Financing and Capital Access in Ukrainian Agriculture

Long macroeconomic instability and slow transformation in Ukraine have very distinctive negative effects on the agricultural sector such as numerous business risks for farms and for their investors and lenders as well. Thus, a high-risky Ukrainian agriculture is unattractive for external financing in comparison with other economic fields. Considerable informational asymmetries between lenders and borrowers often complicate the establishment of rural capital market equilibrium. Furthermore, the Ukrainian government intervenes in transformation processes in this factor market (like investment supporting, interest rate regulation, assignment of price reduced loans etc.). From this point of view Ukrainian rural capital markets are imperfect, what means an inseparability of investment (production) and financing decisions. Therefore, it causes a research interest to the role of available equity capital and debt access for Ukrainian agricultural farms as well as how do both financing and investment opportunities influence agricultural structural change. The aim of this research project is to answer the following questions: How can be characterised financial structure, capital markets and possibilities of capital accumulation in Ukrainian agricultural sector? How do the loan market imperfections affect investment activity and economic success of Ukrainian farms in agricultural structure change? Which political recommendations are to be derived regarding the rural capital market regulations and financial support of Ukrainian agriculture? For this purpose major theoretical findings like Q theory, Credit rationing theory and Soft budget constraint theory should be checked and adapted for transition economy using descriptive and econometrical analysis. According to the availability of panel data static or dynamic modelling approach will be applied. Static econometric models determine the factors of credit rationing as well as their impact on farm investment and efficiency. Dynamic modelling enables to examine farm investment behaviour including capital constraints (output, cash flow etc.). Expected results of this research could contribute to further improving of agricultural policy in Ukraine.