INSTITUTIONAL
ENVIRONMENT FOR FINANCIAL PROVISION OF SMALL AGRICULTURAL BUSINESS ENTITIES OF
UKRAINE
Nataliia
Vdovenko
National
University of Life and Environmental Sciences of Ukraine, Ukraine
E-mail: nata0409@gmail.com
Alyona
Piven
Kharkiv
Petro Vasilenko National Technical University of Agriculture, Ukraine
E-mail: alenapiven2017@gmail.com
Oksana
Radchenko
National
Scientific Center "Institute of Agrarian Economics", Ukraine
E-mail: oxanarad@ukr.net
Ihor
Sinenok
National
University of Life and Environmental Sciences of Ukraine, Ukraine
E-mail: igor.sinenok@ukr.net
Solomiya
Voskobiinyk
Stepan
Gzhytskyi National University of Veterinary Medicine and Biotechnologies, Ukraine
E-mail: solo2530@ukr.net
Submission: 8/14/2020
Revision: 8/26/2020
Accept: 9/08/2020
ABSTRACT
The purpose of the study is to assess the institutional environment and determine the need for financing small agricultural businesses in Ukraine in order to facilitate access to financial resources in accordance with the need. The information base of the study is the regulatory and legal framework of state support for the agricultural industry, analytical studies of information agencies, data from the State Statistics Service of Ukraine and Ministry for Development of Economy, Trade and Agriculture of Ukraine. The data on the planned and actual indicators of budget expenditures for agricultural development were obtained on the basis of an analysis of the reports posted on the official website of the State Budget of Ukraine. The study determined the market capacity by financing the activities of small agricultural enterprises by sources and state support. An attempt has been made to outline the technology for a comprehensive assessment of the need for financing peasant and small farms in Ukraine through determining the capacity of financing the industry. As a result, it was established that the annual demand for resources for this type of entrepreneurship is at least UAH 370 billion, and in the near future it will grow at least UAH 26.5 billion annually. Particular attention is paid to the areas of micro crediting and state support for the development of small businesses in rural areas. The practical significance of the study lies in the fact that the implementation of the results of research work allows the implementation of technological support for the formation of a financing system for small agricultural entrepreneurship. This is necessary for the technical justification of state programs for the development of small business, strategies for the development of rural areas, state regulation of the development of the agricultural sector.
Keywords: Institutional environment; Small agricultural entrepreneurship; Financial resources; Funding capacity; Rural Development Fund; State regulation and support; Microcredit; Ukraine
1.
INTRODUCTION
The stabilization and development of
the Ukrainian economy depends on increasing the social activity of the
population, by involving it in the sphere of entrepreneurial activity. The
niche occupied by the subjects of small agricultural business (small and
micro-enterprises) is quite capacious. Small agricultural entrepreneurship
(hereinafter referred to as MAP) forms the economic basis for life in rural
areas: employment, income, local food markets, payments to local budgets,
contributions to maintain rural infrastructure.
It has a significant interest in
environmental protection and sustainable development, a more responsible use of
natural resources, and provides society with significant benefits. Thanks to
him, a variety of forms of management, farming systems, the use of landscapes,
the preservation of traditional technologies and agricultural knowledge,
culture and folk traditions are ensured.
The study is based on conceptual
ideas about: the importance of the activities of private peasant and small
farms for sustainable rural development of Ukraine; dependence of the
efficiency of small agricultural business on the organization, implementation
of regulation and management by the state and the market, primarily financial
and credit; the need to define and substantiate the theoretical and
methodological foundations, due theoretical and technological support for a
comprehensive assessment of the process of financing small businesses for
scientifically grounded and optimal formation of its system
2.
METHODOLOGY
The methodological research toolkit
involves the use of methods that contribute to the study of the conceptual and
categorical apparatus, the analysis of the state of financing as a component of
the financial market, as expected, it will allow formulating conclusions and
proposals for the development of a financing system for small agricultural
businesses. The research is based on a systematic method of understanding the
processes of financing the MAP, the features of their integration into market
relations, participation in the development of the economy.
In the course of the study, a set of
methods was used: logical analysis of scientific literary sources, synthesis,
generalization - to determine and substantiate the theoretical and
methodological foundations, criteria for assessing the state of funding;
comparative analysis - to study and compare foreign and domestic practical
experience on the problem of researching financing of farmers; analysis,
synthesis, design - to develop a supply-demand balance of financial resources
of the agricultural sector; systematization methods, modelling - for the
development of a theoretical model for building a financing system, a system of
indicators and indicators for its assessment and monitoring; scientific generalization
- to formulate conclusions.
The key points of the methodology in
terms of analysing the needs of the amount of funding are: research of the
state of the industry in which small business operates (synthesis of
agricultural and rural development), the process of its formation,
determination of the place and role of research subjects in ensuring food
security and employment in rural areas, compliance with activities requirements
of legislation in this area, diversification of activities; in terms of recommendations
for the development of the financing system: taking into account the presence
of a small agricultural business of its own niche in the market, the
competitiveness of their goods (works / services), the level of economic
autonomy; in terms of the quality of management at all levels of the formation
of the financing system: indicators of financial and economic activity and
their dynamics (the size of equity capital and assets of micro, small and
medium-sized enterprises in agricultural business, capital structure,
profitability); in terms of realizing the economic and social potential for the
development of rural areas in the niche of small agricultural entrepreneurship:
research on the implementation of support for research subjects through government,
regional and local programs, taking into account the requirements of the
Concept (2017) and the Strategy for the Development of Agriculture (2012; 2014)
on the prospects for the development of small agricultural entrepreneurship.
Determination
of sources and volumes of consumption and supply of financial resources is
based on the analysis of cash flows of the industry and MAP, financial
statements of business entities, data from a sample survey of small enterprises
by the State Statistics Service of Ukraine (2020), methodological tools
recommended by the Ministry of Finance of Ukraine to determine the level of
economic security, etc.
Determination of real and potential
needs is based on the construction of a balance of supply and demand of resources
for small agricultural entrepreneurship, formed on the basis of the procedure
for analysing the environment, is aimed at forming a scheme for the movement of
resources to support the development of small agricultural entrepreneurship, is
of a computational and recommendatory nature.
Regulatory framework. The Law on the
Development and State Support of Small and Medium-Sized Businesses in Ukraine,
the Law on Farming; The Law on Personal Farming, the Law on State Support of
Agriculture, the Concept for the Development of Farms and Agricultural
Cooperation for 2018-2020, the Strategy for the Development of Small and
Medium-Sized Businesses in Ukraine, the draft program of activities of the
Rural Development Fund (2020), etc.
3. Literature review
Business in agriculture is carried
out according to general principles, but the production technology is based on
the use of natural resources. Therefore, it generates a certain relationship
between the state, landowners and entrepreneurs about the distribution,
appropriation and use of the income received.
The support of the agricultural
sector through a financing mechanism is considered by many researchers, its
foundations were formed by LUPENKO (2018), MALIK (2020), SABLUK (2012),
DEMYANENKO (2014), their scientific school: TULUSH (2020; 2018), RADCHENKO
(2020), SEMENYSHENA (2020), KROPIVKO (2016) and other researchers ZBARSKY
(2017), OLEINIK (2015), GRUBINKO (2015) and suchlike. The basic methodological
foundations of financing have already been formed, but modern problems require
scientific substantiation. A significant role in the development of the
mechanism is played by the works of OLEINIK (2014), who investigated conceptual
approaches to building a microcrediting system for the agricultural sector of
the economy and financing farms and households in rural areas of Ukraine. BECHKO,
BARABASH and NATALICH (2017) also worked on the problem. Possible directions
for improving state support for credit provision of agricultural enterprises
were investigated by GRUBINKO (2015). The issue of financing MAP farms is
relevant from the point of view of stabilization and development of the
Ukrainian economy, which depends on increasing the social activity of the
population, by involving it in the sphere of entrepreneurial activity.
KIRILENKO, IVCHENKO (2016) analysed the role of
small and small farms, as well as personal peasant farms in the national
economy, proposed a number of measures to create appropriate conditions that
will stimulate the development of small family farms, including specific bills
to improve the legislative framework and programs to which attention should be
paid to improve financial support from the state.
KROPIVKO (2016) proved that the transformation
of household plots is possible only by: turning them into deeply specialized
farms, stimulating the specialization of labour, improving the culture of
farming and animal husbandry, by improving the system of agricultural education
and science in the direction of focusing on scientific, consulting and
information services for family forms agricultural activities, as well as
changes in emphasis in the implementation of state agricultural policy.
ZBARSKY, ALEKSEEVA (2017) substantiated the need
to increase the influence of market instruments and the state on the
profitability and efficiency of the household plots. It has been established
that without state support and identification in legislation, among other forms
of management, household plots cannot form the necessary institutional
mechanisms for a developed market and a socially oriented rural economy.
NEMISH et al. (2020) considered the dependence
of income from the management of household plots on factors: social - available
able-bodied members of the economy, the number of family members, age of
owners, social status, degree of manifestation of economic activity; economic -
directions of production activities, the size of land use, productivity,
livestock productivity, the availability of its own equipment and the necessary
means of production in the economy, the possibility of selling surplus
products.
MALIK, SHPIKULYAK and MAMCHUR (2020) substantiated that the institutionalization of family farming into a market economy as an organizational and legal form, in addition to the growth of economic and social standards of the rural population, ensures the implementation of the Sustainable Development Goals of Ukraine until 2030.
The study of the balance of
financial resources of the agricultural sector is presented by RADCHENKO (2018;
2018 a; 2018 b; 2020; 2020 a; 2020 b; 2020 c; 2020d), TULUSH (2020), KOVAL (2019).
The authors managed to generalize theoretical approaches to determining the
financial potential of the agricultural sector, substantiate its structure and
components in the light of sustainable development strategies. The composition
and dynamics of the financial potential of the agricultural sector of Ukraine
are considered, its definition is given as the ability of the sector to ensure
sustainable development due to the totality of available real and potential
resources, as well as the conditions created by the state for their formation,
distribution and redistribution. The scientific tasks of strengthening the
typology of financial potential in terms of components: resources of financial-credit
and budget systems, resources of enterprises, investment have been solved.
Foreign researchers also analyze the specifics
of financing small agricultural businesses, in particular REZAEI-MOGHADDAM and IZADI
(2019), NAKKU, et al. (2020), ZIN and
IBRAHIM (2020), KAN, et al. (2018), DOBEŠ, et al. (2017) who and others.
REZAEI-MOGHADDAM and
IZADI (2019) вased on the results, management skills,
knowledge management, business environment, self-managed training, and
government policies are predictors of changes of entrepreneurship development
in quick-impact enterprises. Additionally, factor analysis indicated five
obstacles in development of entrepreneurship in quick-impact enterprises,
including financial problems, market orientation, weakness of information, poor
and inappropriate business environment and weakness in supportive government
policies.
NAKKU, et al.
(2020) the
study finds preliminary evidence that both nonfinancial and financial GSPs have
moderating effects that can magnify the impact of the EO dimensions of
innovativeness, risk taking, autonomy, and competitive aggressiveness on
performance. These findings offer guidance to small business policymakers in
developing economies.
ZIN and IBRAHIM
(2020) found that all
entrepreneurial initiatives such as entrepreneurship training, marketing
support, business networking and financial support were significantly related
to business performance.
KAN et al.
(2018) enhancing the entrepreneurial spirit of the entrepreneur, which is one
of the factors of production in the optimization of agriculture, requires more
support from the sector in this regard and more support for entrepreneurs.
Support for small businesses and businesses that do not have sufficient funding
production through grants alone will not push this support beyond social
assistance.
DOBEŠ et al. (2017) it was
revealed that entrepreneurs were very critical to the state's role in the
business environment; in particular, 60% of respondents disagree with the fact
that the state creates favourable conditions for business in the Czech
Republic. It was proved that the line of business of enterprises correlates
with perception of the state's role within the business environment. The
research into perception of a governmental financial support was proved to be
dependent on a company size which may signal the support of certain company
sizes and influencing their competitiveness.
DENDUP et al. (2018) оoverall, entrepreneurs’ motivation and pecs
contributed 20.7% to the success of saes in Bhutan. We recommend relevant
authorities to continue supporting entrepreneurship education and training
programs to motivate and build entrepreneurial competencies.
Thus, the development of small business and its
financing is necessary in order to generalize the best European experience for
Ukraine. The aim
of this study is to analyse the state of the institutional environment and
sources for financial support small agricultural enterprises of Ukraine.
The
purpose of the study is to
assess the institutional environment and determine the need for financing small
agricultural businesses in Ukraine in order to facilitate access to financial
resources in accordance with the need.
4.
RESULTS AND DISCUSSION
Ukrainian legislation determines
that entrepreneurial activity is conducted on the basis of private, communal,
state and mixed forms of land ownership. The most common forms of enterprises
in rural areas, in accordance with the Decree of the President of Ukraine
"On urgent measures to accelerate the reform of the agrarian sector of the
economy" dated 3.12.1999, No 1529/99, are: private (private-leased)
enterprises, farms, business associations, agricultural cooperatives, as well
as other business entities based on private property.
According to Part 3 of Article 55 of
the Economic Code of Ukraine, business entities, depending on the number of
employees and income from any activity for the year, may belong to small
businesses, including micro-businesses.
According to the SFSU Letter (2016),
small businesses are individuals-entrepreneurs and legal entities-economic
entities of any organizational and legal form and form of ownership, in which
the average number of employees for the reporting period (calendar year) does
not exceed 50 people and the annual income from any activity does not exceeds
the equivalent of €10 million.
Micro entrepreneurs are
individuals-entrepreneurs and legal entities-business entities of any
organizational and legal form and form of ownership, in which the average
number of employees for the reporting period (calendar year) does not exceed 10
people and the annual income from any activity does not exceed an amount
equivalent to 2 million euros.
Practically small agricultural
entrepreneurship in the countryside includes farms and peasant farms, which are
family-labour associations of rural residents for the purpose of agricultural
production, based on personal labour aimed at generating income and private
subsidiary farms of citizens based on the private property of citizens and
their personal labour and labour of their family members brings additional
profit.
According to the Concept for the
Development of Farms and Agricultural Cooperation for 2018-2020 (2017),
important factors in the long-term sustainability of the development of the
agricultural sector of the economy in terms of economic and social indicators
are the economic, organizational and sectoral structure, in which the main
place is occupied by small forms of entrepreneurship.
That is, small agricultural
entrepreneurship should be considered as a special type of economic activity
aimed at effective activities and profits based on independent initiative,
responsibility and original entrepreneurial idea of agricultural producers and
rural residents (Tulush, 2018).
According to the State Statistics
Service, there are 40.7 thousand private farms in Ukraine (of which 20%, or 8.1
thousand with an area of up to 10 hectares) and 4,200,000. Personal peasant
farms with an average land area of 1.5 hectares ensure the production of more
than 50% of gross agricultural products, including 97% of potatoes, 82-86% of
vegetables, fruits and berries, almost 80% of milk, more than 40% of meat.
By satisfying the domestic market's
demand for labour-intensive and commercially unattractive food products for
other producers, they also allow enterprises in the corporate sector to
increase the production of export-oriented agricultural products.
Farming and personal peasant
holdings are a place of employment for 80% of people employed in agriculture.
In agriculture, the number of small businesses in the structure of their total
number is 17% for small and 12% for micro enterprises (Table 1).
The niche occupied by the subjects
of small agricultural business (small and micro-enterprises) is quite
capacious.
Table 1: Number of
agricultural enterprises in Ukraine by type of economic activity with
distribution to large, medium, small and micro enterprises in 2018
|
|
Total |
large |
medium |
small |
of which micro- |
||||
|
units |
% |
units |
% |
units |
% |
units |
% |
||
|
Total |
355877 |
446 |
0.1 |
16057 |
4.5 |
339374 |
95.4 |
292772 |
82.3 |
|
Agriculture |
50504 |
23 |
0.0 |
2298 |
4.6 |
48183 |
95.4 |
42907 |
85.05 |
Source: authors' calculations based on: State
Statistics Service of Ukraine (http://ukrstat.gov.ua)
According to the studies carried out
on the dynamics and structure of the value added of agricultural enterprises
(Table 2), it was found that in 2012 their share was 28.1%, and in 2018 -
already 37.7%, and the created added value increased by 3.4 times.
Reproduction costs in 2011 were 25%,
in 2016 - 20%. This is a calculated value for balancing financial resources, as
well as the actual indicator of gross value added. The difference between the
added value of products and the cost of its reproduction ultimately reflects
net income (a positive value in balance sheet calculations); there has been a
significant increase since 2014.
Table 2: Dynamics and structure of value added
of agricultural enterprises in Ukraine for 2012-2018, UAH million
|
Years |
large |
medium |
small |
of which micro- |
||||
|
million UAH |
% |
million UAH |
% |
million UAH |
% |
million UAH |
% |
|
|
2012 |
10491.4 |
14.1 |
43007.4 |
57.8 |
20908.4 |
28.1 |
4910.9 |
6.6 |
|
2013 |
9893.1 |
14.2 |
34207.9 |
49.1 |
25568.9 |
36.7 |
7803.0 |
11.2 |
|
2014 |
15683.0 |
12.5 |
59846.4 |
47.7 |
49934.7 |
39.8 |
20325.2 |
16.2 |
|
2015 |
32361.9 |
17.6 |
94143.7 |
51.2 |
57368.8 |
31.2 |
15445.4 |
8.4 |
|
2016 |
19814.9 |
10.6 |
96644.4 |
51.7 |
70473.8 |
37.7 |
21871.2 |
11.7 |
|
2017 |
8780.8 |
4.5 |
91920.6 |
47.0 |
94746.4 |
48.5 |
37310.3 |
19.1 |
|
2018 |
5912.9 |
2.9 |
105103.4 |
52.1 |
90921.5 |
45.0 |
31055.3 |
15.4 |
Source: authors' calculations based on: State
Statistics Service of Ukraine (http://ukrstat.gov.ua)
The volume of consumed financial
resources of the industry, including small and micro enterprises for the period
2013-2018, is shown in Figure 1.
Figure 1: Dynamics
of financial resources for the activities of agricultural, including small and
micro-enterprises in Ukraine for 2013-2018, UAH million; %
Source: authors' calculations based on: State
Statistics Service of Ukraine (http://ukrstat.gov.ua)
On average, for the year
under consideration, the resources of the agricultural sector amounted to UAH
803.68 billion and for small enterprises - UAH 364.80 billion, or 45.5%.
According to the trend line, estimated until 2016, in the next five years, the
annual increase in financial resources of small agricultural enterprises should
be UAH 26.5 billion, with an R2 reliability of 75%.
However, this trend is not
confirmed in practice, since in 2016 there was an inflationary increase in
resources, and in subsequent years, through the efforts of the Government to
coordinate the exchange rate of the national currency, this factor became less
significant.
The upward trend in the
share of added value and financial resources of the IAP not least of all
depends on the government's policy aimed at supporting it, primarily in the
agricultural sector, manifests itself in direct and indirect government
support, credit programs, international assistance, etc.
Table 3 shows the
structure of the balance of agricultural enterprises, with the help of which
the added value for the analysed period is formed.
If in 2012 non-current assets of
small enterprises accounted for 45.3% of the balance sheet, then in 2018 the
assets accounted only 37.1%. The share of current assets in
accordance with increased in 2018 to 43.4%.
Table 3: Structure of
the balance of agricultural enterprises in Ukraine, %
|
Years |
Assets |
Liabilities |
||||||||
|
irreversible |
reversible |
capital |
Long-term obligation |
current obligation |
||||||
|
total (to balance) |
small (to all) |
total (to balance) |
small (to all) |
total (to balance) |
small (to all) |
total (to balance) |
small (to all) |
total (to balance) |
small (to all) |
|
|
2012 |
36.8 |
45.3 |
63.2 |
54.7 |
53.6 |
56.8 |
12.7 |
15.0 |
33.7 |
28.1 |
|
2013 |
37.7 |
39.6 |
62.3 |
60.4 |
50.1 |
52.0 |
13.7 |
27.9 |
36.2 |
35.4 |
|
2014 |
31.5 |
31.3 |
68.5 |
68.7 |
42.0 |
42.5 |
16.1 |
27.4 |
41.9 |
44.8 |
|
2015 |
25.0 |
21.1 |
75.0 |
78.9 |
40.2 |
36.0 |
9.9 |
30.9 |
49.9 |
55.9 |
|
2016 |
14.2 |
34.8 |
85.8 |
92.0 |
24.1 |
13.9 |
4.0 |
27.8 |
71.9 |
84.2 |
|
2017 |
29.8 |
38.1 |
70.1 |
38.0 |
47.8 |
37.2 |
6.0 |
28.8 |
45.6 |
39.6 |
|
2018 |
33.4 |
37.1 |
66.5 |
43.4 |
49.0 |
34.9 |
8.0 |
51.2 |
42.5 |
46.9 |
Source: authors' calculations based on: State
Statistics Service of Ukraine (http://ukrstat.gov.ua)
The share of equity capital
decreased from 56.8% to 34.9%, long-term liabilities increased from 15% to
51.2%, current liabilities increased from 28.1% to 46.9%. Mostly, financial
resources were generated from outside sources, but the share of short-term
loans does not exceed 16% of current liabilities for this period. If for large
agricultural enterprises for 2013-2018 the share of loans is stable at 12% in
the structure of current liabilities, for medium - from 15% in 2013 it
decreased to 10% in 2018, then for small ones the decline is significant - from
13% in 2013 to 4% in 2018.
At the same time, the sources of
financial resources used are not reflected in the profitability indicators.
According to the Table 4, if in 2013 the profitability of microenterprises was
7%, then the same in 2018.
Table 4: Profitability of agricultural enterprises
in Ukraine by their size, %
|
Years |
Operating
activities |
All activities |
||||||
|
large |
medium |
small |
of which micro- |
large |
medium |
small |
of which micro- |
|
|
2012 |
29.7 |
19.6 |
22.7 |
19.4 |
24.6 |
13.1 |
16.7 |
13.6 |
|
2013 |
20.0 |
8.4 |
12.9 |
13.0 |
15.3 |
6.3 |
8.1 |
7.0 |
|
2014 |
23.8 |
20.8 |
18.5 |
14.4 |
14.9 |
6.9 |
9.8 |
6.6 |
|
2015 |
54.3 |
37.8 |
41.4 |
36.2 |
45.4 |
23.4 |
32.4 |
30.9 |
|
2016 |
29.3 |
30.4 |
37.2 |
33.0 |
24.7 |
21.6 |
30.0 |
26.5 |
|
2017 |
24.6 |
20.8 |
24.1 |
24.2 |
20.5 |
15.4 |
15.6 |
7.7 |
|
2018 |
22.9 |
17.1 |
18.6 |
16.4 |
21.2 |
14.3 |
10.9 |
7.9 |
Source: authors' calculations based on: State
Statistics Service of Ukraine (http://ukrstat.gov.ua)
Ensuring profitable production of
agricultural products depends on the price environment and curbing the growth
of production costs, including inflation.
The legislation provides for a
number of measures that directly relate to the support of small farms:
·
attracting
small and self-employed forms of farming (personal peasant farms) to the
organized agricultural market;
·
legislative
consolidation of the family type of farming (family farms) with the provision
of such farms with the status of agricultural producers;
·
development
of small and family farms on the basis of their cooperation and association;
reform of state support;
·
state
support for farms, small and medium-sized agricultural producers by providing
soft loans (including long-term loans to finance projects aimed at the
production (with possible subsequent processing) of agricultural products, and
to reduce the cost of insurance payments (premiums) under agricultural
insurance contracts from the risk of death
The proposals are consistent with
the areas of cooperation in the field of agriculture and rural development
within the framework of the Association Agreement between Ukraine and the EU
(Section V "Economic and sectoral cooperation", Chapter 17
"Agriculture and Rural Development", Art. 403, art.404) (2014).
According to the law "On the
development and state support of small and medium-sized enterprises in Ukraine"
(2012), financial state support is provided at the expense of state and local
budgets. Among the main types of financial state support, clause 4 provides for
the provision of loans for starting and running your own business. There are
also several directions and support programs for MAP in the State budget.
Accordingly, in recent years, MAPs had
very limited access to short-term loans to replenish working capital and had
virtually no access to long-term financing. The reasons for these problems are
varied: from lack of found to the unstable state policy, the main of which are
shown in Table 5.
An analysis of the financial
resources of agricultural enterprises indicates that they mainly work at their
own expense, the share of which is still insufficient for expanded
reproduction. The limitedness of its own financial resources necessitates
expanded access to external resources, the development of both banking and
partner forms of lending.
Table 5: Problems
of access of small agricultural businesses of Ukraine to financial resources
|
Institutional |
Organizational |
|
|
Unfavourable institutional environment: - lack of understanding of the social and
economic importance of small agricultural producers for agricultural and
rural development; - non-observance of the declared principle of
equality of various forms of management |
Economic discrimination: - disunity of the MAP, inability to influence
the formation of state policy; - limited access to effective mechanisms of
state support for the agricultural sector; - difficult access to the markets of finance,
land and material and technical resources, product sales |
|
|
Lack of full-fledged legislative support for
rural development: - lack of state, regional and local rural
development programs; - uncertainty of the legal status of family
forms of agricultural farming; - legislative unresolved issues of employment
and social protection of members of the OCG |
Organizational restrictions: - low efficiency of management and production; - insufficient level of professional
accounting and financial literacy of farmers; - lack of collateral assets; - impossibility of using land as security |
|
|
Limited access to agricultural financing,
through: - lack of creditworthy borrowers, especially
in the segment of microcredits: - general macroeconomic and financial risks, - risks of the agricultural sector; - risks of small agricultural business |
Socio-demographic restrictions: - low educational and professional level of
the rural population; - depletion of the labour potential of rural
areas; - social isolation of the village, lack of
programs for the formation of human and social capital; - lack of motivation of young people for
family management |
|
|
Restricting the possibility of providing
agricultural financing to the MAP of the non-banking system: - credit unions; - pledge certificates; - promissory notes; - low level of demand for agricultural
insurance |
||
Source: according
to technical documents of the Ministry of Economic Development (2020)
Against the background of reasons constraining
the development of small business, such as the underdeveloped legislation, the
uncertain nature of the tax burden, the absence of an effective state mechanism
for promoting the development of small business, and the limitation of
technical means, the issue of access to financial resources, including credit,
is especially acute.
For the period 2017-2019 State
support programs for agricultural producers have been relatively constant. Now
programs are in place: support for activities in the agro-industrial complex by
reducing the cost of loans; support for the development of farms; support for
the development of hop growing, the establishment of young orchards, vineyards
and berry fields; providing loans to farms; support for the livestock industry,
storage and processing of agricultural products, aquaculture; financial support
for agricultural producers.
Within the framework of these programs,
targeted areas of support are targeted, for example, financial support for
farmers provides for the following measures: partial compensation for the cost
of seeds, compensation for expenses related to the provided agricultural
advisory services, support for agricultural service cooperatives, partial
compensation for the cost of purchased agricultural machinery and equipment of
domestic production, budget subsidies per unit of cultivated land (1 hectare) -
again and to other farms, cheaper loans, repayment of accounts payable. The
state of financing of state support for the development of enterprises in the agricultural
sector at the expense of the general fund of the state budget is shown in
Table. 6.
Table 6: The state
of financing of state support for the development of the agricultural sector of
Ukraine, UAH million
|
Program / direction |
Fact 2018 |
Plan 2019 |
Fact 2019 |
|
266 |
127 |
104 |
|
|
2801230 Financial support
for the development of farms |
203 |
800 |
230 |
|
2801350 State support for
the development of hop growing, the establishment of young orchards,
vineyards and berry fields |
394 |
400 |
120 |
|
2801460 Providing loans to
farms |
- |
200 |
140 |
|
2801540 State support for
the livestock industry, storage and processing of agricultural products,
aquaculture |
2390 |
3500 |
1600 |
|
2801580 Financial support
for agricultural producers |
912 |
882 |
640 |
|
Together: |
4166 |
5909 |
2835 |
Source: according
to technical documents of the Ministry of Economic Development (2020)
In
2019, UAH 5.9 billion is provided for state support programs for the agro-industrial
complex, which is UAH 1.7 billion more than in 2018. As of 11/13/2019,
financing of state support programs was completed at 48% of the annual plan and
60% of the plan for the period.
The
state of funding, as in 2018, is unsatisfactory. Despite the fact that there
are clearly not enough funds planned, even within the minimum 1% of the gross
output of the industry initiated by the former Ministry of Agrarian Policy, the
allocated funding is not being used properly. According to the given data, the
plan was fulfilled only under the program of granting loans to farms.
Agrarians
received UAH 104 million to compensate for interest on loans, the largest
amounts of which were received by agrarians of Vinnitsa, Cherkassy and Kiev
regions. Concessional loans were attracted in the amount of more than UAH 4
billion.
For
the most significant program, state support for the animal husbandry industry,
storage and processing of agricultural products, aquaculture (fish farming),
the budget for 2019 provides UAH 350 million, completed by 46% (UAH
2,390,000,000 was spent in 2018). In the livestock sector, according to the
Ministry, the acceptance of documents for receiving subsidies for the
maintenance of cows, which received more than 1000 applications, has been
completed, the total amount of funding for which is set at UAH 700.0 million.
The subsidy is provided twice a year and 885 economic entities have already
used it for keeping 307 thousand cows.
During
this period, UAH 640 million was allocated as part of the program of partial
compensation from the state budget for the cost of purchased agricultural
machinery and equipment of domestic production. If earlier the program included
less than 800 items of machinery and equipment, now there are more than 12.5 thousand.
By September 2019, almost 3 thousand agricultural producers took advantage of
the program, who purchased 5104 units of machinery and equipment with a total
value of UAH 1.6 billion.
In
addition, for 2019, in accordance with the adopted regional programs to support
the development of enterprises in the agro-industrial complex, it is planned to
allocate funds in the amount of UAH 262.5 million, which is UAH 54.6 million
more than in 2018 (UAH 207.9 million). For the first quarter of this year, UAH 34.3
million was actually financed, only 13.1% of the need.
Thus,
the presented state programs for supporting agriculture at the end of 2019 are
characterized by significant underfunding. Although the manager of budgetary
funds guarantees that by the end of the year the situation with state support
will be resolved, the budget will receive the necessary revenues and the
programs announced by the government will be financed, state support not only
in terms of volumes, directions, but also in terms of delivery does not fulfil
its main function - maintaining the level effective demand of consumers of
products and prevention of profitableness of producers.
For
2020, the government retains funding for small producers, because the focus of
the state agricultural policy is precisely on supporting small and medium-sized
businesses. Also the government provided for reimbursement of loans for
livestock and the purchase of agricultural land. The state budget for 2020
provides for the amount of UAH 4.2 billion to support the agro-industrial
complex, of which UAH 1.2 billion is expected to be allocated for a program to
reduce the cost of loans. In particular, the program includes: compensation of
interest on loans for agricultural enterprises with an annual turnover of up to
UAH 20 million.
According
to the relevant ministry, this direction will not have restrictions on the
targeted use of loans. The state will compensate up to 1.5% of the NBU discount
rate, the final cost of a loan for an agricultural producer will not exceed 5%;
compensation of interest on loans attracted for the development of animal
husbandry, including "niche" areas - sheep breeding, goat breeding,
beekeeping, fur farming and others. It is assumed that the amount of loans
should not exceed UAH 10-15 million; compensation of interest on loans
attracted for the purchase of agricultural land. The direction will apply to
agricultural producers of various forms of management. The amount of
compensation interest will not exceed UAH 5 million per year. Today in Ukraine
there are 38 authorized banks, through which the program of state support for
agricultural producers is being implemented.
The
Ministry of Economic Development, Trade and Agriculture of Ukraine has approved
the distribution of funds in the amount of UAH 124.9 million to compensate
agricultural entities for actually paid interest on loans for January-June
2020. As of now, the funds have been directed to authorized banks, which, in
turn, will direct them to manufacturers. The funds will be received by 696
borrowers who have applied to authorized banks.
The
total volume of loans attracted by enterprises is UAH 5 billion, of which
concessional (subject to compensation) - UAH 3.4 billion, including: a) by
types of loans: short-term - UAH 1.3 billion (37.9%); medium-term - UAH 1.5
billion (44%); long-term - UAH 0.6 billion (18.1%); c) by the types of
activities of borrowers: livestock industry - UAH 0.7 billion (19.6%); other
industries - UAH 2.7 billion (80.4%). The average interest rates of banks, under
which economic entities of the agro-industrial complex attracted loans,
amounted to 14-16% per annum. Out of the total number of authorized banks that
signed a Memorandum on general principles of cooperation with the Ministry of
Economy (33 banks), 19 banks took part in providing compensation for loans.
Summing
up the stated statistical data on the resources and results of the activities
of the Ministry of Aviation Industry of Ukraine over the past 5 years, it can
be predicted that in the next 3 years for the annual growth of the
profitability of all activities by 5 pp. it is necessary to simultaneously
increase financial resources by UAH 8 billion (Fig. 2),
with a very low correlation
significance by the power function R = 0.6364.
The
reliability of the forecast made on the basis of Excel instruments, however, is
not high. If we consider that the real financial resources of the MAP in 2018
amounted to UAH 410 billion, then their growth over a three-year period is
almost two times possible only on the basis of speculative financial factors.
The higher the reliability of the forecast and balance of the financial
potential of the MAP of Ukraine requires a more perfect mathematical apparatus,
which is the object of further research.
Figure 2: Dynamics
of financial resources and profitability of all activities of small
agricultural enterprises of Ukraine in 2013-2018, thousand UAH; %
Source: authors' calculations based on: State
Statistics Service of Ukraine. Retrieved from: http://ukrstat.gov.ua
The
Agrarian Committee of Ukraine presented the program of activities of the Fund
for the Development of Rural Areas (2020), the funds of which in the amount of
UAH 2.50 billion will be focused on such important areas as: infrastructure,
Internet, energy conservation, education and medicine in rural areas, rural
tourism. In addition, through the Fund, state programs for the development of
small and medium-sized agricultural producers will be implemented, in
particular, in the field of organic production.
The
fund is designed to finance the implementation of state programs for the
development of small and medium agricultural producers, in particular, in the
field of organic production. Development of small and medium-sized
entrepreneurship in the agricultural sector and related industries, in
particular, green tourism. The sources for the formation of the Fund for the
Development of Rural Areas are planned: deductions from the special fund of the
State Budget - 1%; special fund of the local budget - deductions of 20% from
the lease of land plots of state and municipal property; income from
international technical assistance programs; in the absence of a source of
filling the special fund of local budgets, programs and projects are
co-financed at the level of at least 10% from the local budget.
The
revenues of the special fund of the State Budget in 2020 amount to UAH 119
billion, of which 1% is UAH 1.190 billion should go to the Rural Development
Fund. Also, 1 million 633 thousand hectares of leased land of state and
municipal property, of which 20% - 326.6 thousand hectares with an average cost
of 3667 UAH/ha will give another UAH 1,198 billion.
In
the absence of a source of filling, 60% of the funds are planned to be
distributed taking into account the area of the community (proposal of the
committee), 40% - taking into account the number of registered business
entities in the State Agrarian Register.
To
accelerate the growth of the agro-industrial complex and increase the inflow of
foreign currency into the country, it is necessary to return the summer state
support of at least 1-2% of the country's GDP. Therefore, it is necessary to
correlate funds of state support for the agricultural sector and the
development of rural areas.
For
developed countries, including almost all European countries, a typical model
is that within the executive branch of government there are separate ministries
with the primary function of promoting sustainable rural development. Thus, the
proposal is not sufficiently substantiated and requires further development.
At
the panel discussion "Land Market 2020" within the framework of GRAIN
UKRAINE (2020), it was emphasized that farms have a preferential taxation
system, compensation for ERUs, and will not be taxed per hectare. It is
expected that this will contribute to the development of small and medium-sized
entrepreneurship in rural areas in the agrarian sector and related industries.
Against
the background of the reasons hindering the development of small business, such
as the underdeveloped legislation, the uncertain nature of the tax burden, the
absence of an effective state mechanism for promoting the development of small
business, the issue of access to financial resources, including credit, is
especially acute.
Organization
and management of the process of business development in rural areas is
possible by supporting its financial support, one of the manifestations of
which is the microcredit system. Microcredit is one of the elements of
financing, which involves the provision of a small amount of debt by a bank or
other financial institution. This is a specific form of lending to small
businesses, which is: limited in size, does not require collateral, is provided
for a short period (up to a year), to entrepreneurs who do not have a credit
history. Actually, micro crediting appeared in developing countries as
assistance to the poor rural population, but in the CIS, micro crediting
immediately acquired the features of supporting small businesses. In Ukraine,
these processes since 2010 were accompanied by the support of the government
and international credit organizations (Radchenko,
2020).
Analysis
of the dynamics of the volume of short-term loans (Fig. 3) shows a certain
growth. With a reliability of 67%, it can be predicted that their annual growth
in the coming years will amount to UAH 4 billion, with an actual average annual
volume of UAH 30 billion for 2013-2018.
Figure 3: Dynamics of the volume of short-term
bank loans for agricultural enterprises in 2013-2018, thousand UAH
Source: authors' calculations based on: State
Statistics Service of Ukraine. Retrieved from: http://ukrstat.gov.ua
The
most active loans are attracted by medium-sized enterprises, while the share of
small and micro-enterprises is very insignificant. And if the low level of
loans for large enterprises can be explained by sufficient collateral with
their own funds or attracting long-term loans, including through foreign banks,
small and micro-enterprises face the difficulty of obtaining bank loans.
An
analysis of the financial condition of small businesses shows that they mainly
work at their own expense, the share of which is still insufficient for
expanded reproduction. The positive dynamics of attracting loans to small and micro-enterprises
was predicted with great certainty, even in the existing conditions and
resources. Thus, the annual increase in volumes for small businesses is
possible within the range of UAH 1.7 billion (y = 1696.9x + 4136.2 R 2 =
0.905), and for micro - UAH 1.1 billion for the next three years (y = 1108, 8x
+ 1625.1 R 2 = 0.8818).
For the development of small
business in rural areas, micro crediting can act as a guaranteed state source
of attracting credit resources, the conditions of which are small, even
entrepreneurs without start-up capital can get it, it does not require a credit
history, as well as loan security.
Since the guarantor, as expected,
will be the state, then, first of all, the loan funds are directed to socially
significant projects, support of certain strategically important industries,
types of products, primarily organic, stimulation of self-employment, expansion
of the network of services for the rural population, business for export, in
terms of its cooperation in order to improve quality, certification and
standard batches of products and the like.
5. CONCLUSIONS
Measures
for the implementation of the MAP financing system are developed on the basis
of analysis and assessment of the current and future state of the development
of small agricultural entrepreneurship and its financial support. At the first
stage, it is advisable to determine the priority sectors and the most prepared
enterprises that are able to attract additional financial resources. The policy
in the field of formation of the financing system should be aimed at creating
conditions for expanded access to external financing, encouraging the creation
and support of the development of small agricultural entrepreneurship.
1. In
order to activate the formation of a financing system, it is necessary at the
state level to support MAP enterprises by compensating part of their costs
through targeted lending and other sources of financing, stimulating the market
to issue such loans, and creating an appropriate state guarantee fund.
Activities
are carried out with such a degree of detail that the developers of the
financing system consider appropriate, taking into account the priority areas
of activity of small agricultural enterprises, proposals of the domestic and
foreign markets.
2. When
determining the timing of the implementation of measures to create a financing
system for the MAP, it is necessary to take into account that this system is
being developed for several years and should provide for periodic reporting on
the progress of its implementation, as well as the formation of indicators for
the monitoring system of information on the service market, funding entities,
the effectiveness of the use of funds and their impact rural development.
3. Financial,
credit and investment support for the implementation and improvement of systems
for expanding access to financing for the Ministry of Aviation Industry of
Ukraine is the most important task of forming the system. Measures are being
developed to introduce mechanisms to simplify the access of enterprises to
financial and credit resources and measures to develop the infrastructure of
financial and credit support for systems implementation facilities, including
specialized banking and non-bank financial institutions, investment companies
and funds, regional credit guarantee institutions, microcredit funds, credit
unions.
4. The
task of the developers of the financing system is to combine the financial
capabilities of all suppliers of resources to expand access to sources of financing
for small agricultural enterprises, to create an optimal mechanism for using
financial and investment opportunities, to attract foreign loans and
investments. This includes the following main activities: provision of loans by
commercial banks and other financial institutions, including microcredit;
creation of regional financial funds for the development and implementation of
microcredit systems, expanding their provision of consulting and financial
support to small agricultural businesses; attracting domestic and foreign
investments to the region's economy; formation of a list and data bank of
investors (domestic, foreign, sponsorship and donor organizations, private
investors).
5. On the
formation of the MAP financing system, it is necessary to note the main
expected results and the effectiveness of the implementation and implementation
of the main measures: an increase in the number of small agricultural
enterprises using state support (units); quality indicators of financing (form
of provision of resources, term of service, conditions of provision, service);
creation of new jobs (units) and achievement of the planned indicators of
employment of the rural population of the region (persons); economic effect
(growth in the volume of proceeds from the sale of competitive products (goods,
works, services) (percent), the share of small business in the GDP of
agriculture; dynamics of changes in indicators of the state of the financial
potential of small agricultural enterprises (annual) (units, percent), the
volume of attracted investments, which are formed through the financing system.
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