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Corresponding author:
1 Department of Public Management and Administration, Uman National University of Horticulture.
E-mail: svitovyy@ukr.net
2 Department of Public Management and Administration, Uman National University of Horticulture.
E-mail: diachenko1950@gmail.com
3 Department of Public Management and Administration, Uman National University of Horticulture.
E-mail: kgo.ukr@gmail.com

DOI: https://doi.org/10.30525/2256-0742/2018-4-3-283-287

CONCEPTUAL BASES OF STATE REGULATION OF VALUE ADDED 
IN THE GRAIN PRODUCT SUBCOMPLEX OF UKRAINE

Oleksandr Svitovyi1, Mykola Diachenko2, Hryhorii Kovalenko3
Uman National University of Horticulture, Ukraine

Abstract. The purpose of the article is to analyse the dynamics of the development of the grain product subcomplex 
and to determine the conceptual foundations of state regulation of value added in this subcomplex of Ukraine. 
Methodology. In the process of research, the following methods were used, such as theoretical generalization, 
statistical analysis, and system approach. The method of theoretical generalization contributed to the definition 
of conceptual foundations of state regulation of value added in the grain product subcomplex. Using the method 
of statistical analysis, the dynamics of production in the subcomplex was determined. The system approach 
allowed formulating directions for the development of the grain product subcomplex and improvement of the 
state regulation of value added. The results of the study showed that grain production in Ukraine tends to increase.  
A similar situation is observed with the export of grain, but raw materials are products with low value added. 
The production and export of most products of processing grain and finished grain products with high added 
value in Ukraine decrease each year. Getting the maximum of value added in the grain product subcomplex can 
only be achieved provided the complex development of the subcomplex within the agro-industrial complex of 
our country and its interaction with other sectors of the economy. A particular attention should be paid to the 
strengthening of vertical and horizontal integration, development of cooperation in the grain product subcomplex 
in the state regulation of the process of creation of value added. Also, we believe it is necessary to improve the 
legislative framework for the creation of clusters, approval of programs for their development at the national and 
regional levels. Practical implications. Improvement of state regulation of value added in grain product subcomplex 
of Ukraine will ensure its intensive development. The consequence of such regulation will be the transformation 
of production of raw materials into high value-added production. Value/originality. The research will help to 
understand, which directions of state regulation are most effective in maximizing the value added in Ukraine’s 
grain product subcomplex.

Key words: state regulation, grain product subcomplex, grain processing products, value added, profit.

JEL Classification: Е64, O12, Q18

1. Introduction
Grain product subcomplex is the largest in the system 

of an agroindustrial complex of Ukraine. This subcomplex 
provides one-fifth of the country’s exports and is one 
of the largest budget generating units. In addition, the 
grain product subcomplex is technologically linked with 
many other sectors of the agroindustrial complex of 
Ukraine and the entire economy as a whole. Given the 
current state of the national economy, the grain product 
subcomplex can become the locomotive of its revival. 
The main problem in this is the lack of comprehensive 
state development programs for both the agroindustrial 
production in general and the grain product subcomplex. 

It is important in the branches of the subcomplex to 
produce and sell not only raw materials but also products 
with high value added. This will increase the national food 
security and fill up the state budget, increase the gross 
domestic product and national income, and significantly 
improve the well-being of Ukrainians.

2. Theoretical approaches to the definition  
of value added

There are several definitions of the concept of “value 
added”. For example, in the Economic Dictionary, this 
notion is interpreted as the difference between the 



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value of manufactured goods and the cost of materials 
and raw materials used for their production. The value 
added consists of the salary, interest, and profit, added 
to the product by the enterprise or industry (Zavadskyi, 
Osovska, Yushkevych, 2006). The same definition 
is given by the Great Encyclopaedic Dictionary, 
indicating that this indicator is used to estimate the 
volume of production of enterprises and firms (Bolshoy 
Entsiklopedicheskiy slovar). The foregoing definition 
coincides with the interpretation of the value added 
of Samuelson P.A. and Nordhaus W.D. (Samuelson, 
Nordhaus, 1998). McConnell Campbell R . and Brue 
Stanley L. defined value added as the market price of 
the volume of products manufactured by the company, 
minus the cost of consumed raw materials and materials 
purchased from suppliers (McConnell, Brue, 1997). 
Mankiw N. Gregory shows that the added value of 
a firm is equal to the value of output, less the cost of 
intermediate goods purchased by it. For the economy 
as a whole, the value added should be equal to the 
value of all final goods and services. Consequently, 
according to the scientist, the gross domestic product 
(GDP) is the sum of the value added of all firms in the 
economy (Mankiw, 2000). Thus, value added as one of 
the most important indicators of economic activity of 
an enterprise or individual industries can be calculated 
on gross and net bases, that is, before and after the 
exclusion of depreciation. In general, in the economy, 
the gross value added of all enterprises and industries 
for the reporting period is the gross domestic product.

If from GDP to deduct consumption of fixed capital, 
then we obtain a net domestic product (Savchenko, 
2005), that is, the net product corresponds to the 
gross product, reduced by the amount of depreciation 
(Felderer, Homburg, 1998). In other words, the net 
domestic product is a newly created value in the 
branches of material production, that is, it is a national 
income.

If we consider the formation of value added in the 
grain product subcomplex of Ukraine, it should be 
noted that there is some injustice in its distribution 

between industries. Odintsov M.M. argues that a part 
of the additional product, created in agriculture, is 
implemented not in the place of its production, but 
in the processing industry and trade. From this both 
agricultural and processing enterprises suffer. The latter 
loses raw material areas and cannot fully utilize existing 
production capacities (Odintsov, 2011). Consequently, 
the isolation of certain sectors of the grain product 
subcomplex, the inconsistency in pricing, leads to the 
fact that, due to lack of funds, grain production is unable 
to fully develop, to introduce advanced crop growing 
technologies, and to supply the necessary quantity of 
quality products for processing and into the trading 
network.

3. Production as a basis for obtaining value 
added

The basis for the development of the grain product 
subcomplex is, first of all, the production of grain, which 
tends to increase (Table 1). In 2016, in comparison with 
2012, in general, it increased by 43%, and the highest 
growth rate was observed in winter barley – by 2.7 times. 
However, production of oats, buckwheat, and winter rye 
has slightly decreased.

Such crops, which are promising from the point of view 
of grain export, are best grown. Accordingly, the volume 
of production is 68.6% and 61.6% respectively. This 
year, 4.8 million tons of barley were exported, which is 
51.1% of its production (Derzhavna sluzhba statystyky 
Ukrainy, 2017). Of course, a large share of exports of 
these crops brings a currency income necessary for our 
country, but raw materials are products with low value 
added.

The production of most grain processing products 
and finished grain products with high added value in 
Ukraine decreases each year (Table 2). For example, 
flour production for the period of 2012–2016 has 
decreased by 20.0%. The same is true for pasta.  
The production of finished products from grain is also 
decreasing.

Table 1
Grain Production in Ukraine, thousand tons

2012 2013 2014 2015 2016 2016 in % to 2012 
Grain crops 46216 63051 63859 60126 66088 143,0
including winter wheat 15132 21863 23498 25937 25370 167,7
winter rye 675 633 473 387 390 57,8
winter barley 1325 2881 3345 3281 3637 274,5
spring wheat 631 416 616 595 729 115,5
spring rye 5611 4681 5701 5007 5799 103,4
oats 630 467 613 489 500 79,4
maize for grain 20961 30950 28497 23328 28075 133,9
millet 157 102 178 213 190 121,0
buckwheat 239 179 167 128 176 73,6
leguminous 473 372 481 502 877 185,4

Source: Derzhavna sluzhba statystyky Ukrainy, 2017



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Not the best terms with the export of grain processing 
products. Exports of cereals in 2016 amounted to 
30.0 thousand tons, bread and bakery products –  
83.5 thousand tons, which is, respectively, 8.0% and 
7.2% of production (Derzhavna sluzhba statystyky 
Ukrainy, 2017). Consequently, the situation in the grain 
product subcomplex does not look very optimistic in 
terms of obtaining more value added. Therefore, in this 
case, it is necessary to strengthen the role of the state, 
attracting more instruments of state regulation.

4. Directions of state regulation of value added
In our opinion, obtaining the maximum value of 

the added value in the grain product subcomplex can 
only be provided the comprehensive development 
of the subcomplex within the agroindustrial 
complex of our countr y and its interaction with 
other sectors of the economy (Figure 1). In state 
regulation, a special attention should be paid to 
strengthening vertical and horizontal integration, 
development of cooperation. This will strengthen 
the processes of creating added value in the grain 
product subcomplex .

The cooperative movement is important to develop 
also among small farms, which, according to scientists, 
is an integral part of the Ukrainian agro-industrial 
complex of Ukraine. More than 93% of the proceeds 
from small farms are formed by the sale of crop 
production, indicating a high level of specialization in 
this field (Prylipko, Shevchenko, Hryshchenko, 2016). 
In addition, most of these farms of producing mainly 
cereal crops.

Also, we believe it is necessar y to improve the 
legislative framework for the creation of clusters, 
approval of programs for their development at the 
national and regional levels. All these actions by the 
state should be aimed at stimulating the production 
of a subcomplex with a higher value added, based 
on the improvement of the competitiveness of 
products.

In addition, government control needs to be 
strengthened both in terms of product quality and 
production conditions. We agree with the scientists who 
are proposing to introduce the experience of developed 
countries when the manufacturer is first certified, and 
then the products that he produces are controlled and 
certified. Soils also undergo certification, where the 

Table 2
Production of some products of processing of grain and finished grain products in Ukraine, thousand tons

2012 2013 2014 2015 2016 2016 in % to 2012
Flour 2605 2565 2358 2211 2085 80,0
Cereals 365 367 350 358 373 102,2
Bread and bakery products short term storage 1686 1561 1357 1232 1160 68,8
Cookies are sweet and waffles 392 388 299 249 249 63,5
Macaronis, noodle and wares of flour similar 106 102 103 89,5 85,3 80,5

Source: Derzhavna sluzhba statystyky Ukrainy, 2017

 

 

State regulation

Grain product subcomplex

Vertical integrationClustering

Horizontal integrationCooperation

Value added of subcomplex

Promoting the 
balanced 

development of 
industries and 
infrastructure

Increase in value Current and 
strategic 

production 
planning and 

resource needs

Promotion 
and 

development

Interaction 
with other 

branches of 
the economy

Figure 1. Place of state regulation in the strategy of development of grain product subcomplex  
and increase of value added

Source: the author’s development



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raw material is produced (Sidnieva, Kuzminska, 2015). 
Certificated producer have more chances to export 
products and realize these products in the internal market 
on high prices and, thus, to get a greater value added.

Development of organic farming is also promising. 
Scientists rightly believe that in the future, the demand 
for safe food will grow not only in Ukraine but also 
in European food markets (Sychevskyi, Yuzefofych, 
2014). Production of such products is one of the 
important factors in increasing the value added of the 
grain product subcomplex, as their price is much higher 
than usual.

It is also important that an analysis of the effectiveness  
of previously adopted state programs for the development 
of the agroindustrial complex and its subcomplexes 
was carried out. For example, in the countries of the 
EU, an estimation of efficiency of programs of state 
support for subjects of ménage already for many years 
is mandatory by an element of the process of making a 
decision about the expense of state facilities (Bulana, 
2014). In addition, domestic scientists argue that it is 
necessary radically to reform the style and methods 
of state regulation, to combine regulatory tactics with 
the development of strategies and promising forecasts 
(Naymova, Mityay, Galitsky, 2016). In this context, it 
should be noted that the conceptual foundations of state 
regulation, in our opinion, should be ensured by the 
sequence of state programs in strategic development, 
rather than situational decision-making.

The domestic grain market is not marked by the 
stability of prices, which leads to losses both in 
production and in processing industries. There are 
several reasons for this. First, agreeing with the opinion 
of some scholars, one can state that the state price 
influence on the domestic grain market is practically not 
felt. Other countries introduce cyclical (compensatory) 
payments, which represent the difference between real 
market prices and the base guaranteed price. There is also 
a widespread practice of state support for the income of 
grain producers not so much by setting grain prices, but 

by reducing the cost of production (compensation of 
the share of the cost of equipment, fertilizers, imported 
fuel) (Burkynskyi, Lysiuk, Nikishyna, 2015). Secondly, 
in the conditions of the separateness of the grain 
producers and processing enterprises and the indicative 
planning, it is not possible at the state level to determine 
the optimal areas of grain crops and production. This 
leads to shortages or overproduction of certain products, 
which increases the price risks for manufacturers.

It is also necessary to constantly care about raising 
the material incentives for grain product subcomplex 
workers since wages are one of the main elements of 
value added. A well-motivated employee performs his 
work more qualitatively, which positively affects the 
performance of the work, that is, profit. In our opinion, 
it is necessary to raise the prestige of agricultural labour 
and bring its level to the average level in the economy.

Consequently, to increase the value added in the grain 
product subcomplex, it is necessary to use all possible 
instruments of state regulation (Figure 2).

It is important to specify that the provision of soft loans to 
help grain producers to increase the cost of working capital 
in the periods before harvest. This stabilizes the financial 
condition of agricultural enterprises. It is also necessary 
to restore the special regime of taxation of agricultural 
producers with the value-added tax. That is, the state needs 
to leave these funds to producers in full for the purchase 
of goods and services. Quotas on the export of grain 
processing products also need to increase. Improvement 
of the administrative instruments of state regulation 
provides for the provision of the legal field. In the system 
of grain products subcomplex is necessary to eliminate 
the intermediaries, which take away in manufacturers’ 
significant part of the value added in the form of profit.

5. Conclusions
The study determined that in 2012-2016 in Ukraine, 

grain production tended to increase. During this period, 
grain processing and production of finished products of 
grain, on the contrary, decreased. Grain is exported mainly 

 

Added value of the 
grain product 
subcomplex

Pricing

Tax

Administrative

Custom

Budget

Credit

Instruments of state regulation

Figure 2. Instruments of state regulation of value added in the subcomplex of grain production

Source: the author’s development



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Vol. 4, No. 3, 2018
as raw material and its processing products in exports have 
an insignificant share. Grain is a product with low added 
value. In this case, the budget gets extra revenue, and 
enterprise of grain products subcomplex – profit.

Getting the maximum of value added in the grain 
product subcomplex can only be achieved provided the 
complex development of the subcomplex within the 
agro-industrial complex of our country and its interaction 
with other sectors of the economy. The authors define the 
conceptual foundations of state regulation of value added 
in the grain product subcomplex. They are determined 
in the complex application of all instruments of state 
regulation. In order to increase the value added in the 
subcomplex, in our opinion, the state should adopt a set 
of such measures:

1. To conduct an analysis of the efficiency of previously 
adopted state programs for the development of the 
agro-industrial complex and its subcomplexes. Ensure 
the consistency of government programs in strategic 
development, rather than situational decision-making.

2. Improve the legislative framework for strengthening 
vertical and horizontal integration, development of 
cooperation, and the creation of clusters.

3. Stimulate production of subcomplex products with 
a higher value added.

4. Promote the development of organic agriculture.
5. Carry out certification of producers of grain 

products.
6. Provide partial compensation for the cost of 

equipment, fertilizers, imported fuel.
7. Provide preferential loans to enterprises of 

subcomplex.
8. Restore the special tax treatment of agricultural 

producers of tax on value added.
9. Achieve an increase in quotas for the export of grain 

processing products.
10. Bring the level of wages in agriculture, including 

in the grain product subcomplex, to the average of the 
economy.

In further research, the authors will study the problem 
of increasing value added in small enterprises for the 
production and processing of grain within the grain 
product subcomplex. In our opinion, strengthening 
the integration and cooperation of such enterprises will 
increase the efficiency of resource use and increase the 
profitability of production.

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