However, Ukraine’s government considers the measure necessary, so that the country can continue to receive support from the International Monetary Fund (IMF).
For the period from January-June 2015, meat production in Ukraine has already dropped 3.3% to 1.32 million tonnes (mt) compared to the same period in 2014, while its livestock population dropped by 4.43m head, or 8% down year-on-year.
Ukraine’s Agrarian Business Club president Alexei Lisitssa said cancellation of the special regime on VAT payments for meat producers would result in "tens of billions of losses" for the livestock sector, with the industry "having to cut 30,000 jobs".
"Following cancellation of the VAT regime, the pace of decline [of livestock production] could speed up to 8%," he stated at a parliamentary hearing on 17 June, adding that this would result in Ukraine becoming a net importer of livestock products, in particular dairy, as early as 2017.
A number of market participants have already spoken out against the government initiative. A Ukraine discussion club, made up of various industry associations which provide informational support, including the Ukraine Association of Poultry Producers and the Association of Feed Producers, believes that, this year, the country will decrease production and imports of meat, but that consumers will not face any lack of meat products.
The club says that, during January-June, Ukraine decreased meat imports by 28% year-on-year to 57,000t, including 30,000t of pork. Meat exports during the same period jumped by 33% to 93,000t, including 62,000t of poultry. The growth in exports has been largely provided by sales to Crimea, which amounted to 28,000t, according to the report.
Meat production this year, according to the Ukraine discussion club’s forecast, is expected to be 2.340mt or about 2% lower than last year, when it was 2.480mt. Meat consumption this year is forecast to be 51.5kg per capita, compare to 56.1kg per capita last year.
Observers say tax benefits on VAT payments are one of the most important forms of state support in the country and should be retained if the government does not want meat production and consumption to drop further.
"This support is consistent with the World Trade Organization and it is logical that we fit into our association agreement with the European Union," said Oleksandr Bakumenko, deputy chairman of the Ukraine Parliament’s Committee on Agrarian Policy.
According to Bakumenko, it is important that the special regime for VAT for livestock producers does not go through the hands of officials, keeping any corruption element very low. He called for negotiation with the IMF to keep this form of support in place.
"For the IMF, the main thing is balancing revenue and expenditure in the state budget. We speak the language of numbers and, from a macroeconomic point of view, this [cancellation of special regime] cannot be done," he added.