Unprofitable agricultural enterprises in Belarus to decrease in number thanks to mergers

For reorganisation purpose, in the next two years 37 unprofitable agricultural enterprises will be merged with four profitable organisations in the Vitebsk region. The mergers aim to improve the poor financial performance of the agriculture as a whole. Thanks to financial injections from the state budget, the agriculture is likely to report some improvements. However, in order to sustain these improvements, the government needs to change its approaches to the pricing policy and enable private businesses in the agriculture industry.

According to the Presidential Decree No 320 of August 25^th, 2016, 37 agricultural organisations will be merged with four organizations of the Vitebsk region in 2016-2017: the Vitebsk meat plant, the Glubokoye feed mill, Orsha and Polotsk bread plants. The new organizations will be entitled to the instalment repayment of the existing debt on taxes and duties, budget loans and borrowings, and on energy for a period of three years without an interest. The state will issue currency bonds with 5 year maturity period at 7% per annum, which will be handed over to banks as payments for the assets of problem enterprises – with a total worth of BYN 369 million.

The merger of agricultural enterprises in the Vitebsk Oblast is required in order to improve their financial health. Unlike in other regions, in the Vitebsk Oblast agriculture is unprofitable, with total losses in H1 2016 BYR 26.9 million. Regardless of the state support, 45% of agricultural enterprises in the Vitebsk Oblast are loss-making; the Vitebsk region has the highest number of enterprises with chronic payroll arrears, some enterprises have not paid wages on time for several months, some have accumulated a significant energy debt.

The merger will become one of the stages in agriculture’s financial recovery. Tax and financial benefits aim to reduce non-payments for supplied raw materials, other materials and energy. Unified management at the reorganized enterprise will simplify the accounting and reduce the maintenance costs. Meanwhile, the main financial burden will be assumed by the regional budget, since the servicing cost of government bonds issued under this Decree will be attributed to taxpayers. As a result, the visual economic effect will be achieved by unprofitable enterprises reduced in number, reduced overdue accounts payable, and fewer organizations with wage arrears. The real economic effect may only be achieved if agriculture is reformed, including abandoning production plans, enhancing private sector, changing the pricing policy and transiting to a market economy.

The state has taken yet another attempt to improve the financial situation in the agriculture. Due to benefits and inflows of funds from the budget, the number of loss-making enterprises will decrease, however, without changing the pricing policy in agriculture, its stable and profitable operation is impossible.