Actual Agribusiness: opportunities and problematic issues
The Article was published in the Legal Newspaper, number (31-32)
Author: Moiseienko Maksym. Senior Lawyer at Colares Law Firm.
In the state budget of 2018, in comparison with the previous year, the support of the agrarian sector has increased considerably - up to 6.3 billion UAH. For comparison, in the state budget of 2017, support for the agrarian sector was set at 0.3 billion UAH.
So, in 2018 in the agro-sector was directed:
• 945 million UAH for compensation of interest rates on loans (partial compensation of the cost of agricultural machinery and equipment of domestic production);
• 1 billion UAH in support of farms;
• 4 billion UAH for livestock financing (1.7 billion UAH as a subsidy for keeping livestock; 300 million UAH for the purchase of pedigree animals;
• 2 billion UAH for compensation of interest rates on loans to livestock owners and biosafety).
• 300 million UAH in support of gardening.
Partial compensation of the cost of agricultural machinery and equipment of domestic production
According to the resolution of the Cabinet of Ministers of Ukraine dated 01.03.2017 №130 “On Approval of the Procedure for Using the Funds provided in the State Budget for Partial Compensation of the Cost of Agricultural Machinery and Equipment of Domestic Production”, it was defined the mechanism for using the funds provided for in the state budget under the program “Financial Support for Agricultural Producers” under the direction of “Partial Compensation of the Cost of Agricultural Machinery and Equipment of Domestic Production”. The above-mentioned resolution states that the Ministry of Agrarian Policy is the key spending unit of budget funds and the responsible executor of the budget program.
The list of machinery and equipment, the cost of which is partially compensated by budget funds (hereinafter - the List), is formed by a commission formed by the Ministry of Economic Development and Trade of Ukraine. This List is placed in public on the official website of the Ministry of Agrarian Policy.
In accordance with the above-mentioned resolution of the Cabinet of Ministers of Ukraine (dated 01.03.2017, number 130), in order to receive partial compensation, agricultural producers shall submit to the state bank or bank in whose authorized capital 75% and more shares belong to the state through which the purchase of machinery and equipment has been made, applications and confirmation documents and, in the case of compliance with the criteria, receive compensation in accordance with the established procedure. Applications for partial compensation of the cost of machinery and equipment purchased before December 1 of the current year shall be submitted before December 5 of the current year. Applications for partial compensation of the cost of machinery and equipment purchased by December of 1 of the current year will be submitted before March 1 of the following year.
Financial support for the development of farms
Resolution of the CMU dated 07.02.2018 № 106 “On Approval of the Procedure for Using the Funds Envisaged in the State Budget to Provide Financial Support to the Development of Farms” determines the mechanism for using funds provided for in the state budget under the program “Financial Support for the Development of Farms”.
The aforementioned Procedure establishes that the Ministry of Agrarian Policy of Ukraine is the spending unit of budget funds. Financial support is provided to recipients in the following areas:
• partial compensation of the cost of purchased seeds from the seed entities of agricultural plants of domestic selection;
• partial compensation of expenses related to the provision of agricultural advisory services;
• financial support of agricultural servicing cooperatives;
• partial compensation of the cost of purchased agricultural machinery and equipment of domestic production.
In order to receive financial support in certain directions, the recipients shall submit to the state bank or bank in whose authorized capital 75% or more shares belong to the state signing with the Ministry of Agrarian Policy the Memorandum on the general principles of cooperation, application and supporting documents, in accordance with the Procedure approved by the resolution dated 07.02 .2018 р. № 106.
State support to the livestock sector
Resolution of the Cabinet of Ministers of Ukraine No. 107 dated 07.02.2018 “On Approval of the Procedure for Using the Funds provided in the State Budget to Support the Livestock Sector”, determines the mechanism for using funds provided by the Ministry of Agrarian Policy in the state budget under the program “State Support to the Livestock Sector”.
Thus, the Ministry of Agrarian Policy of Ukraine has been identified as the key spending unit of budget funds and responsible executor of the budget program, while the structural subdivisions of regional state administrations are determined as the spending units of budget funds of the lower level, which provide functions for agro-industrial development issues.
Budget funds are directed to state support in the following areas:
• partial compensation of the interest rate on bank loans involved in covering the costs associated with the implementation of activities in the following sectors: sheep breeding, goat breeding, beekeeping, animal husbandry, rabbit breeding, silkworm and aquaculture (hereinafter referred to as Compensation of interest);
• partial compensation of the cost of construction and reconstruction of livestock farms and complexes, milking rooms, agricultural processing companies in terms of costs financed by bank loans (hereinafter - Compensation of the cost of facilities financed by bank loans);
• a special budget subsidy for keeping cows of milk, milk and meat and meat production (hereinafter - a Subsidy for keeping cows);
• a special budget subsidy for young-stock breeding of cattle born in private households (hereinafter - a Subsidy for young-stock);
• partial reimbursement of the cost of purchased for further reproduction of breeding animals, namely heifers, bred heifers, dairy cows, dairy and meat production, pigs and muttons, sheep breeders, rams, lobsters and semen of bovine and embryos of cattle, which have a breeding (genetic) value (hereinafter - Partial reimbursement of the cost of breeding animals, semen and embryos);
• partial reimbursement of the cost of construction and reconstruction of livestock farms and complexes, milking rooms, agricultural processing enterprises (hereinafter referred to as Partial reimbursement of the cost of the facilities).
Compensation of interest, the cost of facilities financed by bank loans, a subsidy for keeping cows, a subsidy for young-stock animals, a partial reimbursement of the cost of breeding animals, semen and embryos, and a partial reimbursement of the cost of the facilities is carried out in accordance with the applications of the business entities, corresponding bodies designated in accordance with the Procedure approved by the CMU Resolution No. 107 dated 07.02.2018.
Reduced prices for loans in the agro-industrial complex
In addition, in 2018, by the decision of the Cabinet of Ministers of Ukraine dated February 07, 2018, No. 254, amendments were introduced to the Procedure for using funds provided in the state budget to financially support measures in the agro-industrial complex by reducing the cost of loans, which established that partial compensation of interest rates on borrowed funds in national currency bank loans are paid to borrowers who have net income (revenue) from the sale of products (goods, works, services) for the last year to 20 million UAH.
The aforementioned Procedure establishes that the structural subdivisions of regional state administrations are determined as the spending units of budget funds, which provide functions for agro-industrial development issues. And, compensation is granted on a competitive basis to the business entities of the agro-industrial complex - to legal entities, irrespective of the organizational-legal form and form of ownership, and to individuals-entrepreneurs for accrued and paid in the current year interest for using credit funds under concluded Loan Agreements.
Practical issues of implementation of state agricultural sector support programs
According to various data for the first half of 2018, agrarian producers have mastered only about 10% - 15% of the anticipated 6.3 billion UAH of state support (Although the reception of applications for the corresponding programs is currently ongoing).
It should be noted that the most effective way is to reduce the cost of domestic agricultural machinery. But the support of small farms obviously boosts.
The primary reason is the complexity of bureaucratic procedures when making support. Among others, it should also be noted that small farmers do not have financial reporting; due to this many have difficulty in using credit resources. In addition, banks do not work with farms less than 500 hectares. One of the reasons is that there are farms in Ukraine that do not trust state authorities and therefore do not use state support.
Problematic issues of agribusiness
Prolongation of Land Lease Agreements
Actual remain the problematic issues of prolongation of Land Lease Agreements. At present, a significant number of Land Lease Agreements in Ukraine are challenged by parties and third parties. So, in order to prevent such situations, and in particular disputes over prolongation of agreements, Tenants and Landlords need to carefully approach the issues of developing appropriate contractual structures and mechanisms for notification of prolongation of Land Lease Agreements, including in state registration authorities, which will prevent the emergence of "double registration" of such agreements and to avoid possible misappropriation of land assets by leased agribusinesses.
Unfortunately, this question remains operative. According to the media, in 2017 there were about 70 episodes of seizure of assets of agricultural (farms) farms. In addition, there is also a widespread scheme for establishing control over the land plots of farms, which are leased, by creating intruders of business entities with similar names and subsequent "unlawful" repossession of Land Lease Agreements with owners, by misleading the latter.
Therefore, all owners of agribusiness need to take measures that will minimize the risk of attack on business. First of all, it concerns the creation of reliable holding and contractual structures, drafting of statutory documents, implementation of effective personnel policy, organization of security services, protection of document circulation, etc.
The tax is also relevant. At the “National Agroforum. Taxes. Finances. Law”, which took place on December 7, 2017 in Kyiv city, the Head of the Hepartment for the transfer pricing examination of the Audit Department of the State Fiscal Service of Ukraine Mykola Mishyn **, reported that about 51 inspections on controlled operations were initiated by SFS of Ukraine in 2015-2017, and almost half of them in the field of export of agricultural products.
Also problematic issues related to VAT taxation are still relevant, in the first place it concerns the registration of tax invoices, periodically incorrect functioning of the single tax invoice registry, and confirmation of transactions with primary documents and correction of errors in previous reporting periods.
In the Ukrainian economy, the agro-sector has become the determining factor in the growth of Ukrainian exports. So, according to the results of 2017, the share of agricultural sector in Ukrainian exports has already exceeded 40%. Therefore, taking into account the issues raised today, the need to reform the agro-sector and improve existing regulatory procedures are extremely important for the country's future.
* Information is provided in accordance with the Law of Ukraine “On the State Budget of Ukraine” for 2018 dated 07.12.2017 No. 2246-VIII;
** according to the information of web-portal ua.interfax.com.ua/news/press-release/