricultural production), and a special water use fee – with agricultural producers liable for all other taxes previously included in the Single Tax. The Single Tax regime generates implicit tax benefits to agricultural producers, estimated to be around UAH 4.3 billion (USD 160 million) annually in recent years.

The annual law On State Budget of Ukraine defines the financial scope of agricultural subsidy policies. In 2020, this remained at a similar level as 2019, allocating some UAH 4 billion (USD 148 million) for subsidies to agricultural producers. Given inflation of 2.7%, the 2020 budget declined slightly in real terms relative to the prior year.

In addition to the Single Tax regime, the general budget programme On Financial Support of Agricultural Producers provides a range of ongoing measures targeted to specific activities, such as partial compensation for the costs of agricultural machinery and equipment, and compensation to farmers for agricultural advisory services. For livestock producers, these also include interest rate support for livestock husbandry and breeding; partial reimbursement of costs related to the construction and reconstruction of animal farms and buildings; per head payments for cows to agricultural enterprises and for young cattle to rural households; and partial compensation to agricultural producers purchasing high-breeding animals, semen and embryos. In turn, on the crop side, support is provided in the form of seed cost compensation, reimbursements for different types of on-farm investments and debt repayments.

As per a Cabinet of Ministers of Ukraine (CMU) Resolution from June 2017, no price regulation of food products has taken place since July 2017. However, the State Material Reserve of Ukraine (SRU) procures and holds emergency reserves for a range of products, including agriculture and food products. Purchases are made through open tenders.

Since 2002, a moratorium bans the sale of agricultural land in Ukraine, although leasing for cultivation is permitted. The moratorium was extended annually until and including 2019. It was not formally extended into 2020. However, only from July 2021 can limited amounts of land be purchased by individual citizens of Ukraine, thanks to new legislation recently enacted. More important land purchases, including by Ukrainian legal entities, will be permitted from January 2024 (see below).

Ukraine has been a member of the WTO since May 2008. The country charges import tariffs on most agricultural products, with applied most-favoured-nation (MFN) tariffs for agricultural products averaging at 9.2%, well above the average for non-agricultural products at 3.7%. While most imports face ad valorem tariffs, Ukraine maintains a global tariff-rate quota for raw cane sugar. However, this quota was last used in 2011, given the excess sugar supply on the Ukrainian market in more recent years. Export duties are applied to some oilseeds, live animals and raw hides.

The Association Agreement with the European Union, ratified by Ukraine in 2014, increasingly influences the country’s policies. On 27 June 2014, the European Union and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) as part of their Association Agreement. It applied provisionally from 1 January 2016 and formally entered into force on 1 September 2017. Trade liberalisation between the European Union and Ukraine is to be implemented over a transition period of seven to ten years. The European Union is to open tariff rate quotas for duty-free imports for Ukraine’s principal agro-food products, such as grain, meat and milk products, and sugar, and to grant free access for the others. Ukraine is to reduce import duties for a number of goods from the European Union. About 40% of agriculture-related import duties were reduced to zero immediately after the Agreement entered into force, and around half of import duties will be eliminated during the transition period. For about 10% of tariff lines – covering selected products in product categories such as dairy and eggs, sugar, miscellaneous edible products, animal oils and fats, and feeding stuff for animals – Ukraine maintains tariff rate quotas (TRQs) with zero in-quota tariffs, but with non-zero over-quota tariffs. Since 1 January 2016, Ukraine applies three TRQs with zero in-quota tariffs for imports from the European Union of pig meat, poultry meat and poultry meat preparations, and sugar, respectively. The parties committed to apply no export subsidies for mutually traded agricultural goods.

The DCFTA incorporates fundamental WTO rules on non-tariff barriers, such as prohibition of import and export restrictions, and disciplines on state trading. However, Ukraine’s difficulty complying with EU food safety, veterinary and phytosanitary requirements remains a barrier for trade integration. Thus, the DCFTA contains provisions for technical regulations, standards and conformity assessments to harmonise with those of the European Union, as well as for technical co-operation in the field of regulations, standards and related issues between Ukraine and the European Union. In line with these provisions, the Comprehensive Strategy of Implementing Legislation on Sanitary and Phytosanitary Measures was approved in 2016 and provides a process for harmonisation of Ukraine’s SPS legislation with EU requirements.

Other free trade agreements of Ukraine include the FTA with the European Free Trade Association (EFTA) in force since June 2012, the multilateral FTA with the Commonwealth of Independent States (CIS)4 in force since August 2012 as well as bilateral ones with all CIS members, and the Canada-Ukraine FTA, in force since August 2017. New agreements with Israel and the United Kingdom both entered into force in January 2021 (see below).

In July 2019, the CMU approved the Strategy for the development of exports of agricultural and food products for the period up to 2026. It focuses on product competitiveness, an expanded range of export products, Ukrainian food brands, and supporting information and analysis on agro-food exports.

Ukraine signed the Paris Agreement of the United Nations Framework Convention on Climate Change in April 2016 and ratified it in September 2016. Through its NDC, Ukraine committed to total emissions across sectors, including agriculture, not exceeding 60% of those in 1990 (equivalent to not exceeding 140% of those in 2012). In December 2016, the CMU adopted the National Concept of State Policy in the Field of Climate Change up to 2030. The CMU approved the Action Plan for the implementation of this Concept in late 2017, while it approved the Strategy for Low Carbon Development of Ukraine up to 2050 (SLCD) in July 2018. The SLCD defines a co-ordinated approach by various parties concerned and provides a national vision for decoupling economic growth and social development from the increase of GHG emissions. In addition, the Ministry of Agrarian Policy and Food (MAPF)5 is developing measures to improve environmental practices related to the adaptation of agriculture and forestry to climate change, in line with obligations under the Association Agreement with the European Union.

Domestic policy developments in 2020-21

Changes to the legal framework

The State Strategy for Regional Development for 2021-2027, approved by the CMU in August 2020, specifically focuses on agricultural co-operation, small and medium-sized agricultural producers, storage infrastructure, and the introduction of new technologies and equipment for the processing of agricultural raw materials.

A new Strategy for attracting private investment in agriculture for the period until 2023 was approved by the CMU in July 2019. It aims to increase agricultural exports, ensure national food security, and enhance an environmentally balanced growth of the agricultural sector.

The Law on Agricultural Cooperation, in force since August 2020, regulates issues related to the creation, management and dissolution of agricultural co-operatives. It eliminates the former differentiation between production and service co-operatives and defines co-operative education as a priority task of agricultural co-operatives.

Several legal acts have been put in place to regulate the documentation and market of agricultural land:

• The Law on Amendments to Certain Legislative Acts of Ukraine on Combating Raids entered into force in January 2020. It aims to enhance the protection against misappropriation of land and property of agricultural enterprises, including, among others, through the registration of property rights and real-estate transactions, and sets 1 January 2022 as a deadline for the completion of the State Land Cadastre, a new cadastre to be maintained by Ukraine’s State Service for Geodesy, Cartography and Cadastre (StateGeoCadastre).

• By Resolution of March 2020, which entered into force in May 2020, the CMU requires that the approval of all types of land management documentation be transmitted and approved in electronic form through a personal account at StateGeoCadastre. This is expected to make the review of documents more efficient and timely and to improve objectivity and impartiality of the process.

• Aiming to facilitate the launch of a transparent land reform, following the relevant EU Directive of 2007, the Law on the National Infrastructure of Geospatial Data, which entered into force in June 2020, aims to enhance access to geospatial data, the development of markets for modern geo-information products and services. The ambition is a single portal for cadastres and geospatial data.

• A law adopted in November 2020 created a single state information system, the State Agrarian Register. It is financed from the state budget to integrate information on agricultural producers and their property as well as on related land, the environment, labour, finances and credits, among others. The law also expands the range of potential recipients of state support to include enterprises engaged in aquaculture, organic production, irrigation, vegetables, fruits and berries.

• The Law on Amendments to Certain Legislative Acts of Ukraine concerning the Conditions of Turnover of Agricultural Lands was ratified by the President of Ukraine and will come into force in July 2021. The law ends the ban on the sale of agricultural land by granting the right to purchase up to 100 hectares of land, as of 1 July 2021, to individual citizens of Ukraine. From 1 January 2024, purchases of up to 10 000 hectares are possible for Ukrainian citizens as well as for legal entities whose founders or final beneficiaries are Ukrainians, and which do not have businesses registered abroad or in offshore companies. The sale of land to foreigners remains prohibited and can become legal only through a referendum. The sale of state- or communally-owned agricultural land remains prohibited. A Presidential Decree in October 2020 charges the CMU to work on facilitating the transfer of state-owned agricultural land to communal ownership, and on draft laws on the support to private farms, the improvement of land management and land deregulation.

New legal acts related to specific subsectors of agriculture and food include the following ones:

• The Law on State Regulation of Ethanol, Cognac and Fruit, Alcoholic Beverages, Tobacco and Fuel was amended in December 2019. The state monopoly on alcohol production is abolished, allowing for alcohol production and export by any licensed business entity. Imports remain limited to authorised state enterprises. As part of this programme, state distilleries are being privatised through public procurement.

• The MAPF’s Order on Approval of Honey Requirements from June 2019 entered into force in February 2020. The Order calls for the harmonisation of the Ukrainian legislation with the EU legislation regarding the requirements for honey. The document sets requirements for the characteristics and composition of honey, terminology, honey labelling.

• The Concept of the State Target Program for the Development of Industrial Potato Growing for the period up to 2025 and the Concept of the State Target Program for Vegetable Growing Development up to 2025, both approved in October 2020, aim to foster production and marketing of domestic potatoes and high-quality vegetable products, respectively.

A series of legal acts were put in place on climate change and environmental policies:

• The Law on Principles of Monitoring, Reporting and Verification of Greenhouse Gas Emissions came into force in March 2020 and applies from January 2021, reflecting Ukraine’s obligations under international agreements, including the UN Framework Convention on Climate Change and the 2015 Paris Agreement. Ukraine’s GHG emission monitoring legislation is to be gradually adapted to EU legislation, in line with Ukraine’s EU Association Agreement.

• The Law on the Basic Principles (Strategy) of the State Environmental Policy of Ukraine for the period until 2030, in force since January 2020, replaces the former Strategy of Environmental Policy of Ukraine until 2020 and includes a set of 30 indicators to measure the effects of environmental policies and compliance with specific targets set by the law. The Action Plan 2021-2025 on the new Strategy has yet to be adopted.

• Following the Irrigation and Drainage Strategy of Ukraine for the period up to 2030, the government approved the Action Plan on its implementation in October 2020. It foresees additional state support measures to enhance the irrigation and drainage infrastructure in 2021-23. In September 2020, the government also approved the CMU Resolution On Standards for Environmentally Safe Irrigation, Drainage, Watering Control and Sewerage Management, which regulates measures aiming to balance water consumption for irrigation purposes.

Continuing the legislative work on the development of the organic products sector, Ukraine introduced its own system of certification of organic production through a CMU Resolution adopted in October 2020. Its main provisions are in line with the relevant EU regulation. The CMU also determined, by its Resolution adopted in February 2020, procedures for maintaining a range of state registers related to organic food production, certification bodies, and seeds and planting material. The Ministry Order on Approval of the Procedure for Maintaining the List of Foreign Certification Bodies, which came into force in May 2020, aims to facilitate the legal regulation of the organic products market.

Since December 2019, the State Register runs a new service to monitor grain storage information across all elevators in Ukraine, and to provide this information on a dedicated website.

Changes in agricultural support measures

A number of payment programmes from the budget for State support for the development of animal husbandry and processing of agricultural products continued in 2020, such as the partial compensation of the purchasing cost of high-breeding animals, the partial compensation of the construction and reconstruction cost of animal farms and buildings, and the partial compensation of the construction and reconstruction cost of grain storage and grain processing capacities. In contrast, the compensation of the construction and reconstruction of animal farms and buildings financed by bank loans in 2020 was only provided to producers and breeders who had benefitted from this programme already during 2018-19 – no new investments of this type were supported in 2020. Similarly, the subsidies to rural households for keeping registered young cattle, and to milk and beef producers for keeping registered cows, were discontinued in 2020. A new measure under this heading provides subsidies to beekeepers for maintaining between 10 and 300 bee colonies in 2020.

Within the programme “Financial support for farm development” related to small and medium-size producers, the partial compensation of expenses related to agricultural advisory services, the partial compensation for agricultural machinery and equipment available to all producers, and subsidies for newly established small and medium-size farms were continued in 2020. In contrast, several measures from this programme were discontinued (although carry-over payments from 2019 continued in 2020), including

• the subsidy for existing small and medium-size producers

• the special programme for small and medium-size producers providing a partial compensation of agricultural machinery and equipment

• the seed subsidy

• the interest rate support specifically aimed at small and medium-size producers.

Other support measures continued within the “Support for orchards, vineyards and berry fields”, including the partial compensation of costs for planting material, of the cost of construction of refrigerators, and of processing lines of fruits and berries. Interest rate support under the heading “Financial support for agriculture through preferential credits”, which is the most important measure to support investments in agriculture, also continued in 2020.

Domestic policy responses to the COVID-19 pandemic

In May 2020, the Cabinet of Ministers of Ukraine (CMU) set up the State Program of Economic Stimulation to Overcome the Negative Effects Caused by Restrictive Measures to Prevent the Occurrence and Spread of the Acute Respiratory Disease COVID-19 caused by Coronavirus SARS-CoV-2 for 2020-2022. Under this programme, the government implements a number of measures aimed at the agricultural sector, notably to ensure broad access of agricultural producers to financial resources, and to ensure that agricultural products continue to be available on the market during the pandemic.

The programme also includes the enhanced market monitoring for agricultural and food products and other essential goods; the development of a unified and simplified assessment of agricultural land values; the development of digital tools for facilitating the sale and promotion of agricultural products and services; and the improved conditions for the development of organic agriculture.

Finally, the programme involves several additional measures in support of the agricultural sector which were implemented in 2020:

• An additional subsidy is provided to agricultural service co-operatives to partially compensate costs of purchasing agricultural machinery and equipment.

• Private farm keeping dairy cows are eligible for a new dairy cow subsidy.

• Family farms are eligible for a partial compensation of their obligatory social insurance fees.

The CMU Resolution on measures to stabilise prices for goods of considerable social significance, anti-epidemic goods, adopted in April 2020 and in force since May 2020, introduces a public monitoring of prices of essential goods. It requires retail sellers to declare price increases by 5% or more relative to the retail price at the time of this resolution entering into force, or relative to a retail price declared in the meantime. Food products covered by this resolution include certain grains and grain products; refined sugar; and certain categories of milk, butter, eggs, and poultry.

Trade policy developments in 2020-21

Two new free trade agreements have recently come into force. The free trade agreement between Ukraine and Israel was ratified by Israel in November 2020 and came into force on 1 January 2021. Tariff reductions mostly focus on manufactured goods, while import duties on about 9% of agricultural tariff lines are to be abolished by Israel, and duties on some 6% of agricultural tariff lines are to be eliminated by Ukraine, both taking effect with the entry into force of the agreement.

The Political, Free Trade and Strategic Partnership Agreement between Ukraine and the United Kingdom was signed in October 2020 and ratified by both countries. The Agreement is based on the 2014 EU-Ukraine Association Agreement and gives additional access to the UK market for around 98% of Ukrainian goods, mostly governed by newly established TRQs. Ukrainian agricultural exports to the United Kingdom benefit from duty-free tariff quotas set for 36 types of products, including meat, dairy products, cereals, sugar and others, with additional TRQs set for some of these products. In turn, Ukraine has opened TRQs for pork, poultry and semi-finished poultry products, and sugar.

EU tariff rate quotas for animal products implemented under the DCFTA have not been fully used, and those for beef, pork and lamb have never been used at all. Aiming to increase exports of animal products into the European Union, Ukraine is working towards meeting the relevant sanitary standards. By February 2020, EU veterinary services have certified seven poultry plants and 26 dairy processing enterprises, permitting them to export to the European Union. In parallel, the European Union has gradually increased its duty-free import quotas for Ukrainian poultry and processed poultry meet.

In April 2020, Ukraine ratified its accession to the OECD Seeds Schemes for seeds of cruciferous and other oilseeds or spinning crops, and for seeds of sugar and fodder beet. In the same month, Ukraine’s seed certification system was recognised as equivalent by the European Union, thus facilitating Ukraine’s participation in international seeds trade.

The Ministry Order on Approval of Forms of International Certificates approved in July 2020 aims to simplify import procedures by bringing Ukrainian legislation closer to European and international requirements.

Ukraine had suspended VAT refunds for exports of soybeans from September 2018, and for exports of rapeseed from January 2020, initially both for a period until the end of 2021. However, VAT refunds for exports of both commodities were re-established from 23 May 2020.

In March 2020, the Ministry of Economic Development, Trade and Agriculture (MEDTA) and main associations of grain exporters agreed on the Annex to the traditional Memorandum of Understanding (MoU) on grain exports signed in 2019. According to that annex, the maximum volume of wheat exports for the 2019/20 marketing year was fixed at a level of 20.2 million tonnes. However, actual wheat exports continued even after reaching this volume in May 2020. A new MoU for the marketing year 2020/21 was signed in July 2020, with its Annex agreed in August 2020. It indicates maximum export volumes of 17.5 million tonnes of wheat and 1 000 tonnes of rye.

In response to a suspension by the Russian Federation of its free trade regime with Ukraine under the Agreement on Free Trade in the Commonwealth of Independent States (CIS) Area, and the implementation of a ban by the Russian Federation on imports of agro-food products from Ukraine, Ukraine in turn has suspended trade preferences for imports from the Russian Federation foreseen by the CIS FTA. Ukraine has banned imports of a list of 46 agricultural goods from the Russian Federation. This list includes meat and meat by-products, fish, milk and dairy products, tea, coffee, grain and its processing products, vegetable and animal oils, confectionery, baby foods, beer, vodka, ethyl alcohol, cigarettes, and others. Both the suspension of trade preferences and the ban on specific imports have been prolonged on an annual basis, most recently until the end of 2021. Since July 2019, Ukraine has also banned the import of mineral fertilisers, animal feeds and veterinary products from the Russian Federation. Anti-dumping duties for chocolate and other cocoa-based food products produced in the Russian Federation, effective from 20 June 2017 for a period of five years, continue to be in place.

In January 2020, a new framework law came into force to improve the legal protection of geographical indications (GIs). Following Ukraine’s obligations under the Association Agreement with the European Union, the law also aims to facilitate the adaptation of the national legislation to the EU legislation.

Trade policy responses to the COVID-19 pandemic

During the first half of 2020, Ukraine implemented bans on exports of certain products, including buckwheat (2 April to 1 July 2020) and undenatured ethyl alcohol with an alcohol concentration of at least 80% vol. (23 March to 15 May 2020).

Contextual information

Ukraine is classified by the World Bank as a lower middle income country. It features a comparatively large area of fertile arable land, making agriculture a major sector of the economy compared to most other countries in this report: while the sector’s relative importance has declined, it still accounts for 9% of the country’s economy and 15% of its employment. Agro-food exports represent around 40% of Ukraine’s total exports.

Four-fifths of Ukraine’s agricultural area is arable, and crops represent some three-quarters of agricultural output, up from two-thirds in the mid-1990s. Thirty per cent of Ukraine’s crop production, and almost half of its livestock output, is generated by rural households, where a significant share of their produce is consumed without entering the market. Companies, mostly with limited liability or joint-stock companies, provide for much of the remaining output.

Table 27.3. Ukraine: Contextual indicators

	Ukraine		International comparison
	2000*	2019*	2000*	2019*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	202	561	0.5%	0.5%
Population (million)	49	44	1.1%	0.8%
Land area (thousand km2)	579	579	0.7%	0.7%
Agricultural area (AA) (thousand ha)	41 406	41 329	1.4%	1.4%
			All countries1
Population density (inhabitants/km2)	84	76	53	63
GDP per capita (USD in PPPs)	4 107	13 341	9 265	21 975
Trade as % of GDP	46	40	12.3	14.6
Agriculture in the economy			All countries1
Agriculture in GDP (%)	14.5	9.0	2.9	3.5
Agriculture share in employment (%)	25.1	14.5	-	-
Agro-food exports (% of total exports)	10.1	39.4	6.2	7.3
Agro-food imports (% of total imports)	6.1	7.9	5.5	6.7
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	59	77	-	-
Livestock in total agricultural production (%)	41	24	-	-
Share of arable land in AA (%)	79	80	32	34

Notes: *or closest available year. 1. Average of all countries covered in this report.

Sources: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

Between 2013 and 2015, real GDP had fallen by 16% while inflation rates had risen to almost 50%, due to adverse political circumstances. Since then, the economy has grown steadily at rates between 2.4% and 3.3% per year while inflation rates have come down. In 2020, due to the COVID-19 pandemic and related restrictions to the economy, real GDP shrank by almost 5% while inflation decreased to less than 3%. Unemployment continues to be high at almost 9%.

Ukraine is among the world’s leading exporters of grains and vegetable oils. Its agro-food exports grew rapidly between the late 1990s and 2012, and export growth has resumed after the drop between 2012 and 2015, which was due to adverse political circumstances. Most of Ukraine’s agro-food exports are intermediary, mainly primary, products for processing. Imports, in turn, are more mixed, with primary and processed products for final consumption representing about 60% of agro-food imports.

Figure 27.5. Ukraine: Main economic indicators, 2000 to 2020

Sources: OECD statistical databases; World Bank, WDI; ILO estimates and projections; and Economist Intelligence Unit.

Figure 27.6. Ukraine: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

Both agricultural output and total factor productivity grew at rates significantly above global averages, at 4.6% and 4.1% per year respectively in the decade ending in 2016. Output was also driven by intermediate input growth, while the use of primary factors, notably of capital, shrank. The shrinking capital stock may pose a risk for continued productivity growth in the future.

Despite the declining importance of agriculture within the economy, agriculture’s shares in the country’s energy use and GHG emissions have increased over the past two decades. In contrast, the average nitrogen balance has declined since 2000 and remain well below those across the OECD, while data now suggest a nation-wide negative balance for phosphorous.

Figure 27.7. Ukraine: Composition of agricultural output growth, 2007-16

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database.

Table 27.4. Ukraine: Productivity and environmental indicators

	Ukraine		International comparison
	1991-2000	2007-2016	1991-2000	2007-2016
			World
TFP annual growth rate (%)	0.7%	4.1%	1.6%	1.6%
			OECD average
Environmental indicators	2000*	2019*	2000*	2019*
Nitrogen balance, kg/ha	20.9	12.2	33.2	28.9
Phosphorus balance, kg/ha	2.6	-1.1	3.4	2.6
Agriculture share of total energy use (%)	2.1	3.7	1.7	2.0
Agriculture share of GHG emissions (%)	8.7	13.0	8.4	9.5
Share of irrigated land in AA (%)	5.8	5.2	-	-
Share of agriculture in water abstractions (%)	30.0	34.9	46.0	43.4
Water stress indicator	..	..	9.3	8.5

Notes: * or closest available year.

Sources: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.

References

[4] OECD (2015), “Sector competitiveness strategy for Ukraine – Phase III. Review of Agricultural Investment Policies of Ukraine”, Project Report, OECD Eurasia Competitiveness Programme, http://www.oecd.org/eurasia/competitiveness-programme/eastern-partners/Agricultural_Investment_Policies_Ukraine_ENG.pdf.

[2] OECD/The World Bank (2004), Achieving Ukraine’s Agricultural Potential: Stimulating Agricultural Growth and Improving Rural Life, The World Bank, Washington, D.C., https://dx.doi.org/10.1787/9789264055841-en.

[3] StateGeoCadastre (2017), Review of the State of Land Relations in Ukraine, https://land.gov.ua/wp-content/uploads/2017/03/Land-Review-Monthly_3_final-1.pdf (accessed on 27 February 2017).

[1] von Cramon-Taubadel, S. et al. (2008), “Ukraine”, Distortions to Agricultural Incentives in Europe’s Transition Economies, (eds.) Anderson, K. and Swinnen, J., World Bank, Washington, DC, http://hdl.handle.net/10986/6502.

Notes

← 1.  Article 3 of the Land Code of the Ukrainian SSR, https://zakon.rada.gov.ua/laws/show/2874%D0%B0-07/ed19920101#Text.

← 2.  More recent estimates suggest that the share of private property in agricultural land is even higher, at 80%: Mykola Solsky (People’s Deputy, Chairman of the Verkhovna Rada Committee on Agrarian and Land Policy), “It’s all about the land”, 2 April 2020, https://www.epravda.com.ua/columns/2020/04/2/658911/.

← 3.  Termed the “Fixed Agricultural Tax” before 2015.

← 4.  Other members and associate members include Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, the Russian Federation, Tajikistan, Turkmenistan and Uzbekistan.

← 5.  Between 29 August 2019 and 28 December 2020, MAPF was integrated into the Ministry of Economic Development, Trade and Agriculture, MEDTA.