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The influence of modern tools of agrifood policy on prices in Ukraine

P. Martyshev

Economy and Forecasting, 2017, issue 3, 111-123

Abstract: The influence of main agriculture policy tools on the dynamics of crop prices has been investigated. In particular, the impact of the preferential VAT regime (and its abolition), sunflower export duty, preferential loans and the Memorandum of Understanding with grain exporters on the level of farm-gate prices and incomes of agricultural producers were determined. Recommendations regarding each policy tool were provided. In particular, the main effect of reforming the preferential VAT regime for agricultural producers, which provides the return of the tax on grain exports, is the growth of domestic prices for the value of "non-returned VAT", as well as increased specialization of production, which is harmful to the formation of sustainable agriculture. The author believes that the establishment of export duty on sunflower seeds contributed to the growth of oil-processing complex capacities, which resulted in high demand and excessively high prices for raw materials inside the country. In addition, given the absence of legislative regulation of crop rotation norms, an increase of planted areas under sunflower leads to the depletion of fertile soils and reduction of the national agricultural potential. The annual signing of the Memorandum of Understanding with grain exporters increases the opacity of the market because the document regulates export volumes for each marketing year. However, the Memorandum is a more progressive instrument for market regulation and, for example, export quotas; so market participants have time to adapt to changing market conditions. Also in the publication was analyzed the effect of programs to reduce the cost of loans for agricultural producers. In our opinion, the compensation of interest rates is an extremely important tool because cheap loans increase the liquidity of agricultural enterprises. Thus, farmers can sell their products throughout the marketing year, avoiding mass sales after harvesting, which leads to the drop of domestic prices.

Date: 2017
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Handle: RePEc:eip:journl:y:2017:i:3:p:111-123