Nearly a decade of political and economic turbulence has prevented Ukraine from fulfilling its traditional role as the region's breadbasket. But within the past six to 12 months, leaders have begun to implement policies that point to a more positive future.

Privatization has been one of the most critical and controversial policy issues affecting Ukrainian agriculture. Private sector involvement in farming, storage, trading and processing has been permitted for the past six to eight years, but the workings of the "free market" have been impeded by the state's continued ownership and dominance of input, production, storage, transport and processing enterprises, which are highly integrated.

Although long supported by some key leaders, privatization of these enterprises has faced intense opposition in Ukraine's parliament and among some bureaucrats and regional officials. Throughout the 1990s, opponents have succeeded in periodically implementing a variety of legal obstacles and practical deterrents to privatization.

Consequently, efforts to privatize agricultural enterprises — large collective farms, integrated grain elevators and processing plants — as well as private ownership of the land itself have been hampered. In the face of these uncertainties, Ukrainian grain and livestock productivity plunged and the agricultural infrastructure decayed. (see World Grain, November 1998, page 6).

Despite continuing vocal opposition, partial privatization is under way, a turnabout strongly encourage by agencies such as the International Monetary Fund that have provided economic assistance to the country. Although the degree of privatization still falls short of reformers' goals, tangible progress is being made.

Two years ago, privatization of Ukraine's grain enterprises was prohibited by law. In a September 1998 decree, the government approved the privatiza-tion of 543 of the state's approximately 1,200 grain enterprises, and by mid-February 1999, 282 of the 543 had attained 70% private ownership; between November and February alone, the number of private grain enterprises doubled, accordWheat grades and grade requirementsing to the State Property Fund, the board responsible for privatization programs. Plans currently call for privatization of all but 100 grain enterprises, in line with I.M.F. recommendations.

In another change, the Cabinet of Ministers in February authorized the reorganization and eventual privatization of Khlib Ukrainy, the former government ministry that since 1996 has controlled the state grain enterprise system and manages the state's shares of partially privatized enterprises. As a state monopoly, Khlib Ukrainy has shouldered much of the responsibility for the high costs and inefficiencies in the handling and storage of Ukrainian grain.

According to an analysis by Ludwig Striewe, an agricultural economist and member of the German Advisory Group on Economic Reform in Ukraine, costs and losses for storage in Ukraine's state-owned elevators are 14%, compared with about 7% in Western Europe. Mr. Striewe also noted that farmers received only 40% of the real market value of their grain because of these high costs and losses.

Reformers hope continued privatiza-tion and economic restructuring will alleviate these problems, and a few "hopeful signs" have emerged, according to officials with the Ukraine Agro-Monopolies Privatization Project, sponsored by the U.S. Agency for International Development and managed by the U.S.-based consulting company Price Waterhouse Coopers.

A secondary market for enterprise shares already has developed, enabling private investors to accumulate a ma-jority shareholding; these investors then should be in position to improve equipment, facilities and management operations. Even enterprises that remain under Khlib Ukrainy ownership are exerting independence over storage, grading, pricing and transportation decisions, fostering competition among enterprises.

Despite recent progress, project officials note several issues that remain to be resolved. The overseas investment necessary to maximize Ukraine's potential will not materialize unless the state agrees to full privatization, and as of early 1999, only 15 enterprises were 100% privatized. Other issues of concern include a proposal to establish an official "coordinating body for foreign and domestic markets" and the formation of private elevator "associations," which could curb competition.

Grain processing.Mill privatization also has accelerated, and nearly all flour mills have been privatized to some extent. A December 14 article in Business magazine noted that just one large mill and "bread factory" in Sevastopol remained fully owned by the state. Officially, 63 out of 163 flour mill/grain processing enterprises are now privatized at 70%, compared with about 20 officially private mills in 1997.

These statistics overlook the literally hundreds of small, private mills and processing facilities that have been established in the past year alone. In L'viv oblast, for example, 250 private flour mills reportedly are in operation, although most are quite small. Despite their size, Business magazine reported that the smaller, more flexible mills and bakeries are becoming serious competitors of the large, Soviet-legacy milling giants that previously dominated the Ukrainian industry.

This trend has received a boost from a large enterprise that sells "mini-mills" to private farmers, agricultural cooperatives and former collective farms throughout Ukraine. The customer base for these mini-mills has grown with restructuring, and they are now quite popular, particularly because the price has dropped to U.S.$30,000 from U.S. $50,000.

The country's largest mill by far is Kyivmlin, which consists of four milling plants in the city of Kyiv. Flour production capacity and output are unknown, but the facility employs 859 workers; data from Ukraine showed recent annual revenues of 25,995,000 hryvnia, or about U.S.$6.8 million at current exchange rates.

The government recently transferred its shares in Kyivmlin to the city administration. The action was opposed by the cooperative that had been leasing the operation for the last nine years and by the State Property Fund because the city of Kyiv will receive the money when the mill is privatized. But the Ukrainian association of bakers and macaroni makers supported the transfer because they hoped the new owners would be more responsive to their needs. Current management is appealing the decision to the president and the parliament.

Ukraine has seen the construction of a few greenfield storage/processing facilities financed by Western investors. One example is the Kyiv Atlantic Ukraine plant in Kyiv oblast, a modern and clean storage/feed mill facility that emphasizes speed, flexibility, turnover and throughput. The plant can handle 100 rail cars of grain a day versus the 10- to 15-car rate at the average Ukraine facility.

The average annual per capita consumption of bread products is estimated at 125 kilograms, and consumers are extremely price sensitive. In 1996, the price of bread increased 50%, and even accounting for inflation, the real increase in the price of bread was nearly 25%. Bread prices in Ukraine stabilized during 1997, with the annual absolute price increase ranging from 2% to 4%.

Rising bread prices have forced changes in consumption patterns. Although consumers have increased bread intake as living standards and meat consumption have dropped, total use is down as the traditional feeding of bread to animals has declined.

Data

Production

Consumption

Exports

Imports

(1,000 tonnes)

Wheat

14,900

14,200

2,100

100

Barley

5,900

5,900

715

0

Wheat flour

6,794

n/a

n/a

n/a

1998-99 marketing year, except 1991 calendar year for wheat flour

 

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