The recipe is simple: limit the functions of the Ministry of Agrarian Policy and Food and give the control over to industry-specific Associations.
If we want an operating economy, we need to take all irrelevant functions away from the ministries. Until now we’ve kept reduced staff, where officials made attempts to do the same tasks with reduced teams. In case of agriculture, one may draw on the experience of Israel that has yielded a part of functions to self-governing institutions.
This is a collective name for organizations consisting of agricultural producers, processors, retailers, and the state as their fourth supervising member. Such organizations exist at the expense of contributions. What do their members decide on? They decide on the entire cycle — beginning with the production volume and ending with the final product price based on the market environment and on the real economic situation in the country. Nine years ago milk producers in Israel went through the same struggles the Ukrainian producers are facing now – product quality and price. Ultimately, they agreed that they needed to create a self-regulating market tool. How does it work? For instance, milk producers say that this year they want to produce 15% more of the primary product.
The selling organizations may answer that based on the economic situation their judgment is that the consumer demand will grow by as much as 3% only. One may also apply up to 3% to mitigate various risks. Thus, the production of milk may be increased by 6%. This will not allow the excessive demand and a fall in prices. The state in turn may recommend to include a social product within the milk segment, such as milk priced with 10% profit margin. It does not regulate prices for all other products, the only thing it regulates is quality.
Afterwards member organizations have tough discussions around quality. In Israel there is an independent laboratory collecting raw milk from all producers. All samples are analyzed anonymously. Then the product quality data is recorded in a special register. If the product fails to meet the standards, then the processors and retailers are informed that milk of that company should not be purchased. Any consumer may go to the website for a product quality report on all companies. This data is absolutely true-to-life, because the tests are made by an independent laboratory.
In such a case, the cattle population in the country is regulated automatically. Milk supply is distributed among all member organizations, all of them have quotas. Farmers strive to keep as many cows as necessary for maximum profitability. Once they also started with kibbutzim that had not more than three cows. But everything has changed with the strict regulation particularly in terms of profitability per cow. Today all farms are keeping at least 100 cows.
Self-regulating institutions align the entire life cycle of the milk segment. Israel’s Ministry of Agriculture does not interfere with that at all. Its functions are very limited. It gathers and analyzes general statistical data, controls foreign economic activities, and deals with food security; in other words, it takes care to ensure that consumption and production are balanced. The path Ukraine should take in order to reform its agriculture, must follow the principle of delegation of all specific matters to the relevant sectorial associations. All the more so, because we already have industry-specific associations.
Provide them with such regulating rights and they will soon find agreement among themselves. Vertically integrated holdings will be members of several industry-specific associations. Let’s say, an agro holding has the entire chain – from production to retail sale. Yet, for example, if the company is not a member of any trade association, then many retail chains will simply refuse from its production. I don’t believe that any kind of agricultural holding may be able to compete with organized retailers by the number of points of sale.
The article was originally written in Russian and translated by AgroGeneration