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Agricultural protectionism in Ukraine

November 28, 2011

Now many economists, of which I am not one, would and do claim that the EU Single Market is fairly protectionist.  The last US Congressional hearing I watched via an Internet link had three US economists telling the panel that the US was also a very protectionist market as well.  I shall of course defer to their professional assessments although I would question the extent to which they are protectionist given the rise of globalisation and the multinational which to all intents and purposes is nation-less but penetrates these domestic markets with incredible ease.

Of course Ukraine has its own interests to protect as well and one such area is agriculture.  The moratorium preventing foreigners owning agricultural land will undoubtedly be extended (again) by the current authorities to 2013 very shortly (and no doubt again after that).  Foreigners will have to continue to lease large areas of Ukrainian agricultural land as they do now for some years to come I suspect rather than own it.

I do find a recent statement from the Ukrainian President quite interesting though.  Whilst in Sumy, he stated that the State will continue to protect the domestic agricultural producers of Ukraine.  He went on to state that he foresaw, as global accessibility grows for the Ukrainian producer/exporter, that a minimum of 15% profits for grain should be a benchmark for the sector.

Clearly the Ukrainian government is keeping a close eye on this sector of Ukrainian economic activity.

How this fits within any DCFTA agreement with the EU I am not sure.  Certainly agriculture was a particularly difficult part of the negotiations, albeit overcome now by all accounts.  To be fair, agricultural policy and the CAP is also a bone of contention within the EU itself and it is their own policy so it is hardly surprising it would have been a difficult area in any DCFTA negotiations.

Maybe this statement flies directly in the face of any DCFTA with the EU.  Not being privy to the agreed text, who am I to know?  AT the very least it would seem to be a suggestion of governmental price fixing in a free market environment.  Whether it goes against the grain with the WTO is also a relevant question, although there are so many governments within the WTO slanting the fair playing field through hidden or overt subsidies to certain sectors, overtly or covertly price fixing or dumping, it is often difficult to see any relevance the WTO has at times.

There have also been recent suggestions, from amongst others the Prime Minister, that Ukraine should consider a joint grain pool with Russia and others on the Black Sea.  These rumours began in earnest after it became clear that Russia will succeed in accession to the WTO at long last.  Are we about to see Ukraine become part of some OPEC-esque grain consortium once Russian WTO membership has been achieved?

Will the 15% profit suggested by President Yanukovych become 20% after discussions with other leaders who may well enter a regional grain pool?  How transparent will such a multinational grain pool be?  It has every possibility of becoming a feeding trough for the corrupt national leaderships.

Is further State interference in the agriculture sector a good or a bad thing?  As a producer, the power of the State behind you seeking 15% profits is no bad thing until you are accurately taxed due to increased State interest in your production.

As an international consumer, what is the profit margin you accept when buying Ukrainian grain and would you feel economically threatened by an OPEC styled grain consortium?

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