"Soybean noose": how much farmers and the state are losing
Andrii Dykun, Chairman of Ukrainian Agri Council
Agrarians have been trying to get rid of noose which saddled them with so-called "soybean amendments" by the previous authorities at the instigation of agroholdings lobbyists for almost 2.5 years. “Soybean amendments” implementation for small and medium-size farmers has resulted in billions of losses while agroholdings receive excessive profit.
Roads blocking, protests under the walls of the Verkhovna Rada of Ukraine, hundreds of working groups, TV interviews, press conferences, numerous appeals to the President, work with people’s deputies of Ukraine and relevant ministers – with all these options Ukrainian Agri Council together with other designated associations called for attention to discriminating “soybean amendments”. Even the President - Volodymyr Zelenskyy himself gave directions to the Government and to the Verkhovna Rada to resolve this problem and ensure passage of the bill. And now the bill (№1210) which abolishes notorious amendments is adopted, but so far there has been no progress... The bill has been waiting for signature of the head of the State for several months and farmers during this time continue to bear losses.
Farmers are in hostage situation
Why it is so? Who benefits from keeping small and medium-size farmers hostage by thriving on their work? In order to understand this, you need to attack the problem at the grass-roots.
December 2017, the Parliament of the latest convocation presented a “surprise” to farmers: during the intersessional plenary meeting at night, people’s deputies voted for changes to the Tax Code, according to which VAT refunds for oilseed crops export were cancelled. Such changes were motivated by the need to stimulate oilseed processing within the country in order the added value to remain in the State.
The response to such changes was indignation of traders and farmers. Under the initiative of UAC farmers blocked the roads in several regions and made protests under the walls of the Parliament demanding the complete abolition of the “soybean amendments” and export soybeans VAT return by the State.
However, agroholding lobbyists were proactive. Under the semblance of acquiescence to farmers the bill № 7403-d was “extended” in the Verkhovna Rada according to which the state will return VAT to the producers who export soybeans independently.
But the problem is that small and medium-size farmers are unable to export their crops themselves: their volumes are not enough to form an export consignment and they are not equipped with the logistical capacity to ship it to the port. Large export consignments were formed by traders who purchased soybeans from farmers and by selling it abroad, received VAT refunds. “Soybean amendments” destroyed such business processes.
As a result, farmers in the domestic market had to sell their crops to processing plants at reduced prices. And the owners of these processing plants export their own soybeans at the world prices and receive VAT refunds.
Thus, small and medium-size farmers who cultivate up to 75% of agricultural land in the country have become hostages to a bunch of agroholdings that dictate their rules. It is definitely in their interest that “soybean amendments” remain in effect discriminating small and medium-size farmers. And agroholdings’ representatives are spreading the rumours that abolition of these norms will lead to big budget losses, which is obvious nonsense and manipulation. The truth is quite the opposite: the effect of “soybean amendments” leads to losses in the agricultural sector and the State.
“Soybean amendments” is a disgraceful phenomenon in Ukrainian politics and economy and is a testament how minorities’ lobbying interests can turn into injustice and discrimination against the majority of those who provide food security and stimulate foreign exchange inflows.
Billions of losses and uncertainty
During the first months of the 2018-2019 marketing year the difference between export prices and domestic purchasing prices for soybeans increased by an average of 9 percentage points compared to the corresponding period of the previous year and amounted to 19%. Farmers' net losses were about $ 20 per tonne of sold soybeans. In general, in the latest marketing year farmers lost over UAH 1.5 billion due to reduced purchase prices.
Therefore, the imposed restrictions on soybeans export have a negative economic effect and it is confirmed by the statistics. In particular, during 2017-2019 soybean acreage reduced by more than 400,000 hectares, resulting in a loss of about 0.96 million tonnes as of 2019. This production falldown far exceeds soybean processing growth by 0.59 million tonnes. In total soybean production and processing industry lost about UAH 5.5-7 billion of added value. This also means reduction of added value per hectare of cultivated land and agricultural GDP. Reduction of soybean residues at the beginning of 2020 (as of 01.01.2020 - 0.927 million tons), compared to the latest year indicators (as of 01.01.2019 - 1.018 million tons), will not increase its processing compared to 2019 (1,47 million tons). And if we take into account that in the current year additional reduction of soybeans planting acreage is expected by 20%, it means that this year we will see not only soybean production reduction but processing reduction as well.
Farmers are in the active sowing campaign now. Uncertainties with the “soybean amendments” overcomplicate their work: soybean and rapeseed producers are not able to receive necessary funding to conduct field work and enter into long-term forward contracts. Inactivity in this direction together with impending global economic crisis threatens to deepen the crisis in the agrarian sector, which will be undoubtedly reflected in overall GDP. That is why farmers over and over again appeal to the authorities to make the issue of abolishing “soybean amendments” final by signing the bill № 1210 or initiating the urgent adoption of the bill № 2446, which resume VAT refunds for oilseeds export. Thus, in this agricultural sector direction justice will be proceed and all market players will have an opportunity to work under the same conditions.