The government is abandoning forced purchases of grain from farmers, an Agriculture Ministry official said on Thursday. The practice, dating back to the early days of Soviet rule, has come under increasing attack in recent years from critics who have blamed it for choking off incentives for growers.
Leonid Podovanyuk, head of the ministry's economic department, said all grain purchases by the state in 1998 will be made through agricultural commodities exchanges at market prices, rather than the lower rates dictated by the mandatory state contract.
The Financial Times recently estimated that Ukrainian farmers received less than 75 percent of the world price for wheat in 1996.
The scrapping of the old system gained immediate support from Western agricultural advisers.
Peter Sochan, senior policy coordinator at the Citizens' Network, a U.S.-funded organization set up to promote private enterprise in Ukraine's agricultural sector, called the contract's abolition 'a major positive step' in agricultural reform.
Under pressure from foreign creditors to introduce market reforms in the agricultural sector, Ukraine has cut the size of the state contract over several years: last year it accounted for only 3 million tons of the 35.4 million ton grain harvest.
But despite the contract's shrinking influence on the market, experts have continued to criticize the system as damaging to private trade in grain by banning farms from closing more lucrative commercial grain deals until the state had obtained its quota of grain in a given region. In 1996, such prohibitions jeopardized $400 million in Ukrainian grain export contracts. Last year, the government went back on its promise to end the practice, eliciting fresh complaints by farmers.
Viktor Denysenko, a farmer from the Sumy Region, said Thursday he hopes the latest announcement of the state contract's demise will free him to sell his grain on both the domestic and foreign markets.
'[The state contract] was a good guaranteed sales market, but we don't need it if we don't get any money for the grain we give to the state,' Denysenko said. He said he had not been paid for the grain delivered under the state contract since 1995.
The state bread company Khlib Ukrainy, a major grain purchaser last year, refused to comment on the scrapping of the state contract or on the effect this would have on bread prices at state bakeries.
One probable effect of the state contract's abolition will be increased trading on Ukraine's sleepy agricultural commodities exchanges, said Sochan. He said deals at the exchanges, which last year saw little activity, could also become more transparent.
'But this will only happen if the buyers and the sellers have the freedom to decide what exchanges to go to, or whether to go at all,' he said.
