Indebted agriculture will require additional subsidies for Belarusian food industry

More than 400 agricultural enterprises will undergo a financial recovery procedure. Without state subsidies, as of September 1^st, 2016, agriculture counted over 1000 unprofitable enterprises. The food industry will suffer most losses due to the writing off debts of the agriculture; moreover, some enterprises will require financial aid from the state.

According to the Ministerial Council Resolution No 889 of October 31^st, 2016, the government put together two lists of state agricultural organisations to be subjected either to financial restructuring, or to bankruptcy. The bankruptcy list contains 102 enterprises, which have no business plan to restore solvency. 323 organisations will be subjected to financial recovery and will obtain interest-free instalments to repay the cost of loans, debts on taxes and duties and the resulting debt for natural gas and electricity. From July 1^st, 2016 to 31 December 31^st, 2017, the turnover of organizations subject to financial recovery will be excluded from VAT payments, sales profits will be exempt from tax, and revenues will not be taxed if simplified taxation is applicable.

The lists were created in an effort to normalize the situation with non-payments in agriculture. As of September 1^st, 2016, 1010 companies or 71% of the total number were unprofitable without the state aid, and their overall losses totalled BYN 412 million. The share of overdue payables exceeded 32% of the total debt. Due to the lower grain yield as compared with 2015, many enterprises will continue being insolvent in the coming year and they will require financial support. Financial recovery measures in agriculture mean that creditors will write off losses of such enterprises.

Manufacturers of agricultural equipment leased their equipment and the state budget paid interest on leasing schemes. Major losses will occur in the food industry, at enterprises, which made advance payments on account of future crops, and provided loans, inter alia, to repay wage arrears. Food industry enterprises may receive stake shares of their debtors, which is hardly the best solution, as those enterprises require further infusion of funds to support operations of the loss making agricultural enterprises. In the given circumstances, the food industry may apply to the state for compensation. Highly profitable enterprises and private enterprises will be prompted to write off losses at their own expense, some less profitable enterprises may receive budget subsidies or soft loans from the state.

In sum, the Belarusian state aims to use bankruptcy in order to remedy the situation with agriculture’s debt at minimal cost. The food industry will be prompted to write off the bulk of debt, and some enterprises may be entitled to a budgetary compensation for their losses.