EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Organizational-Legal Forms and Legal Principles of Creation and Operation of Local Agricultural Markets in Ukraine M. Hrytsenko 25 January 2011, Saky

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Key Issue on the Agenda Development of the agricultural market infrastructure remains one of the most urgent problems in Ukraine. Lack of wholesale structures predetermines large price fluctuations in the agricultural market, substantial losses, significant additional costs for producers, processors and consumers. Lack of wholesale markets has a significant impact on the income level of rural and urban population, production efficiency and, as a result, on the inflation level. Lack of a proper market infrastructure leads to considerable growth of the shadow market. It is estimated that the share of shadow fruit and vegetable market is 60 percent or $ 14 billion. Therefore, today, the issue of agricultural market infrastructure development aligns with key priorities of the state agricultural policy.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Legislative Framework Economic Code of Ukraine Civil Code of Ukraine Law of Ukraine "On wholesale markets of agricultural products" Law of Ukraine "On Cooperation" Law of Ukraine "On Public Private Partnership” State Target Programme for the development of wholesale markets of agricultural products

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Organizational and legal form According to current legislation of Ukraine, wholesale markets can be in the following organizational and legal form: -unitary municipal enterprise; -unitary cooperative enterprise; -joint-stock company; -limited or additional liability company; - general partnership; - limited partnership; -partnership.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Organizational and legal form The most effective form of wholesale food markets can be joint-stock company with the participation of: - state as one of the founders; -producers and their associations (cooperatives); -processors of agricultural produce; -representatives of wholesale and retail trade; -banks and insurance companies, other commercial entities.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Who may own the market? A city, region or state institution can be the owners of the wholesale market established as a budget organization. Government, local authorities, operators - market participants and other stakeholders (banks, funds, etc.) may be involved in the creation of a market in the form of economic partnership or joint-stock company. Such markets can be created without the participation of state institutions. When selecting the legal form of the market the local specifics should be taken into account

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Market Ownership Ownership of wholesale markets may be different - state, cooperative, private, municipal, mixed. Market activities are carried out on the principle of self-support (break-even). Financing of market development should be provided mainly from non-state sources.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” How can local authorities contribute to AWM establishment and management? Local governments in many countries are shareholders of wholesale markets at the expense of the land plot contribution to the statutory fund. Other property and / or money can be contributed to the statutory fund.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Experience of AWM creation OwnershipEU countries World Public4850 Public-private (PPP)4032 Private713 Management Public3142 Public-private (PPP)5035 Private1520

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” What is necessary to understand in the first place when creating wholesale markets? Two key theses : The programme of wholesale markets development is a people-centred project, and wholesale markets are public goods, therefore, the need for government support in the creation of markets is indisputable, especially in a country with huge agricultural potential, such as Ukraine. The concept of the wholesale markets development programme can not be separated from the general market infrastructure development scheme.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” What is the role of local authorities in establishing and ensuring operation of markets? Local authorities play a crucial role in the processes of development of the existing formats of trade and distribution of agricultural produce, ensuring food safety and low food prices. It is impossible to create a road infrastructure and a food distribution infrastructure without local government’s financial and logistical support. Local and central governments provided financial and organizational support for such projects in all countries where wholesale markets were created. Creation of modern markets should be a local initiative.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” What benefits does the local government receive as a result of creation of a local wholesale market? uninterrupted supply of quality food into the region; price controls; filling local budgets while reducing the level of social transfers; transparent market; increased competition; rapid promotion of products to the consumer; creating secured jobs for those working at enterprises located in the market; guarantee of future operation of retail markets and small shops in the city. Effective market operation promotes positive community attitudes to the government’s work and, consequently, creates the opportunity for representatives of the authorities to remain at the helm of power as long as possible.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” In whose hands will wholesale be in case if a AWM network is not created? Analyzing the situation in production and marketing of agricultural products in Ukraine experts say that without developing a network of wholesale agricultural markets in Ukraine in the nearest future there is a probability for powerful international wholesale companies to enter the Ukrainian market and be able to monopolize trade in agricultural products thus affecting farmers’ profits Wholesale markets are as important for agricultural businesses as reliable roads are for the country, since they are indispensable for the development of trade and business.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Trends Added value on agricultural products that remain in the producer country % International (foreign) trade networks7 Domestic markets70 Active expansion of transnational retail chains

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” What problems come upon agricultural producers in the absence of the AWM network? If professional wholesale markets do not exist or they function in the form of wholesale and retail trade (like today in Ukraine, Russia, Bulgaria and other countries where the market economy has emerged not long ago), small producers who, in addition, are not professional association members, are deprived of the opportunity to sell their produce at a profit or to sell their produce at all. Lack of a modern food distribution infrastructure, including wholesale markets, creates ideal conditions for the expansion of "Cash & Carry”-type companies in the country.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” The case of Germany Extensive development of supermarket networks has led to the situation when the share of wholesale markets in provision of fruit and vegetable retail declined rapidly in recent years in Germany. To date, Berlin Wholesale Market, the largest wholesale market in Germany, provides only about 15% of all deliveries of vegetables and fruits in this place while at its inception (1960- es) it accounted for more than 80% of all deliveries.

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Ways to solve the problem Formation of a network of initial marketing organisations of different organizational and legal forms with obligatory producer participation. Establishment of agricultural wholesale markets with obligatory producer participation Creating logistics facilities with involvement of domestic agricultural producers

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Ukrainian State-Cooperative Planning and Surveying and Research Association “UKRNDIAGROPROEKT” License AB № ISO Issued by Ministry of Construction of UkraineCertificate № VA/ December 2005Registered UkrSEPRO PASSPORT AGRICULTURAL WHOLESALE-RETAIL MARKET REFERENCE PROJECT Kyiv

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Wholesale and Retail Market Project

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Wholesale and Retail Market Project

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Wholesale and Retail Market Project

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Wholesale and Retail Market Project

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Wholesale and Retail Market Project

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Wholesale and Retail Market Project MAIN TECHNICAL AND ECONOMIC INDICATORS Agricultural wholesale and retail market reference project IndicatorMeasuring unitProduction index Land areaha1,9 Construction aream2m2 2483,00 Total structural volumem2m ,00 General aream2m2 2319,07 Trade aream2m2 115,40 Number of trading places in pavilionsplace73 Number for seasonal tradeplace150 Annual requirement: -energythous. kW/year882,00 -waterm 2 /year10236 Estimated electrical capacitykW315 Estimated water per day requirementm 2 /day34,12 Total estimated (budgeted) cost (ex VAT)Hr. thous.10336,630 including construction and assembly worksHr. thous.7330,945 Total estimated (budgeted) cost of one pavilion Hr. thous.683,722 including construction and assembly worksHr.thous.470,493 Pavilion manufacturer – Promstan Works in Mykolaiv

EU-funded Project “Implementation of Ukraine’s Commitments under WTO and ENP Frameworks in the Rural Sector (Sector-Wide Approach)” Thank you for attention Our contacts: 16-A, vul. Mechnikova, Office 915 Kyiv 01023, Ukraine Telephone: Fax: