The aim of this paper is to investigate the theoretical and methodological study of farm development and the issue of further institutional improvements in the agricultural sector of Ukrainian economy. For Ukrainian citizens farms are a form of business without legal status. At the same time they are an average of 1.4 hectares of land, and a social system which includes agricultural production and diversified consumer and marketable household. These include private farms, land plots, lands for development. In 2011 the number of such households in Ukraine reached 9 million, which occupied 16 million hectares (43.8% of farmland), and produced 48% of the GAO. Households make a significant contribution to agricultural production and play an important part as they provide the population with food, employment (especially rural population), promote social reproduction of a peasantry which is a stabilizing factor for social protection during the transition to market conditions, when agriculture develops more efficient production, services and social infrastructure. The process of institutional design, as an independent and equal entities limited by the imperfection of pledges, mortgages, taxes, and other institutions and their further transformation, is always accompanied by increased transaction costs. Indeed, based on citizens' self-employment, households belong more to the shadow economy. Besides, having limited choices they commonly use farm production resources, thereby shifting some of their costs. In the course of increasing the production volume, households face a number of problems including the lack of protection of their interests, sales problems, dependence on intermediary agents, shortage of supplies and necessary inputs. Farmers have limited ability to convey their concerns to the authorities, participate in the discussion of policy formation and regulation of agricultural markets, which encourage them to cooperate and on its basis create new institutional structures. These entities may be self-regulatory organizations of manufacturers (associations of agricultural producers, service cooperatives, etc.). The difference between self-regulatory organizations and non-profit organizations is in the introduction of responsibility of the market "from the bottom", by means of production rules, standards of conduct including ethical standards and enforcement of those rules. Especially those activities and services involved with improving the products quality, ensuring effective interaction between parties engaged in a business and professional activities. Since it is too expensive for each individual farm to develop formal rules, the self-regulatory organizations act as intermediaries between the farms, government agencies and consumers of their products. For the development and reinforcement of the institutional environment of the agricultural sector, the self-regulatory organizations first of all require proper legislative provision, that is the Law "On Self-Regulatory Organizations", in which the concept of a self-regulatory institution of economic or professional activity will be presented.

Consequently, households have become an integral part of agricultural production. They have become a natural part of the institutional environment of the agricultural sector and fulfill not just economic, but also significant social function. Moreover households have strong regional features and focus on characteristics of the local market thus creating local demand. However households usually are in the shadow economy and prone to institutional reforms. Only civilized development of the institutional environment could be able to exclude them from shadow turnover. The ways to achieve this are the formation of self-regulatory organizations based on households, activities which will enhance the efficiency of agroindustrial activities regulation, improving the quality of agricultural products, ensuring effective interaction between households and public authorities.

Key words: agriculture, farms, institutional development, cooperative, self-regulatory organization.