State Support of Agricultural Producers in Ukraine
Author: Oleksiy Demyanenko


Basic principles and types of state support of agricultural producers in Ukraine are established by the Law of Ukraine "On State Support of Ukraine's Agriculture", adopted on 24 June 2004 and effective from 1 January 2005 (the "Agriculture Support Law"). The amounts of funds allocated under the relevant state support programs are determined annually by the Law of Ukraine on the State Budget. Significant implicit support is provided through various tax exemptions and privileges, which are not analysed in this article.

Ukrainian legislation provides for the following main types of state support of Ukraine's agricultural producers:

1) Interest Rebate. Eligible agrarian entities are entitled to receive partial reimbursement of interest payments on attracted bank loans. The interest rebate is received under tender terms only. The amount of the interest subsidy depends upon terms, currency and purpose of attracted financing. Borrower is subsidised on a monthly basis. Subsidy cannot be provided to the bankrupt borrowers and companies undergoing bankruptcy or liquidation procedure. The 2011 State Budget provided for UAH 531 million for granting loan subsidies. The subsidy was not budgeted for 2012.

2) Financing Against Pledge of Grain. State, through the Ukrainian Agrarian Fund (the "UAF"), provides loans to Ukrainian agricultural producers against the pledge of grain. Upon obtainment of the UAF's consent on provision of loan, the borrower has 5 business days to deliver grain to a grain storage facility determined by the Fund. If the borrower fails to repay the loan or interest, the UAF becomes the owner of the pledged grain. The loan cannot be extended to the agricultural producers with outstanding tax obligations, due and unpaid indebtedness under state loans, loans guaranteed by the state, or land allotment lease agreements with farmers. Additionally, funding cannot be provided to the agricultural producers undergoing bankruptcy, liquidation or financial rehabilitation procedure. Financing under the relevant state support program was not provided in 2010 and 2011. During public interviews the UAF's officials have several times asserted that in 2012 loans against the pledge of grain, as prescribed by the Agriculture Support Law, will be available stating from July 1.

3) Insurance Rebate. Ukrainian agricultural insurance market is rigid and underdeveloped. Although the Agriculture Support Law entitles eligible agricultural producers to receive partial (50%) reimbursement of insurance premium paid for insuring agricultural crops and capital assets through the Agricultural Insurance Subsidy Fund, this support measure has not helped to create a functioning system of agricultural insurance in Ukraine, thus often forcing Ukrainian government to compensate agricultural producers directly from its Reserve Fund. To reanimate the market, on 9 February 2012 the Parliament of Ukraine adopted the Law of Ukraine "On Peculiarities of Agricultural Products Insurance with State Support" (the "Agricultural Products Insurance Law") introducing general framework for state support of Ukraine's agricultural producers against the lost or damage caused by human activities or natural disasters. Despite its obvious advantages, the Agricultural Products Insurance Law may not have an instant tangible impact on Ukraine's agricultural insurance, since a number of implementing resolutions must be adopted by the Cabinet of Ministers of Ukraine. The Agricultural Products Insurance Law enters into force on 1 July 2012.

4) Farm Mechanization Subsidies. According to the Law of Ukraine "On Stimulating the Development of National Machine Building for the Agro-Industrial Sector", adopted in 2002 to support Ukrainian farms’ machinery upgrading and development of domestic agricultural machine manufacturing industry, the government: (a) refunds agricultural producers up to 40% of the purchase price paid for acquired items of domestically-manufactured machinery and equipment; and (b) procures domestically-manufactured machinery and equipment for transferring it to agricultural producers under financial lease arrangements. Notably, the relevant support programs have not resulted in increased domestic production and Ukrainian agrarians commonly procure agricultural machinery abroad.

5) Crops Cultivation Grant. The government grants a subsidy to agricultural producers for each hectare of certain cultivated crops. The amount of the subsidy is determined annually by Ukraine's State Budget and is typically paid at the end of the year. This form of subsidizing was introduced in 2003 as a measure to compensate farmers that suffered adverse weather conditions, but starting from 2004 was converted to non-emergency element of state support.

Ukrainian law also provides for other minor types of state support of Ukraine’s agriculture that can be funded from the State Budget.

As practice shows, large Ukrainian agricultural producers rarely apply for state subsidizing, thus raising chances of smaller companies to leak through complex tender procedures and receive funding. There are two main reasons to ignore such tenders: (a) time necessary to collect the documents for filing to the tender committee may be unreasonable compared to the commonly negligent amounts of compensation; and (b) an entity-recipient of state subsidy may be subject to inspectorates' checks, which is often a big challenge for some companies.

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