May 12, 2017    5 minute read

Ukrainian Agriculture: the Dangers of Opening the Land Market

Rising Tensions    May 12, 2017    5 minute read

Ukrainian Agriculture: the Dangers of Opening the Land Market

The International Monetary Fund is demanding that Ukraine abolishes the moratorium on agricultural land trade, which has been in force since 2002. The draft law has been submitted to the parliament, and the constitutional court is presently dealing with it. However, how will this impact Ukrainian agriculture?

Abolishing the Moratorium

Farmers, supported by economists, want to maintain the status quo. In February, a group of 55 parliamentarians, mainly from the presidential faction of the Petr Poroshenko Bloc, applied to the Constitutional Court for a declaration of unconstitutionality against the moratorium on the sale of agricultural land. The initiator of the proposal was deputy Alexei Mushak, who in December last year, together with two other parliamentarians, submitted a bill to the Ukrainian agricultural land market in parliament.

“Ukraine needs to be attractive to foreign investment, and the agricultural sector is considered one of the main sources of revenue to the state budget and local budgets. The opening of the agricultural land market will secure the introduction of agricultural land into the market, which will foster the full realisation of ownership by landowners, raise investments in the agricultural sector of Ukraine, raise the level of material welfare of agricultural land owners”, according to the Justification of the Act, set to come into force on 1st July 2017.

In the opinion of many commentators, the government has neither a substantive nor legal basis to abolish the moratorium. Furthermore, according to Deputy Minister of Agriculture and Food, Maxim Martyniuk, abolishing the moratorium by a constitutional court, which would lead to a situation in which land trade would take place without any control and restriction, would be dangerous.

“It’s a rather risky step because the violent change of status quo without any transitional period can cause chaos in the agricultural sector,” he argued. In his opinion, “the main risk of launching the land market reform is a rapid concentration of land, depriving villagers of land, even greater complication of these [negative] processes in the country we now have.” However, as he asserts, “there is not a single risk that could not be suppressed or prevented.”

Conflicting Opinions

However, Anatoly Miroszniczenko, a lecturer in agricultural law of the Higher Council of Justice, believes that abolishing the moratorium will not negatively affect the situation of the owners.

He believes that in the initial period, the price of plots will not be high, but will then proceed to grow. “At first, the price will be low; this cannot be avoided. The other thing is that every landowner will be able to decide for themselves – to sell or not at that price,” he explains.

According to him, large agricultural enterprises will not be interested in buying land due to the substantial fragmentation of Ukrainian agriculture: most farm plots today are from two to four hectares. However, the lease of small plots is currently the basis for the action of several dozen thousands of Ukrainian agricultural companies, which can accumulate up to several thousand hectares of agricultural land.

Asymmetrical Opportunities

The media suggests that the leader of a group of parliamentarians supporting the moratorium’s abolition has family ties with Andrei Wieriewski, former parliamentarian of the Viktor Yanukovych party, and the owner of one of the largest Ukrainian agricultural companies (the Kernel Holding).

Ukrainian farmers have a poor chance of buying agricultural land because, unlike a narrow circle of people, they lack purchasing power. Besides, their monthly economic opportunities are becoming smaller. At the request of the IMF, Ukraine annulled tax privileges for farmers last year. In return, they were entitled to a VAT refund. However, taxes are paid on a general basis, and VAT refunds are not met.

Additionally, the protection of property rights, particularly in the agricultural sector, is not well-established in the Ukraine, as evidenced last year by a wave of protests against seizure of farms by falsification in the state register.

Other European Land Systems

In many EU countries, there are drastic restrictions on the sale of agricultural land. In Germany, the purchase of agricultural land must be authorised by the local administration and farmers are encouraged to remain on the farm. Acquisition of agricultural land in France requires the approval of the administration and a diploma of agricultural school or a five-year period of agricultural work.

In Lithuania, a person must have a degree of agricultural qualifications, and a legal entity and its subsidiaries cannot own more than 500 hectares (no more than 300 hectares of land can be purchased from the state). The purchase of land with an area exceeding 10 hectares requires the consent of the administration.

In Romania, the sale of agricultural land is available is facilitated by a government body. In the case of land below 30 hectares, approval is required at the local level, and in the case of larger plots, by the Ministry of Agriculture.

Déjà vu?

At the end of March, a farm congress was held in Kiev, where agricultural representatives announced a nationwide campaign against agricultural land.

“Unfortunately, it all resembles the situation with the privatisation of the industry in the 1990s, when there were nice slogans like: “Thanks to the privatisation of businesses, every Ukrainian will become rich.” In fact, we have become a poor nation but a small group of oligarchs got very rich,” commented the economist Vitaly Skocik.

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