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Producer support in Ukraine is variable due to strong fluctuations in market price support. The overall modest level of support disguises taxation of exported commodities and support to imported ones. The majority of producer support is provided in the most distorting forms. On aggregate, producer prices are nearly aligned with world levels, but disparities in protection across individual commodities are significant.
One third of total support to agriculture is provided for general services. Total support to agriculture places a higher burden on the overall economy today than it did in the mid-1990s.
- Producer support has been variable, with a slight tendency to increase from the low levels in the mid 1990s. Support level is moderate on aggregate, but this disguises taxation of export sectors, and protection of import sectors. The majority of support is provided in the ways that most distort production and trade.
- Ukraine’s economy was strongly affected by internal instability and the global economic crisis, necessitating recourse to international financial assistance. Budgetary austerity, rather than long term sectoral strategies drove agricultural policies in 2009 10. Budget spending targets were reduced, with some agricultural programmes receiving much less or no support.
Implementation of WTO accession commitments was another driver behind the recent policy developments. The majority of these commitments are to be reached by 2011, including substantial reductions in the tariff protection and export restrictions.
- The requirement to comply with WTO disciplines also prompted efforts to modify the procedures for some payments. Changes in the provision of the largest input subsidy were adopted that imply lower rate of subsidisation and more flexibility for producers with respect to the use of this subsidy. An intention to transform another large measure from output to per animal payment did not materialise. The efforts to shift away from distorting support are welcome, but they need to be part of a broad strategy for enhancing the sector’s competitiveness, rather than become ad hoc adjustments to specific payment procedures.
- The practice of recourse to export restrictions on the grounds of food security re-emerged when export quota on grains was imposed in late 2010. This resulted in revenue foregone in the grain sector and likely contributed to a rise in international grain prices, given Ukraine’s role as a global grain market supplier. This measure also raised concerns about its conformity with the WTO provisions.
- It remains imperative to build an effective safety net system in Ukraine to limit recourse to trade restrictions. Social goals can be more effectively addressed by targeted support than by broad-based intervention in economic activity. More generally, Ukraine continues to face a challenge of making agricultural policies more stable and more predictable.
Ukraine: OECD Producer Support Estimates (PSE)
Level and composition by support categories, 1995-2010