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The prevalence of non-monetary transactions (NMT) in the Ukrainian economy is a phenomenon attributable to its transition to a market system. Major types of NMT are barter transactions, offsets and payment in kind. Non-monetary transactions are widespread in agriculture. The aim of this research is to analyze the determinants, the nature and the economic effects of non-monetary transactions in Ukrainian agriculture. Based on actual conditions, the aim is to derive appropriate political and individual recommendations for leading the enterprises toward monetary transactions. For these purposes a theoretical framework is developed and the history of the phenomenon “barter”, as well as the institutional environment, are analyzed. Then follows a survey of 50 managers of agricultural enterprises in Oblast Kherson and an econometric analysis using panel data from these enterprises. The survey results and econometric estimations show that the main reason for non-monetary transactions is the liquidity problem of agricultural enterprises. Under the terms of soft budget constraints, the non-monetary transactions render possible the existence of illiquid enterprises in the market. In addition, the results show that the volume of NMT is decreasing due to liquidity improvement and a general improvement in the economic situation of agricultural enterprises. Based on the theory of money and transaction costs theory, monetary deals are more efficient than NMT, because of lower transaction costs due to the fact that money as a common medium of exchange reduces the problem of exchange partner search and mediates possible failures of the double coincidence of wants. This hypothesis is tested by econometric estimations using a panel data set of 50 agricultural enterprises in Oblast Kherson and is not rejected. The creation of a reliable institutional framework, the development of credit systems and the policy of hard budget constraints are important requirements for leading the enterprises toward monetary transactions. Agricultural producers have to realise that an improvement of profitability is only possible by using money as the medium of exchange in all transactions.


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