Mykhailyna Skoryk, UNCPD, for "Glavred"
Thanks to a harvest of almost 40 million [tons], the current Cabinet of Ministers could have placed an agrarian trump card in the election box of presidential candidate Viktor Yanukovych.
However, now it must be acknowledged: through their own actions and statements during September-October, the highest government officials turned a trump ace into an ordinary six.
Instead of a stable and predictable food market, which it could have been without the interference of politicians, Ukraine has returned to a feverish demand for basic food products, a "price boom," and a fight against "speculators" capable only of worsening the situation and raising prices.
V. Yanukovych first felt the sting of agrarian mistakes for his own political rating in July 2003, when unexpectedly for the government, prices for flour, pasta, and grains sharply crawled upward. Today the situation repeats with typological similarity, only this time it was not grain that "fired" but meat.
A basis in the form of "baselessness"
In the third decade of September, prices for pork and beef in the capital's markets rose sharply – from 18-20 to 25-30 hryvnias per kilogram. Residents of Donetsk, Dnipropetrovsk, Vinnytsia, Poltava, Chernivtsi, Luhansk, Ivano-Frankivsk, and later other regional centers faced a similar situation.
On September 30, 2004, First Vice Prime Minister and Finance Minister Mykola Azarov convened a conference call, where he emphasized that the rise in prices for meat and dairy products occurred only in certain regions and should be corrected within two weeks. "There are no objective grounds, no economic basis for price fluctuations. There is no deficit in the country for any commodity item," he emphasized.
As reported by the Cabinet's press service, according to Azarov, the good harvest this year and the creation of large state grain reserves are grounds for lowering prices for flour, bakery products, and subsequently meat and milk. Therefore, the government obligated regional heads "to work on a balanced price policy together with producers and meat processors." The press release stated that "local authorities must use all powers, all levers of influence on the market" and regulate the "unjustified overstatement" of profitability of meat processing plants and trade markups in the meat products distribution network. At the same time, the meeting discussed measures that should enable producers to sell products directly to consumers, and therefore at lower prices, in particular fairs for agricultural producers.
"In some things the authorities must help, somewhere market agents must meet the authorities halfway. We have experience of compromises, non-administrative decisions in much more difficult situations – like last year," said Azarov, obligating local leaders to lower meat prices to the previous level by October 15. In this way, as in July 2003, the phrase "non-administrative decisions" covered up a direct administrative instruction to intervene in the market and restore order with prices in order to ensure the stability with food supplies that V. Yanukovych needed before the elections.
On October 5, the meat issue was heard at a meeting of the Cabinet of Ministers. According to its results, the First Vice Prime Minister promised that the population would feel the first price reduction within two weeks – the measures adopted by the government would take effect. In particular, M. Azarov promised to promote increased imports of meat products while limiting their exports. He noted that in 2003 Ukraine imported 300 thousand tons of meat products from abroad, and in 2004 – 2.5 times more. At the same time, exports of meat products, according to him, in 2003 amounted to 165 thousand tons, and this year decreased to 65 thousand. M. Azarov added that Ukraine has 1.893 million tons of meat products, which is 200 thousand tons more than on this date in 2003. "This resource is entirely sufficient," noted the Vice Prime Minister.
The Ministry of Agrarian Policy fully agreed with Azarov's assessments. Deputy Minister for Livestock Yuriy Melnyk informed journalists that the Ministry of Agrarian Policy considers the September rise in meat prices speculative and baseless due to the sufficient quantity of meat and dairy product supply. He noted that over 8 months of this year, meat production in Ukraine grew by 21 percent and now a trend toward stabilization of livestock numbers has emerged – both the number and productivity of animals are increasing. A special working group was created under the Ministry of Agrarian Policy, uniting representatives of the ministry and producers, so that by October 11 they would develop a plan to return meat product prices to the level of September 20.
The machinations of speculators and "certain politicians"
Intensified inspections began in the regions. At a conference call on October 11, Agrarian Minister Viktor Slauta reported: the audit showed that in a number of regions local authorities are not using their powers to establish maximum trade markups on certain food products, in particular livestock products. He emphasized that retail prices for meat over the past two weeks increased while procurement prices barely changed. "That is, today there are other artificial factors that are disturbing the market," concluded the minister. V. Slauta also noted that during January-September 2004, meat exports decreased by almost 1.5 percent, while imports grew fourfold.
So that "powers" would be used better, on October 13 at a Cabinet meeting chaired by Azarov, an appendix to the resolution of December 25, 1996 was approved. According to the supplemented document, state administrations of oblasts, Kyiv, Sevastopol, and the government of the Autonomous Republic of Crimea were given the right to establish maximum levels of profitability for the production of beef, pork, and poultry meat, as well as trade markups on meat and meat products. Thus, previous declarations that the government would not interfere in the market were left in the past, and local authorities were given an effective "weapon" against every meat processing or meat trading enterprise.
However, two weeks of talk about stabilization had almost no effect on the market, and meat, if it did not continue to rise in price, simply disappeared from the counters and display windows of stores. Commenting on the situation on October 12 before residents of Donetsk, M. Azarov noted that the cause of price growth was inflationary expectations, which "can only be knocked down by importing products." On the same day, Prime Minister Viktor Yanukovych, speaking before residents of Kharkiv Oblast, promised that he would instruct law enforcement agencies to investigate the causes of rising prices for consumer goods in certain regions. According to the head of government, as reported by Interfax-Ukraine, entrepreneurs used the fact that people received money, so they are raising the cost of their goods. "The Cabinet of Ministers must under no circumstances allow price growth and depreciation of the money that we now have the opportunity to pay people," said Yanukovych.
And on October 14, a political foundation was laid under the "price boom." "There is information that this is caused by certain political forces, so that a fever would begin that would show that our market will not withstand such an inflow of funds, and price increases will definitely occur," the Prime Minister stated at a meeting on price policy in the consumer market. He also noted that one of the factors in rising food prices is "the desire to line one's own pockets," emphasizing that law enforcement agencies should assess such a situation.
"Prices are rising speculatively," joined in the head of Yanukovych's election headquarters, Serhiy Tihipko. "This is not a new phenomenon for the country: always, when important events occur, speculators try to profit at the expense of ordinary people. These are not the laws of the market at work, this is the lawlessness of the market." He added that in this way speculators want to profit from the raising of pensions and wages.
It is hard to believe that professional economist Tihipko does not understand what is actually happening with the market and why it was specifically meat that sharply began to rise in price, and not flour or grains, as last year. However, today he is a staff member, so he plays not an economic but a political role. Therefore, from all the above-mentioned statements one can draw a general conclusion: having allowed a crisis in the meat market, the government is not going to solve it professionally, but seeks to talk the problem away or "write it off" to political opponents who are not in power and therefore cannot possibly be involved in the current troubles.
Statistics – against "measures taken"
It is obvious that the so-called "measures taken" and administrative instructions to the regions did not lead to the stabilization planned for October 15. Moreover, they could not have led to it.
After all, the first noticeable jump in prices for beef and pork occurred even before Easter. Starting from April, month after month, meat inexorably continued to rise in price. In particular, in May on average across Ukraine, beef (wholesale) rose in price by 2 hryvnias 27 kopiykas per kilogram, pork – by 1 hryvnia 71 kopiykas, and Doctor's sausage – by 1 hryvnia 39 kopiykas. At bazaars the changes were much more noticeable – by 5-7 hryvnias, but the government did not pay attention to this.
The cause of that wave of new prices was the reduction in the number of pigs (by a quarter) and cattle (by 15 percent compared to May 2003) caused by crop failure and the rising cost of feed. Meat procurers, and consequently meat processing plants, felt a shortage of supply from both villagers and farms, in response to which imports of raw materials (mainly cheap poultry meat) sharply increased. Thanks to this, enterprises "got out of it" – they quickly offered consumers cheaper chicken sausage instead of Doctor's sausage.
Meanwhile, less and less pork and beef was arriving. Processors began to cut production. Despite the import of raw materials from abroad, according to the State Statistics Committee, in July 2004 meat processing plants produced 9 percent less meat and by-products than in July 2003, and in August – 2.6 percent less than in August 2003.
Simultaneously, meat prices grew both in markets and in stores. According to the Ministry of Economy, beef rose in price in 17 oblasts – by 1.3-22.8 percent to 14.5-18.2 hryvnias per kilogram. At the same time, in the retail trade network of seven oblasts, veal was absent as such at the time of inspection.
No less rapidly did the price tags on pork change, which in August rose in price in 17 oblasts by 0.3-10 percent to 17.4-23.5 hryvnias per kilogram. But salo broke all records, as it became more expensive than chicken. A kilogram of the "national product" in Kyiv already in August cost 15-16 hryvnias.
Why this happened is easy to explain with data from the State Statistics Committee. Specialists of Ukraine's most informed agency stated: over 8 months of 2004, villagers sold 13 percent less cattle and 20 percent fewer pigs than during the analogous period of the previous year. That is, meat simply did not grow, and there is nothing to be done about it.
However, the government (consciously or unconsciously – that is already a question of professionalism) "heated up" the situation by paying increased wages and pension subsidies in September. That is, it stimulated a sharp increased demand for meat. If previously, lacking sufficient funds, people denied themselves the pleasure of buying salo, then, having received more, they decided to eat better – they headed to the bazaar for their favorite pork.
Sellers faced a choice: sell all the meat in one day at old prices and find themselves "high and dry" tomorrow (they know that buying a pig in the village today is difficult) or raise prices and earn more. Guided by the instinct of preserving their own business rather than political motives, the traders, who today are called "speculators," chose the second option. And they are unlikely to have been mistaken. After all, villagers are also not born yesterday: they understand that it is not worth slaughtering and selling a pig if the authorities have given you real money. That is, it is entirely logical to assume that after the pension increase, villagers will sell livestock at higher prices, because if the buyer refuses to pay – the bull or piglet can be kept until winter, since the harvest is good and therefore there is feed.
So it is no coincidence that the meat market "fired" precisely in the third decade of September, when the long-awaited money rolled from the state budget into the pockets of Ukrainians. If politics is to blame for this – it is specifically government policy.
Today's – well-forgotten last year's
It is characteristic that this is already the second fight of Viktor Yanukovych's specialists against "speculators" in the food market. Ukraine survived the first in the summer of 2003: after in the spring the grain market attracted the interest of the Prosecutor General's Office, the Ministry of Internal Affairs, and the Security Service of Ukraine, and former Vice Prime Minister Leonid Kozachenko was put in jail, food prices sharply jumped. After Azarov's statements about speculator flour sellers, panic began – the population rushed to buy up grains and dry breadcrumbs. Even when prices stopped rising and the population calmed down, there was noticeably less bread in stores, and buying a loaf in the evening was unrealistic. The government assured that "stabilization" had arrived. In reality, the economy is still coughing up the consequences of crude administrative interference in the grain-flour-bread market in 2003, and the deepening crisis in livestock farming is one of its "side effects."
What is happening today? The same picture: "stabilization" exists, but there is no meat. The government's economic bloc again signs off on its own impotence before the sudden attack of enemies of the people from the trade, supposedly incited by unknown political forces, and "sets" law enforcement agencies on producers and traders. Of course, one can believe in the myth of how millions of small sellers in markets of tens of thousands of cities and towns of Ukraine conspired among themselves to humiliate the government's latest achievements.
Although in reality the Cabinet of Ministers is getting what was laid down in its previous activity. One cannot consider the reduction of exports and growth of imports a blessing – after all, this is a signal that Ukrainian production is "collapsing." It is all the more harmful to grant preferences to importers of meat raw materials: this may knock down meat prices for several months, but under such conditions Ukrainian agricultural producers will receive less funds, that is, they will not increase livestock numbers (read – the quantity of meat) for the future. Actually, it is precisely preferential imports that constantly "undercut" the livestock sector and also contribute to the reduction of cattle and pig numbers.
Likewise, setting law enforcement on "speculators" will have a one-time effect – this will lead to the shadowization of the already not very transparent chain of distribution of village pigs and bulls, moreover, it will simply stop trade, meat will continue to disappear from store counters, as it is disappearing today. The only correct conclusion that government officials made was to pay attention to meat sales schemes.
Indeed, procurement prices in villages differ from retail prices in cities by almost half. But you cannot break a practice that has developed over years by acting rashly. It takes months to build new schemes for villagers' access to markets, supermarkets, and meat processing plants without intermediaries – through non-profit procurement cooperatives or directly. Although, when it comes down to it, it is precisely government representatives who hinder the establishment of such cooperation and promote the privatization of former collective farm markets into unknown hands, cutting off agricultural producers from them.
Therefore, grounds for meat becoming cheaper will appear only when livestock numbers grow. And city residents will be able to buy it at "village" prices only if the authorities understand and are able to introduce new, truly market-based schemes of delivery "from the field to the table." For now it is far more profitable to work in the shadows: this is facilitated by high taxes, preferential imports, current forceful pressure, constant unscheduled inspections, and the inconsistent and aggressive government policy prone to constantly jerking the food market, forcing entrepreneurs to return to the administrative "yesterday."
Loss instead of gain
Since today any economic change is customarily viewed in the context of future elections, one can forecast that the "meat syndrome" will drag along not only political accusations against opponents but also personnel "organizational conclusions" in the current system of executive power. At least, at the October 14 meeting, Viktor Yanukovych warned heads of regional state administrations about personal responsibility for the situation in the meat market. It is quite likely that soon the Prime Minister will carry out the threat, using the moment to strengthen his own positions in the regions. Of course, if President Leonid Kuchma agrees to personnel changes.
However, in any case, the scandal involving law enforcement and administrative interference in entrepreneurial activity will affect the rating of trust in the head of government as a presidential candidate. After all, although the population has disliked speculators since Soviet times, unlike government officials, they very clearly understand the cause-and-effect relationship of "pension increases – price growth" and well register the rising cost of every product in the market. The current price jump is not an unfortunate accident but a proper payment for the turn of agrarian policy toward centralized administration at the end of 2002.