Сheaper fertilizers and fruit for the Ukrainians: Changes to come with the deregulation of the agricultural sector

In early November, the Verkhovna Rada of Ukraine is expected to consider a draft law on deregulation in the agricultural sector. The legislation is especially important in light of the impending establishment of the Deep and Comprehensive Free Trade Area, which will accompany the EU-Ukraine Association agreement entering into force on January 1, 2016.

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Simplifying the business climate is key to maximising Ukraine’s benefit from the economic association with the EU because this will increase the competitiveness of Ukrainian producers and attract investors. There are approximately 650 different permits in Ukraine today, of which 110 are in the agricultural sector. The draft law N2558A would abolish or limit 22 of these, in many cases in accordance with EU norms.

The simplification of the registration process for fertilizer could have a particularly pronounced effect. This primarily concerns ammonium nitrate, which is especially popular among Ukrainian farmers.

Ammonium nitrate is registered by a number of Ukrainian and Russian producers. No one else is allowed to supply it to the domestic market,” says Maryan Zablotsky, one of the co-authors of the draft law and the head of the Centre for Effective Legislation. “80% of the prime cost of this fertilizer is gas, which is, of course, Russian gas. Because of the monopoly in Ukraine, ammonium nitrate is sold on the domestic market at a price 55% higher than the price abroad. Ammonium nitrate is listed in the draft law along with 15 other fertilizers, the registration of which should be eliminated (they are also not included in the EU list of fertilizers requiring registration). This will open up the market for importers. Currently, the need for registration is an insurmountable barrier to those who might enter the market because it takes an average 500 days and hundreds hryvnias to complete the registration process.

If this barrier is eliminated, Ukrainian farmers will save US $220-260 million per year. Right now, the majority of this sum goes to the Russian company, Gazprom, which provides the gaz necessary to produce the fertilizers.

Another example of changes proposed in the draft law is the abolition of quarantine import permits.

Ukraine imports about 15% of its total consumption of food products. We import goods that are not harvested or produced here: cocoa beans, oranges, tangerines, bananas, etc. With the abolition of the quarantine permit, these types of imports should become cheaper because of lower costs for importers,” says Marian Zablotsky.

Quarantine import permits are particularly burdensome because they are issued individually for concrete border crossing point. As a result, importers often have to buy five documents at once to avoid downtime. Needless to say, this system is a potential source of corruption. The process is currently justified by the need to provisionally ban the import of products to Ukraine from quarantine-affected areas of other countries. However, information exchange between customs and the state consumers’ service, as is done for the purposes of animal products, is sufficient as a safeguard. Moreover, food imports to Ukraine are accompanied by a phytosanitary certificate from the exporting country that guarantees product safety and that Ukraine, as a WTO member, must recognise.

Other norms specified in the new law are also intended to simplify the lives of manufacturers. The law will regulate the use of water for irrigation. There will be no need to have a permit to transfer feed grain and animals inside the country. The international veterinary certificate for export, which is currently mandatory, will be required only if requested by the exporter or if required by the country to which the product is sold. A seemingly ridiculous requirement for livestock breeding farms, where pedigreed status is given to the farm but not to the cows or horses, will also be eliminated.

And this is not the most nonsensical aspect of the current licensing system in the agricultural sector. It turns out that Ukraine still has to negotiate with Russia on fishing in the Black Sea. As stated in the ‘Law on fisheries, commercial fisheries and protection of aquatic biological resources’ approved in 2011,”… Protection, reproduction, and regulation of fishing of sturgeon fish species and other aquatic bioresources are done on the basis of intergovernmental agreements between Ukraine and the Russian Federation.” The State Fishing Agency cannot issue Ukrainian enterprises fishing permits without first consulting with the joint Russian-Ukrainian commission. Under the new law, this confusing wording would be replaced by the standard legislative statement that these processes are done “… with regard to the provisions of the international treaties of Ukraine.”

The draft law on agricultural business deregulation was prepared with the assistance of the EU “Improvement of food safety control in Ukraine” project. “In the EU, requirements for licenses and certification are aimed at preventing possible harm to human health, animals and plants, and protecting the economic interests of the country,” says the project’s team leader, Tony Wheale. “The permit system is not intended to interfere with or control the activities of business. The Association Agreement contains a commitment by Ukraine to establish a business environment that is compatible with the one in the EU. This draft law allows Ukraine, among other things, to achieve these goals.

Some aspects of the process of preparing the draft law are especially interesting. First, the whole process, including the work of analysts, lawyers, and advocacy serviceswas relatively small. The total annual economic benefit for Ukraine exceed project cost by over 40,000 times. Secondly, the process involved extensive consultation and discussion; all interested parties had an opportunity to make a contribution. The website of the Ministry of Agrarian Policy and Food provided a list of the 110 existing permits, and the unwanted or harmful ones among them were selected based on input from businesses. Third, the bill is supported by the three relevant institutions: the Ministry, the State Fishing Agency, and the State Food and Consumer Service. The Ukrainian government is not often willing to give businesses power, but in this case, the process was effective and civilized.

The article was published on Europeyska Pravda

Infographics on the draft law N2558A

Background

The EU “Improvement of food safety control in Ukraine” project helps in bringing Ukraine’s relevant legislation, institutional infrastructure, and state control in line with the regulatory and administrative policies and practices of the EU. The project operates in three areas: “Institutional reform and state control,” “Veterinary and food safety”, and “Information systems and risk management.” The project has a budget of €3.8 million.

For more information, visit http://www.vet.gov.ua/node/1942 or consult the project’s Facebook page https://www.facebook.com/ifssua.