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World Bank Document Report No. 11880-UA Ukraine Foodand AgricultureSector Review June30, 1994 Public Disclosure Authorized Natural ResourceManagement Division Country Department IV Europe and Central Asia Region FOR OFFICIALUSE ONLY Public Disclosure Authorized U~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Public Disclosure Authorized .t ~~~~~~~~~~~~~~~i F'ILE COPY Report No: 11880 UA Type: SEC Document of the World Bank Public Disclosure Authorized Ttis do. umenthas a rectrictedldistribution and may be used by recipients only in the perforrmanceof their official dutivs. Its contents may not otherwise be di,slozed without WN'orldRank authorization CURRENCY EQUIVALENTS Currency unit = karbovanets, abbrev. krb US$1 = krb 47,000 (as of June 15, 1994) WEIGHTS AND MEASURES feed unit oat unit ha hectare kW kilowatt oat unit 600 grams of starch q quintal t metric ton ABBREVIATIONS Al system of artificial insemination BU Bank of Ukraine (fornerly Ukrainian Agricultural Bank) EBRD European Bank for Reconstruction and Development EU European Union FSU Former Soviet Union GDP gross domestic product GOU Government of Ukraine IFC International Finance Corporation IFFI Association of Inter-Farm Feed Products Industries MEP Ministry for Environmental Protection MFER Ministry of Foreign Economic Relations MFP Ministry of Forest Production MPP Mass Privatization Program MOAF Ministry of Agriculture and Food NASULGC National Association of State Universities and Land Grant Colleges NEP New Economic Policy NMP Net Material Product SCFP State Committee for Food Processing UAAS Ukrainian Academy for Agricultural Sciences UAB Ukraine AgroBusiness (private input supplier) UKRMEDPROMNAB Agency in charge of procurement and distribution of veterinary products and vaccines. UKRPLEMOBIEDINENIE Ukrainian Livestock Selection and Breeding Association UKROPTITSEPROM Ukrainian State Poultry Enterprise UKRVETSPROMNAB Veterinary Department of MOAF USDA United States Department of Agriculture VAT Value Added Tax FOR OFFICIALUSE ONLY CONTENTS PART I: MAIN REPORT EXECUTIVE SUMMARY . ........................................... 1. MAIN FEATURES OF THE AGRICULTURAL SYSTEM ...................... 1 A. Agriculture's Role and Historical Performance .......................... 1 B. The Agricultural Resource Base ................................... 3 C. The Ukrainian Farming System ................................... 6 D. Major Agricultural Subsectors .................................... 9 E. Forestry . ................................................. 15 F. Consumption of Food and Agricultural Products ........................ 16 2. A STRATEGY FOR DEVELOPING THE FOOD SECTOR ..................... 19 A. Overall Framework for Reform .................................. 19 B. Implementation of Reform ..................................... 21 C. Securing Food Supply and Protecting the Poor During the Transition .... ...... 23 D. Social Policies in Support of the Rural Transition ....................... 24 E. Policy Agenda for a Comprehensive Reform in Ukrainian Food and Agriculture . .. 27 3. DEVELOPMENT OF A MARKET FRAMEWORK ....................... ... 31 A. Macroeconomic and Incentive Framework ............................ 31 B. International Trade and Trade Policies .............................. 43 C. Re-establishing International Trade: Agricultuaral Trade Policy ............... 48 D. Redefining the Role of Government ................................ 49 4. LAND REFORM AND THE EMERGENCE OF PRIVATE FARMING .... ......... 53 A. Current Status of Land Reform .................................. 53 B. Restructuring of Agricultural Enterprises ............................ 56 C. Emerging Independent Private Farming ............................. 60 D. Continuation of Land Reform and Farm Restructuring .................... 63 E. Agricultural Extension Services .................................. 69 5. COMPETITIVE LINKAGES FOR PRIVATIZED AGRICULTURE ................ 73 A. Agroprocessing ............................................ 73 B. Input Supply and Production Services .............................. 76 C. Wholesale and Retail Marketing .................................. 81 D. Developing a Competitive Support and Processing System ................. 83 E. The Role of Foreign Investment .................................. 86 F. Expanding Market Facilities and Services ............................ 87 G. Improving Financial Services ................................... 90 This documenthas a restricteddistribution and may be usedby recipientsonly in the performanceof their officialduties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. 6. MEASURESTO IMPROVE FARM PRODUCTIONAND EFFICIENCY .... ........ 95 A. Improvementsin Crop Production ................................ 95 B. Adjustmentsin the LivestockSector .............................. 100 C. Increasing Access to Agricultural Inputs and Productive Services .... ........ 104 D. InvestmentPriorities in the Food and AgricultureSector ................. 105 E. ModernizingHigher Education and Research ......................... 107 7. EXTERNALASSISTANCE .................. ...................... 113 A. Critical Inputs for Agricultural Production .......................... 113 B. TechnicalAssistance and InstitutionBuilding .113 C. New Investment .116 D. The Principles of a Bank AssistanceProgram .116 BOXES: E.1 A Reform Agenda .iv E.2 Proposed Schedule of AgriculturalPrice Reform and Subsidy Reduction. v 2.1 A Reform Agenda .20 3.1 Proposed Scheduleof AgriculturalPrice Reform and Subsidy Reduction .42 4.1 Forms of Restructuringfor State and CollectiveFarms .56 4.2 The Nizhni-NovgorodFarm PrivatizationModel .58 4.3 IndependentFarmer Profile .60 5.1 Structure of Ukrainian Food Industry .74 6.1 Major Agricultural Universitiesand their Faculties .108 FIGURES: 1.1 Net Material Product in 1992. 1 1.2 Average Precipitation. 4 1.3 Main Soil Groups .... ...................................... 5 1.4 Major Grain Area Development.11 1.5 Forest Species Distribution.16 1.6 Consumptionof Basic Foodstuffs.17 3.1 ConsumerSubsidy Equivalentin the FSU .32 3.2 Food Price Indices Compared to CPI .37 3.3 Ukraine Imports, 1992.44 3.4 Ukraine Exports, 1992 .45 3.5 Organizationof the Agro-IndustrialComplex .50 3.6 Ministry of Agriculture and Food .51 4.1 Distributionof Farm Land by Users . 55 4.2 Distributionof Private Farms by Size .61 4.3 Land Tenure on Private Farms .61 4.4 Structure of Productionby Farms .62 5.1 Comparison of Sales Area per 10,000 Inhabitants.82 6.1 Fertilizer Supply .96 TABLES: 1.1 Development of Agricultural Production ............................ 1 1.2 Per Capita Agricultural Production, 1989 ........................... 2 1.3 Percent Share of Soviet Agricultural Output ......................... 3 1.4 Size and Composition of Rural Population .......................... 3 1.5 Land Resources and Use, 1993 ................................. 5 1.6 Main Characteristics of Kolkhozes and Sovkhozes ..................... 7 1.7 Emerging New Farming Structure ............................... 8 1.8 Role of Private Sector in Agriculture .............................. 9 1.9 Basic Crops Cultivated . .................................... 10 1.10 Livestock Population in Numbers and Animal Units ................... 12 1.11 Production of Principal Livestock Products ......................... 13 3.1 Current Trends in State Procurement Prices ........................ 35 3.2 Food Retail Prices in State Shops in Ukraine and Russia ................ 36 3.3 Retail Prices in Indices in Ukraine .............................. 37 3.4 Distortion in Producer Prices for Selected Agricultural Product Ratios .... .... 38 3.5 Changes in Food Retail Market Structure .......................... 40 3.6 Agricultural and Food Trade .................................. 44 3.7 Major Agricultural Imports and Exports ........................... 46 4.1 Distribution of Land Used by Private Farms ........................ 54 5.1 Major Production of Food Industry .............................. 75 6.1 Indicators of Farm Mechanization ............................... 97 6.2 Comparison of Average Crop Yields ............................. 99 6.3 Livestock Performance Compared to that of Selected EU Countries .... ..... 101 6.4 Decline of Productivity in the Livestock Sector ..................... 101 6.5 Comparison of Livestock Performance ........................... 104 6.6 The Agricultural Science System .............................. 109 MAPS: IBRD #24509 IBRD #24510 PART II: STATISTICAL ANNEX PREFACE This report is based on the findings of a World Bank mission that visited Ukraine in October 1992, and reflects developmentssince then. The mission was led by Csaba Csaki and included Ezriel Brook, Ulrich Koester, Mark Lundell (Macroeconomics- Trade), Roy L. Prosterman, Zvi Lerman (Land Reform - Privatization),Oscar Honisch (Crop Production, Input Supply, Forestry), Helmar Ochs (Livestock), Lynn Engstrand (Agro-processing),Robert Vogel (Rural Financing), Chuck Antholdt (Govermnent,Research, Education, Extension)and Arndt Uhlig (InternationalAssistance). The European Bank for Reconstructionand Developmentparticipated in the review with two experts: Jork Sellschopp(Agro-processing) and Michel Reignier (Marketing and Distribution). The Green Cover report was completedin March - May 1993. It was discussed with the Governmentof Ukraine in September 1993. Major findings of the review were also presented to representativesof business and academicinstitutions, and foreign governmental and non- governmentalorganizations.
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