From 2023, state subsidies in the agro industry will whittle away. The new grant format may be more effective, but the reform is done at the most critical time for the industry

The agricultural sector learns to work not only during the war, but also under conditions of lack of funds, in particular state ones, in a real-time mode.

If the Budget Code is followed strictly, in 2023, several billion hryvnias should have flowed into the agricultural sector through various state support programmes, given the established standard of 1% of GDP generated by agriculture in the previous year. Even with the correction for the territory reduced due to the temporary occupation, the estimated amount of support for the agricultural industry could not be lower than 4-4.5 billion hryvnias.

The reality turned out to be the opposite – subsidies to the sector, for the first time in 10 years, are not foreseen at all.

Mind looked at why this happened and came to a paradoxical conclusion: sometimes the absence of money works better than a promise to provide it that no one is going to keep.

In the past few years, programmes of state support for the agricultural industry have been based on the principle "the state pretends to help – we pretend to use". Deliberate bureaucratization of procedures, specificity of supported directions, everlasting failure to meet deadlines and a weak regulator in the person of the Ministry of Agrarian Policy and Food of Ukraine consistently led to the same result – a large part of unused funds was returned to the state budget.

Surely, there were some recipients. But in general, the gap between the indicators "included to the State Budget" and "reached the industry" was colossal. We should note that even with 100% use of the costs and even in the best years, the amounts pledged for programmes were enough just for 1% of all the market participants.

State Support of Agricultural Industry, declared

Year	Amount, Bln UAH
2018	6,3
2019	5,9
2020	4,0
2021	4,5
2022	4,6

However, in 2023, the rules are changing. The State Budget does not provide state support programmes in their traditional form at all.

There are several reasons.

Reason 1: No money

The first and obvious reason is the reduction of even the theoretical possibilities of the state budget. Since there is an absolute priority of defense expenditures, the rest falls into the "optional" category. The maximum estimate of monthly revenues to the state budget during the war months is an average of 150 billion hryvnias, excluding international aid, and the needs, taking into account defense issues, are at least twice as large.

According to such arithmetic, farmers, as well as representatives of many other industries, have nothing to hope for, and it is honest to say so. In addition, according to the generally accepted opinion, which is not far from the truth, representatives of the agricultural industry have had two extremely prosperous years before, and they have significant reserves. Let's clarify: this is not true for the whole market. It is not given that the rest will want to spend reserves on operational needs without visible prospects.

Reason 2: Agrarian Ministry – bad lobbyists

This is directly discussed in the government, presenting it like "sad Solsky is walking".

The institutional significance of the Ministry of Agricultural Policy after its hasty liquidation in 2019 haven’t recovered. Its reincarnation gave birth to a simulacrum of an understaffed state department with a weak team. In such circumstances, the Ministry could not become an effective lobbyist of the industry – and it didn't succeed. Especially, in the conditions of competition for state funds, which has increased to a record level.

Reason 3: the government reform and the reduction of ministries, the administrator of grants in particular

As Mind wrote earlier, the reform of the Cabinet of Ministers was not only populism, but also an objective necessity to save budget funds. According to the previous General Plan for the Transformation of the Executive Power in Ukraine, the number of ministries should be reduced by almost half – from the current 20 to 12, and the number of central executive bodies – by 30%.

We should note that some weak attempts to change the state budget project in favour of agricultural state subsidies are being made – but rather for the PR effect than for the real result. The parliament Committee on Agrarian and Land Policy submitted amendments to the draft State Budget for 2023 with the aim of increasing aid to farmers.

"In the next year's budget, credits for farmers are foreseen, but as for traditional subsidies, they were not included in the original version of the document. Members of the specialized committee, when considering the draft budget, submitted an amendment to return support to farmers. First of all, this concerns the livestock industry and processing," the committee’s press-release says.

As general director of the HarvEast holding, Dmytro Skorniakov, noted, speaking to The Price of the State project, working capital is now needed in larger volumes than before, as liquidity has decreased due to reduced sales. At the same time, costs for logistics and price of the components increased.

What will farmers get in return?

Instead of state support programs, the government proposes to equate them with grant aid from international organizations. The basic format of support is beneficial loan.

The bill #8025, which will legalize such assistance through various mechanisms, is aimed at this. "In order to legitimize donor funds for the needs of the agricultural sector, the MPs propose to adopt bill No. 8025. The document defines special mechanisms for state support of the agricultural sector in the conditions of wartime, will allow compensation for farmers, in particular credit and insurance bodies, and provides for a number of innovations," explains attorney Tetiana Danylenko, Head of the Tetiana Danylenko Law Firm.

• the construction of export infrastructure (railway elevators, cars, transshipments, multimodal complexes, etc.) – up to 90% of the discount rate and up to 50% of the loan amount;
• insurance of export objects and partial compensation to insurers in case of destruction due to war from 40% to 60% of the total cost of insurance compensation;
• purchase of grain trucks, trailers and grain containers; granting the UN/FAO the right to be the organizer of multimodal transportation during the export of Ukrainian agricultural products;
• capital construction of export infrastructure (by subsidizing part of the fee and interest on loans);
• renewal of the fleet of grain trucks, grain containers, loading equipment;
• insurance of objects of storage or processing of agricultural products against risks in the form of hostilities and military operations;
• a mechanism for supporting domestic manufacturers of machinery and equipment (grain trucks, trailers, containers) through its purchase and free provision for use by agrarian companies. After the end of hostilities, such equipment will be returned to the owner, and will be provided under financial leasing contracts to agricultural producers in the future.

Also, the 5-7-9 beneficial loans programme, coordinated by the Ministry of Finance, remains valid. It works, but its volume is not able to radically change the situation.

"There are restrictions on amounts. That is, for example, we can receive about 6 million UAH for our holding. So, let's say, this is what allows you to stay afloat a little longer. But, unfortunately, it doesn't solve the problem," explains Dmytro Skorniakov, CEO of the HarvEast agricultural holding.

According to Tetiana Hetman, Director of the Department of Agro-Industrial Development at the Lviv Oblast State Administration, this year more than 180 farms have already received financial support, and by the beginning of October, the programme had been implemented by 85%. Now the administration has started developing programs for 2023 – and it is not doing it "from above", but by collecting proposals directly from farmers.