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Wednesday, March 14, 2018

The IMF requires Ukraine to destroy their own agricultural

IMF puts pressure on Ukraine, reminding that it should deprive the farmers of the tax benefits of 30 billion hryvnia. The IMF is sure that Ukrainian farmers will survive without state support, arguing that agriculture is not subsidized everywhere. This is a clear example of double standards policy of Washington and Brussels. Because the US and the EU give their farmers an unprecedented level of support.

The international monetary Fund had demanded that Ukraine actually destroying their own farms. It is unlikely Kiev will ignore this instruction. At least so far the Ukrainian government and the national Bank of Ukraine carried out implicitly commanded the IMF.

“This is the clearest example of double standards of Western countries. It is the EU and the USA are the countries that have provided unprecedented support to private agriculture”

One of the requirements of the Foundation is to deny tax benefits for Ukrainian agricultural producers. IMF resident representative in Ukraine Jerome Vacher at the meeting of the Verkhovna Rada Committee on agrarian policy and land relations reminded that this bill is a prerequisite of cooperation between Ukraine and the International Fund.

According to him, according to the signed Memorandum with the IMF, from 1 January 2016 absolutely all Ukrainian farmers should be deprived of preferential VAT rates, they have to pay the tax (now VAT is 20%).

Your explains the claim that, in the context of the conflict in the East of the country and negotiations with creditors on restructuring its external debt each party have to contribute to support the economy. “The contribution of agricultural sector in GDP is 10%, but only 1% of tax revenue generated by the industry. This low rate of taxes associated with the use of special regimes for VAT, which benefits only big business,” said the IMF representative. Various tax breaks for farmers are estimated to cost 30 billion USD, considered in the IMF, thinking that this is too.

The beneficial tax regime for agricultural producers operates in Ukraine since 1998. It includes a fixed agricultural tax, accumulation of the VAT funds agricultural enterprises, as well as support for livestock farms due to the transfer of VAT processing companies.

Your assured that the abolition of tax benefits for farmers supposedly will not lead to loss of their competitiveness in the global market. “There are countries in which agriculture is not subsidized at all or are subsidized only slightly. For example, Chile, New Zealand, many countries, where subsidies are lower,” said Your.

Such statements – otkrovennyi example of double standards of Western countries – the USA and EU who are the main beneficiaries of the IMF. Because the EU and the US are countries that for decades have unprecedented support for their own agriculture. Thanks to the support of the EU and the United States became the strongest agricultural players, and this fact still has not kept Washington and Brussels to abandon the subsidizing of the agrarian sector.

And to cite the example of New Zealand, which really had a complicated agrarian reform, abandoning the traditional support for the agricultural sector, is great wickedness. Because the experience of this country does not repeated. This would be worth to say that New Zealand has increased the level of social assistance to farmers and supporting them in the scientific field. Not to mention the fact that in New Zealand, in fact, year-round summer, and have the ability to remove multiple harvests per year. And with Chile to compare Ukraine is incorrect: there is under crop production occupied only 8% of the country and a strong mining industry.

In the EU and in the US the last couple of years, however, began to reduce support to farmers. However, only after the farmers through various subsidies increased its competitiveness, production volumes, profitability and stood firmly on his feet. Secondly, this support there is still much more than in Ukraine. The difference in ten – 20-50 – times.

As farmers supports the EU

Two decades, until 2013 the EU spent on agricultural support nearly the same amount of 50-60 billion euros per year (in 2007 prices). For example, in 2009 out of a total EU budget of 140 billion euros to agriculture was allocated 57 billion euros or 41% of the EU budget. It turned out that on one hectare of farmland Europeans out of the General budget spent 324 Euro. But there are also national budgets from which to support agriculture was about 20%, or 81 euros per hectare.

Thus, the total budgetary support in the EU in 2009 amounted to € 405 per hectare of land (that’s 16 thousand roubles in the prices). Such data are cited in their study, the chief researcher, all-Russian Institute of agrarian problems and Informatics named after Nikonov Bolus Poshkus.

From 2014 to 2020 the cost of agricultural support in the EU budget reduced, but for seven years a total of only 13%. Support for agriculture will continue to occupy a significant share in the EU budget – 38%. Every year, the European farmers will receive 50 billion euros. Even a small decrease in support has caused Europe’s major battles.

Not surprisingly, when the Ukrainian farmers and breeders “pleased” that the state will deprive them of preferential taxation, in order to save the budget of 30 billion USD (or $ 1.5 billion, or 1.3 billion euros), they went outside.

On Tuesday in Kiev nearly a thousand employees and owners of agricultural enterprises gathered for a rally near the Verkhovna Rada with the requirement not to impose VAT for livestock producers.

However, Ukrainians of all classes and professions took to the streets more than once (and miners, and the dollar debtors). But any result is not caused.

As help their farmers in the U.S.

In the USA the same story with the support of agriculture. In the 90s they annually subsidize their own farmers by about $ 50 billion a year. Recently reduced this amount to $ 20 billion due to improved profitability in the sector, said Dmitry Lukashov from IFC Markets.

State support of agriculture in the U.S. and the EU are equally huge, the difference is only in approach. For instance, the EU support is directed more to the number of farmers is not reduced, unemployment is growing, food prices did not grow, and the farmers had an income level comparable with other sectors of the economy. At some point the subsidies in the EU began to reach 45-50% of the cost of production of farmers (in Russia it was only 3.5%, for comparison).

If the EU focused more on social stability, in the USA originate from the state of the economy. During the crisis the level of subsidies to American farmers is markedly increased, whereas in more fat reduced. Ukraine is now the deepest crisis, and the logic of American farmers should be given more support than before. But this rule applies only to Washington for themselves.

If you take the tax breaks, preferential income tax rates for farmers in the U.S. as such, no. However, most farmers still have significant tax benefits, just in a different form. So, there are differentiated individual income tax – if the income is small, so the minimum rate (these farmers use). Second, American farmers give a lot of opportunities to significantly reduce the tax base.

The policy of double standards

As for Ukraine, the IMF requirement straight – tax incentives to clean up. Then what other way would cost to help Ukrainian farmers is not a problem for the Fund.

Developed Western countries are not inclined to help others. This is clearly seen even within the EU, where there is a clear distinction between old – and mladoevropeytsev. For example, Belgium, Denmark, Netherlands, France, Austria, in 2008, per hectare of farmland subsidies received from the EU average of 512 euros, while Estonia, Latvia, Lithuania and Poland – in 2 times less – for 256 euros.

The Deputy Minister of Finance of Ukraine Olena makeieva, which fully supported the IMF in this matter, expressed an alternative idea. Together with the abolition of preferential taxation the Ministry considers necessary to introduce targeted subsidies for farmers.

But the problem is that Ukraine is a WTO member and WTO rules strongly against precisely this form of support to farmers against targeted subsidies. While tax concessions under the WTO rules, though not welcome, but are considered more acceptable form of support.

If you look at WTO provisions which have been developed mainly by the US and EU and some other developed countries, there is also a clearly visible trend in the developed countries that prevent others to support their farmers. Because the US, EU and Japan stated that WTO members can support their own farmers in proportion to their share in world markets of food products.

The US, EU and Japan in 1995, when was created the WTO, took over 40% of the world market of food, reminds Dmitry Lukashov from IFC Markets. These three countries have the basic right to support their farmers and they still use this right to the maximum, while all other member countries of the WTO are obliged to limit the amount of subsidies in accordance with their place in world trade.

Ukraine itself justifies the demand of the IMF that the existing special regimes of VAT for farmers benefits go primarily big business. Officially more than 3% of companies handles almost half of the farmland in the country. However, there is another half of the land, which employ small farmers, who in all developed countries more and pay extra on top for a few hundred euros, only to live well and fed the rest.

However, in order to rectify the situation with a large agricultural holding companies, which really only can pay the full VAT rate, not necessarily to kill small farms. You can leave a reduced rate of VAT for small and medium farmers, obliging full to pay taxes only the big players. However, nobody speaks about it.

“Having lost the status of state high-tech, finally ditching the industry, the government is trying to re-Orient Ukraine into an agrarian and raw material appendage. All the officials relentlessly insist that Ukraine will feed the world and get out of the crisis through the development of agro-industrial complex of the country. In reality, farmers simply suck the oxygen out. Such conditions are created that many simply leave the agrarian sector,” says economist Alexander Koltunova of the “Ukrainian choice”.

Everything goes to the fact that small farmers in Ukraine will be gone soon. The most sustainable small farms will buy large holdings (probably for peanuts), others will simply go bankrupt. And when the government allowed the foreigners to buy land and assets in agriculture (plan in 2016), the main property of the country will pass into the hands of Americans and Europeans. They will certainly turn all Ukrainian lands and agriculture into a raw materials appendage of their own countries.

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