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Ukraine: Kyiv's Policies Destroy Productive Farming

Kyiv, 21 May 1998 (RFE/RL) -- International agriculture advisors in Kyiv say Ukraine's track record on reform is a lesson on the best way to end productive farming. In the words of one American expert, the government in Kyiv couldn't do a better job of destroying the farm sector if it tried.

Administrators of the U.S. Agency for International Development (USAID) say as soon as Kyiv privatizes one state monopoly, the government tries to replace it with new monopolies that only harm the development of private farming.

A western consultant to Kyiv's agricultural privatization program says these new monopolies are both "formal and informal" and serve as "an ongoing drain on the state budget."

The latest example is a government plan to centralize the ownership of Ukraine's farm machinery production under a single state holding company called "Ukragromashinvest."

In an memo obtained by RFE/RL, a U.S. AID administrator in Kyiv recommends that Washington should link the issue to future aid disbursements. He says the replacement of one old state monopoly with a new "monster" continues to be a major problem for private sector investment in Ukraine.

The plan to centralize farm machinery production comes as Kyiv, under pressure from Washington, reluctantly starts to privatize the giant state monopoly "Bread of Ukraine." That firm is described by westerners as the country's "main choke hold" on agriculture. It controls Ukrainian farms through its monopoly on grain pricing, storage, processing and distribution.

Ukrainian farms once fed the former Soviet Union. But corruption, poor management and the lack of real market reforms have resulted in sector-wide decline every year since Kyiv declared independence from the Soviet Union in 1991.

The country is literally surviving off small private vegetable gardens on 12 percent of the arable land. Last year's sugar beet harvest from the large, quasi-privatized collective farms was a catastrophe. Meanwhile, large farms, which account for more than 80 percent of the country's farmland, already are showing signs that this year's grain harvest could be among the worst in the last 30 years.

With $3.9 billion in treasury bill payments coming due this year, the cash-strapped government has not been able to provide the support it normally has given for fertilizer and fuel.

That means about 15 percent of arable land has not been planted this year. More disturbing, about half of what has been planted is not being treated with the agro-chemicals needed to produce average yields.

Bat Batov, manager of a collective farm about 70 kilometers west of Kyiv, told RFE/RL that the only way he could obtain fertilizer and fuel was to barter off about a third of his future grain harvest to the state. Barter trade keeps the grain flowing into the state grain monopoly.

But Steve McCoy, a U.S. specialist with the Ukrainian Agrarian Commodity Exchange Project, says the system also inflates prices farmers must pay for supplies and lowers payments for their harvests. By some estimates, barter brings farmers one third less than what they would receive on the international market.

Meanwhile, banks still refuse to accept land as collateral for farm loans because the sale of land -- a basic pillar of western agricultural credit systems -- remains illegal in Ukraine. With a strong Communist Party faction in the newly elected parliament, the government is not likely to give farm workers the right soon to sell the land shares they've received through privatization.

Sergei Gmyria, a high ranking communist deputy in the Rada, says his party remains "categorically against" the buying and selling of land. He says "internal and external capitalists" will buy all the land from farm workers and turn them into "serfs."

Kyiv's agriculture ministry avoids addressing the reasons behind the collapse of Ukrainian farming by blaming the last seven years of continuous decline on "poor weather."

Agriculture minister Boris Supikhanov told RFE/RL that he cannot provide exact figures about last year's grain exports because, in his words, the agriculture ministry "does not keep statistics on that."

Supikhanov also said he knows nothing about "Ukragromashinvest," despite the fact that the State Property Fund and the Cabinet of Ministers have issued three resolutions on the firm in the past seven months.

So far, the "privatization" of state farms has not broken up the large inefficient collectives left over from the Soviet era.

In most cases, these renamed "joint stock collectives" are managed by the same inefficient directors who were appointed by regional authorities in the 1970s and 1980s.

And in most cases, the collective managers maintain an allegiance to one of the regional clans -- networks of state officials, oblast administrators and powerful local businessmen -- that rule Ukraine's 24 oblasts.

The overwhelming majority of workers who have chosen to stay with their collectives have a certificate that, in theory, gives them a right to a tract of land and a share of collective profits. But with their managers continuing to report losses, many workers haven't received their pay for months -- much less a share in any profits.

Collective workers also have a right to vote for their managers -- a fact which authorities in Kyiv say is evidence of "democracy" in action. But workers' voting rights are made irrelevant by the fact that oblast authorities can sack collective managers on a whim. In practice, those who have been fired are the managers who refuse to fall in line with the demands of regional clan leaders.

As a result, Ukraine's state monopoly on farming has been transformed into a patchwork of private nomenklatura monopolies that each control different sections of the country.

U.S. Commodities specialist McCoy says the situation is not the result of "a sinister plot." He says the problems are the result of slow evolution in a system where "old ideas die hard." He says reforms have to be built "brick-by-brick."

But by their nature, Ukraine's clans are more concerned with short term profits than the long-term investments that collective farms desperately need. That puts Ukrainian agriculture on a course of continued decline in the years to come -- regardless of the weather.

See also Crisis on Ukrainian Farms -- Photo Feature