Ukraine agribusiness moves towards self-regulation

Ukraine is well on its way to establishing a legal framework on self-regulation – a mechanism that will improve standards in the agribusiness sector and provide private companies with an opportunity to boost their role in defining their future.

The legal framework would allow for industry self-regulation – a process that gives private sector industry associations the authority to enforce market discipline by setting common internal rules and controlling their implementation.

In recent years, weak institutional capacity has resulted in the deterioration of public services available to the Ukrainian agribusiness sector – especially in the areas of animal and plant health, food safety, standards, product quality and market access.

Ukraine’s Cabinet of Ministers has recently adopted the concept of self-regulation and the roadmap for its implementation. It is currently finalizing the framework, which will detail the rules for self-regulation processes. The framework has been prepared with assistance from the Food and Agriculture Organization of the United Nations (FAO) and the European Bank for Reconstruction and Development (EBRD), and with support from the European Union's EU4Business.

“The empowerment of representative associations to adopt industry self-regulation will support a more efficient distribution of regulatory and control functions between public institutions and sector associations,” said Lesya Kuzmenko, associate director and senior banker with EBRD Agribusiness in Ukraine.

“The comprehensive legal framework on industry self-regulation will eventually help Ukrainian agribusiness stay competitive on the global market,” she added.

Self-regulation already yielding benefits

The private sector is increasing its commitment to self-regulation and the establishment of sector-specific self-regulatory organizations will lead to more effective market organization and development in Ukraine. FAO and the EBRD have been explaining the benefits of self-regulation to industry associations in the country and helping them improve their self-regulation capacity.

In many cases, effective technical and safety regulations enable local companies to stay competitive on global markets and fully realize their export potential. One example from the grain sector is the provision of high-quality, professional fumigation services, which are essential when exporting grain from Ukraine, as efficient fumigation practises improve the quality of grain.

To increase the quality of fumigation services provided, FAO supported the Phytosanitary Association of Ukraine in developing an internal code of practice for phytosanitary treatment – providing training and certification to allow for stricter safety standards mandatory for its members, who account for 50 percent of the market in terms of volume.

A similar code of practice is being developed for the milling industry to introduce superior standards for flour quality and fortification. And in the confectionery industry, FAO and the EBRD are assisting the association in the creation of an intra-association arbitration to to resolve, commercial disputes between members.

A closer look at self-regulation

Generally speaking, with the introduction of self-regulation in the agribusiness sector the public authority will set rules and regulations pertaining exclusively to the public domain (such as basic food safety requirements), while all secondary rules – relating to consumer quality and taste, for instance – will be set by the associations themselves.

Crucially, the legal framework on self-regulation will give associations – and therefore private companies – greater leverage to contribute to the rule-making process.

On top of rule enforcement, owing to the monitoring mechanisms involved in self-regulation, association members will be able to closely follow and analyse industry performance. Thus, sector bottlenecks will be more easily identified under self-regulation.

According to Rodion Rybchynsky, co-chair of the Millers Union of Ukraine, “Private companies are becoming more and more conscious that access to high-value export markets requires better organization and market discipline, and industry standards have already started to rise.”

Next Steps

The EBRD, FAO and partners will continue to work with associations to develop their capacity through self-regulation. They are currently working with the Ukrainian flour association to develop new rules and regulations to raise standards in the industry.

“Increased dialogue on industry self-regulation will drastically improve the business environment,” said FAO agricultural economist Dmitry Prikhodko. “More than anything else, moving forward, industry members will have a greater say in the future of their industries.”

20 September 2018, Kyiv, Ukraine