The meat processing industry needs to be developed Instead of increasing the export tax on live cattle

Submitted by bashun on Sat, 06/23/2018 - 17:31

The increase in the export tax on livestock to 20%, which is now initiated by people's deputies, is a complete absurdity. This will not be able to save the cattle-breeding industry of Ukraine from a reduction in the number of livestock. But, on the contrary, it is necessary to develop domestic meat-processing production and to arrange the export of beef processing products, the Ukrainian Stock Breeders Association is sure of this.

On April 18, a group of people's deputies registered in the parliament a bill "On Amending the Law of Ukraine "On export tax on livestock and tanning raw materials" (regarding the settlement of rates of export tax on cattle)" No. 8283.

The bill provides for an increase in the export duty from 10 to 20% on live cattle. The authors of the bill in the explanatory note justify the increase in the export duty rate by the need to block the export flow of Ukrainian raw materials to the Asian continent, increase domestic livestock and export finished products with high added value.

The Ukrainian Stock Breeders Association, which includes almost all the major (and largest) beef exporters, decided to find out whether it is expedient to increase the export tax on milk, and what results the above legislative initiatives will have.

If we analyze the situation of  the export market of beef in Ukraine, then it look like this. Today, the Ukrainian cattle market has been in great demand in foreign markets. Ukraine exports more to Lebanon, Jordan, Egypt, Azerbaijan, Armenia, Georgia, Kazakhstan, Uzbekistan and Russia to the CIS and the Middle East. In 2017, the total number of exported cattle amounted to 88 thousand heads (approximately 2.2% of the total cattle population) for about $ 38 million.

As for the domestic market, today there is a low culture of consumption of beef in Ukraine. Firstly, Ukrainians are traditionally more prone to pork consumption, and secondly, Ukrainians have a low purchasing power, so they simply cannot afford expensive red meat.

Thus, as we see, it is the development of exports that is an important aspect for stimulating the increase in the domestic livestock of cattle.

In this regard, the Ukrainian Stock Breeders Association categorically denies the expediency of raising the export duty. On the contrary, producers of meat cattle products, members of the USBA, have complained about too high tax on the export of their products.

This, in particular, they talked a lot at the round table on "Production and export of meat in Ukraine", which was held on July 26, 2017 at the initiative of the Ukrainian Stock Breeders Association. Then representatives of specialized bodies, experts, enterprises of producers and exporters of livestock products came to a common opinion about the desirability of reducing the export duty on high-grade cattle and creating a more favorable tax climate, since the export tariff is an export tax.

And all the legislative initiatives that were before this also had the opposite meaning of the last bill No. 8283 and proposed, on the contrary, a reduction in the export tax.

Thus, in particular, two government bills - "On Amendments to the Law of Ukraine" On Export (Export) Duty on Livestock and Leather Raw Materials " (Concerning the Increase of Efficiency of the Industry)" No. 4569 of 04/05/2016 and "On Amendments to the Law of Ukraine "On export tax on livestock and tanning raw materials" (concerning increasing the efficiency of the industry)" No. 3859 of 01/01/2016, which had the aim of increasing the economic interest of domestic producers in raising livestock, economic efficiency of the cattle and sheep industry, offered a reduction of the export duty to 3% for live cattle (domestic species other than heifers and cows weighing more than 300 kg for slaughter and not for slaughter) and sheep purebred pedigree animals.

Another government bill "On Amendments to the Law of Ukraine "On export tax on livestock and tanning raw materials" (regarding the differentiation of rates)" No. 3654-1 of 29.11.2013 provided for the reduction of the export duty to 5% in live cattle ( domestic species, except for heifers and cows weighing more than 300 kg for slaughter and not for slaughter) and sheep purebred pedigree animals, in order to diversify markets. The same is in the bill number 3654 of November 20, 2013.

Therefore, a sudden initiative to increase export duties raises many questions, and, undoubtedly, there will be no positive impact on the increase in the number of cattle in Ukraine.

We believe that the most important for today, in parallel with the development of beef cattle breeding, is also the development of the meat-processing industry, oriented specifically to the specificity of export markets, and the opening of export markets for processed products (sausages, hams, etc.).

What is the situation de we have today? Ukraine lacks slaughter shops for processing beef. So, according to the State Statistics Service, at the beginning of 2018 the number of enterprises engaged in slaughtering agricultural production was 299. A year earlier, at the beginning of 2017, there were 302 of them. And at the beginning of 2016 the number of slaughterhouses was 330, in 2 years it decreased by 9.4%.

The situation with specialized coal miners, in particular halal slaughterhouses, on which it would be possible to produce beef for export to the Middle East, is even worse: we have very few of them at all.

The number of meat processing enterprises on which products with high added value is produced is sufficient only to meet the needs of the domestic market. And to enter foreign markets, this issue requires a more integrated approach: it is necessary to study consumer tastes of potential importers - representatives of other states, and it is up to them to adjust production. And after that, attract investors who would be interested in building meat processing plants in Ukraine.

Thus, the position of the Ukrainian Stock Breeders Association, taking into account the interests of both the business that grows cattle for export, and the interests of the state, is the following: the export duty rate should be differentiated depending on the weight of cattle and be reduced (for high weight categories). We believe that the export tax should not be more than 3%.

The USBA strongly calls that today's state policy should be aimed specifically at the development of meat-processing enterprises oriented to export products and in support of the production of products with high added value.

Another important step that will really contribute to the growth of cattle in Ukraine, according to the USBA, is the stimulation of households to grow cattle, where the percentage is higher. And for this, people need to be given funds to feed cattle and, most importantly, to make the necessary changes to the Tax Code: the production of agricultural products should not be included in the aggregate income of an individual, on which the peasant's subsidy depends. Then the owners of private farms will not take the calves to slaughter, but will be interested in registering animals and fattening them.

In addition, the state should also open new export markets for beef meat. Now is the final stage of approval of the veterinary certificate between Ukraine and the Republic of Turkey for the export of beef meat, which was launched precisely on the initiative and long-term work of the Ukrainian Stock Breeders Association. We were the first to start discussing the cooperation between the Ukrainian and Turkish sides in the direction of export; we were able to convince the trade adviser of Turkey in the advantages of opening the export market for Ukraine and established partnership relations with Turkish companies that are potential importers of beef. We should also note that Turkey's needs for importing our beef are much larger than today's Ukrainian enterprises can produce.

It is also embarrassing that the Institute for Economic Research and Policy Consulting warns that the proposed norms by the draft law No. 8283 directly violate the commitments made by Ukraine in the framework of WTO accession and may result from the initiation by interested countries of the consideration of Ukraine's actions by the WTO Dispute Settlement Body. Over 10 years of membership in the WTO, Ukraine lost one of four trade disputes regarding the unlawful use of restrictive measures in trade (the remaining three have not been resolved yet). In another case, Ukraine agreed to the abolition of restrictions after consultations.

Thus, we believe that the legislative initiative to increase the export duty on bovine poultry will adversely affect the cattle-breeding enterprises and will lead to a decrease in the presence of Ukrainian products on foreign markets. Moreover, this does not entail an increase in the number of cattle in Ukraine.

Only thanks to a balanced integrated state policy in animal husbandry, which provides for all the main aspects, which we mentioned above, the Ukrainian business will be interested in increasing the production of cattle.

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