Kutovyi: There will be bread in Ukraine, don’t worry / Photo from UNIAN

Minister of Agrarian Policy Kutovyi: We want to delay lifting moratorium on land sales

Minister of Agriculture and Food of Ukraine Taras Kutovyi has told in an exclusive interview with UNIAN of his forecast for this year’s harvest, explained what the land lease market is, what the procedure will be of aid distribution among the farmers, and also why Ukrspirt wants to put into operation all of its plants.

Kutovyi: There will be bread in Ukraine, don’t worry / Photo from UNIAN

Let's start off with the question that bothers most of the Ukrainians today - buckwheat priced at UAH 50 per kilo. Why is it getting more expensive and what is the forecast for the next season?

The Ministry is already dealing with the leftovers and forecasts. I think that there may be not only the aspects related with the harvest yield but also something related to the retail chains.

As for next year, we have held a meeting with representatives of all the regions and I think we can balance the situation. We will provide support to farmers who grow buckwheat to form excess reserves, which will affect the price accordingly. Now the situation is not ideal, but it is also somewhat stable. We have sown more this year than in the previous one, and we will increase the crops. Next year, there will be a much better situation.

The ministry officials have repeatedly said that to ensure food security, grain exports should not exceed 36 million tonnes. Now the exports have totaled 36.5 million tonnes, and experts predict 39.9 million tonnes before July. Will there be anything left for the Ukrainian consumers?

Neither the ministry nor the traders want to bring the situation to the point when the government will see that it needs to impose centralized regulation of sales. We meet with key traders regularly to agree on the volumes.

Today we have an understanding, so there will be bread in Ukraine, don’t worry. This year we see a nice weather, and winter crops made it well through the winter period. All producers see that the harvest will be good enough, so they can afford to reduce a little their residue plans.

You voiced plans to abandon the idea to lift a moratorium on land sales only limiting it to the market of land lease rights. What is this tool about?

This is an opportunity to transfer to someone the right to lease a land share. For example, a farmer wants to have 100-150 hectares for cultivation. So he goes around the village, signing lease deals. If he wants to go out of business, he is able to sell the right to lease these hectares to other entrepreneurs. Lease rights are not just about land. It is being cultivated, the resourses are invested, fertilizers are spread, all of which creates additional costs.

In addition, this farmer will be able to pledge his lease rights and get a loan. While lending to farmers 500 hectares limited.

Plus, the farmer will be able to quit the business. Today, if he rents the land for 49 years paying significant money, say UAH 100,000-200,000, and tomorrow he decides he wants to withdraw from the market, it will be quite difficult to accomplish because he will need to re-sign these lease contracts for another person or transfer corporate rights of his company. But with this innovation, he can just sell the lease rights.

Why not just launch the land market?

Because we often hear statements that as soon as the land market opens, people will sell their shares for a pittance. There is a certain social rejection of this market. At the same time, having started the turnover of lease rights, we will understand how much land will cost after we decide to lift the moratorium on land sales. When we see these figures, the people will also form their attitude to the possibility of land sales. Then, perhaps, concerns about low prices will be dispelled. In addition, holders of shares through the sale of lease rights will actually get significant revenues while maintaining ownership.

Experts say that we already have the tool that you describe working in Ukraine – the perpetual lease. Is it so?

If it is so, then why does not work in banks? “Working” means you can come to the bank and realize your right to a loan secured by the right to lease the land. As of now, as far as I know, no one has done it yet.

If I have a land share, I’ll probably want to be aware of who leases my land. Will I be able to trace this?

Why do you care? Your land is right here, you know where it is. And if you do not receive lease payments, you terminate the contract, and no lease rights will apply any longer. In addition, if the land is being improperly handled and destroyed – the result should be the same.

Will the owner of the plot take part in the resale of lease rights?

They shouldn’t. If all terms of the agreement are being fulfilled, it has nothing to do with them.

If there is a situation when lease rights are resold, gradually get more expensive and become very profitable, it so appears that the owner will have no profit out of it, won’t he?

No one's forcing anyone to sign a contract for 49 years. Sign it for 15 years if you believe that these rights will become more expensive with time. Sign it for five years…. It’s always up to the owner.

But you have noted very correctly the basic idea that the price will increase. Then a competitive environment will form. Someone will want to revise the terms of these contracts, increase bids because they will want to be a stable partner for owners.

Even if the owner of the land plot today receives lease payments only, the one who cultivates their land will be able, along with the growing rates on lease rights to get a bigger secured loan to invest in cultivation, build quality agricultural facilities. All people living in the area will benefit.

Is the opportunity considered now to launch the land market only for individuals?

This should be the next stage. Personally, I see no significant risk behind this option if we limit the amount of land for each individual. But for now, we must focus on the steps that will improve efficiency and yet not be difficult for the public to grasp. Lease rights turnover and the pledge of lease rights are among such steps.

You have already announced the allocation of direct assistance to farmers worth UAH 450 million from the state budget this year. How will the money be distributed?

I believe that these should be the decisions to be taken by the farmer community. This distribution mechanism of assistance distribution will make it impossible for people who do not work with land but only sublease it get the funds. People tell me: "If you support farmers with up to 500 ha of land, tomorrow the bigger players will break their businesses down to smaller pieces." And that is the response to this argument. People in associations understand who really works and how they do it, and who doesn’t work at all.

But how can subjectivity be avoided? What if farmers choose to help their conditional family friend Vasyl instead of distributing the funds honestly?

Do you think the level of subjectivity will be lower if the decision is taken by a regional council representative or a fiscal official? Of course, there will be some very difficult battles at the meetings of farmers. But these farmers value their work and the work of the neighbors, so they will be able to organize themselves around effective solutions. At least, I believe they can.

When will the money be available to farmers?

The decision to increase assistance will be taken by Parliament within the framework of budgetary amendments. We expect that by the second half of 2016, we will already have gotten such support. I would really wish it happened before this autumn. Then people will be able to meet and take decisions so that they had some outcome before field work in spring.

You have already spoken of about UAH 3 billion on direct assistance for next year. Former Minister Pavlenko requested from the Ministry of Finance UAH 4 billion, but he did not get the money – there was just no money in the budget. Why do you think there will be money next year?

That’s because we want to change the approach, in which we get the money. We do not want to talk about the amount. Specifically, we are now talking about 1% of sales of agricultural products. Last year it was UAH 550 billion. If we request 1%, it is UAH 5.5 billion, and it is completely justified, because in Europe it is 10% and in the U.S. it’s  20%. We want to have this 1% fixed in a separate law to support the industry. We spoke with the prime minister and finance minister and anticipate this possibility in the budget resolution.

It turns out that the finance ministry will no longer be able to say: "Sorry, we can’t provide a UAH 5 bln assistance because we have no money"?

Of course, this is not a secured article. But we will no longer need to explain what is this UAH 5 billion or UAH 300 million about. There will be no such debate.

The State Property Fund said recently that strategic enterprises can only be sold in a package. You're talking about plans to sell parts of the state-owned companies. How do you want to organize these sales?

I say that this is one of the mechanisms. Will it work? We should try. It's a good thing when people buy part of the company, receive an obligation to achieve certain financial results, and only then get another part. But the market will show us what to do. If we try to introduce this mechanism and it is not successful, then will try another option.

What is the idea of the phased sale?

My idea is to get the maximum benefit for the State. That is, if investors buy part of the company, then the next portion of shares will be purchased at a higher price, and the final one will be even more expensive. That is the way for the State to get more money. But, of course, this will only work if the company is very attractive.

And what is the motivation for the investors? They invest money and labor in the business but don’t know for sure whether they will be able to buy the whole of it...

If you fulfill the conditions, the obligations arise for the State. If someone has not fulfilled obligations, then you go to court and everything is done by a court ruling.

But in terms of whether the investor is interested or not – everything is quite simple: there is competition. If they want to buy a company, they can impose their terms. But if there is a line of 15 buyers, I say: "Guys, we only sell this way: 25% immediately, then 50% at another price, and then the remaining 25% - yet at another price. Yes, it is more expensive, but here I have a waiting list." However, if no agrees and the auction does not take place, then we think about how to change the approach to this trade.

Recently you said that you would recommend all plants of Ukrspirt be launched into operation. Who needs so much alcohol?

What do you mean by “so much alcohol"? This doesn’t mean that all of Ukrspirt’s companies are effective. The most effective enterprises will be effective both in production and sales. For example, if we consider cluster privatization, the clusters will compete with each other, and the ones which are more effective will have higher return – just like in any other business. If I have a low initial cost of alcohol, the quality is good, then I have an opportunity to sell more. If someone has no clue how to do this cheaper and better, they will incur losses. And it's not only about alcohol, it’s also about bioethanol and non-freezing mixtures.

But this way they will be accumulating losses for the State...

What is the nature of these losses? Now the rent is being paid, people are paid minimum wage, and the company is idle. So if tomorrow it produces at least something, even if it’s not super effective, it’s still better. In the meantime, the equipment is getting obsolete and the plants are getting shattered... But we want the alcohol which is now circulating on the black market to make it to to the open market, and this will answer your question on who needs it. Let it be sold openly. We see that there is enough demand for alcohol sold in black schemes.

That kind of alcohol is always cheaper...

But the price is still high. Sometimes people tell me: "Tomorrow you re-open all the plants, and they will start producing alcohol for the black market." Well, if all the plants begin to pour such alcohol, then its price will fall, right? This means that the return on this “black” alcohol will decrease. When the director of the plant, or whoever is involved in this, understands that, instead of 50% per annum they get 10%, and they also can be imprisoned, they might think, whether they need to continue with this. Unless the return is super high, the number of those who wish to fight against the police, the prosecutors and the fiscals will not be so great. I think that the fact that the plants will operate will regulate the market. Other methods will not be ineffective. Well, of course, there is also privatization.

At what stage is the draft law on privatization of Ukrspirt?

It is completed. Everything is hot and ready, including the bills on land circulation and on support of agribusiness. The only thing we need is for Ukrspirt to be excluded from the list of companies banned from privatization. Last time, the Parliament couldn’t even find 180 votes for UKrspirt’s exclusion from this list. So we will continue with our work at the ministry, but it’s up to the Verkhovna Rada to take the decision.

Alina Zymenko (UNIAN)

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