“Alliance of the Sword and Ploughshare” – Ukraine tries launching the land market
When it comes to lifting the moratorium on agricultural land, our government reminds Kislarsky – a character from the novel “The Twelve Chairs”, – who did not object but abstained during the voting just in case.
Politicians do not object either. They recognize that the land market is important, but when it comes to decisions, the Verkhovna Rada adopts only one solution for some reason: to extend the moratorium. At the same time, there are many scenarios waiting to set the land market to a flying start. Some of them are high-profile.
Surprise from Groysman
The Cabinet of Ministers took on to develop the land reform bill at the beginning of last year. It had been a hot topic in the media up to the summer with some theses being dumped once in a while.
In April, the Prime Minister Volodymyr Groysman even promised Ukrainians a “surprise”. What exactly he wanted to surprise people with remains uncertain, since the bill itself was not a breakthrough. It is based on the document created as far back as 2015. Secondly, nothing came out of the discussions anyway.
Now, we have the final document. It centers around the following:
- start the sales and purchases gradually. Sales of the state-owned land come first. Then, privately held companies will be expected to enter the market. Legal entities, including foreign citizens, will not be allowed to acquire the land;
- impose restrictions – no more than 200 ha for one person. The total state-owned lands sold should not exceed 1 million ha;
- resales will be subject to high fees. The authors of the bill believe this measure will reduce the risk of land speculation;
- sales will take place via special online auctions.
This way, farmers will be able to be in charge of their property. Agricultural holdings are going to have zero balances because the funds they are underpaying now, will be then used to buy the land bank. The authors believe the government will receive $7-9 billion from the new market.
On the other hand, this project has risks.
Firstly, small farming enterprises will not be able to buy land as they belong to legal entities, since it is the protection of small farmers that is the priority according to Groysman.
Secondly, prohibiting businesses to acquire arable lands, essentially, will result in small farmers continuing to lease their land shares with no one left to buy. That means this land reform will not change much.
Proposal by the Ministry of Agrarian Policy and Food of Ukraine
The Ministry of Agrarian Policy and Food of Ukraine proposed another option in spring. Their bill “On the turnover of agricultural land” reads that the land market should allow selling the right to lease.
Thus, the right to lease becomes an asset and can be used as a bank collateral.
Shareholders can sell their rights to lease land to whomever they want, including legal entities and foreigners. If the rights sold will be then resold to another owner, the former shareholder will be entitled to interests. This should improve the financial position of farmers provided that the deal is fair.
Moreover, one should think-out the financial and credit mechanisms for this model to become effective.
The issue is that banks are suspicious about the right to lease land as a type of asset that Ukraine has no extensive legal practice as far as its use and litigations are concerned. To convince the banks, we need an appropriate legislation.
According to the First Deputy Minister of Agrarian Policy and Food Maxym Martyniuk, such legislation will take at least 3 years to develop and implement. We will be lucky if the land will not be all sold illegally by that time.
However, according to Martyniuk, financial mechanisms allowing for the sale and purchase of land shares were carefully developed and engaged experts from the European Bank for Reconstruction and Development.
At this moment, the bill is ready now but has not been brought before the parliament for review yet.
And it is clear why. The Verkhovna Rada is clearly reluctant to solve land problems since it decided to extend the moratorium. That means the bill will have little support.
Many representatives from the political elite invest very much effort to sustain the ban on land sale. Last spring, the Verkhovna Rada reviewed three bills regarding the moratorium: no. 4727 (from the Radical Party), no. 5123 (from Batkivshchyna) and no. 5123-1 (from the leaders of five factions and deputy groups).
Yulia Timoshenko and Oleg Lyashko are the most active in this matter.
They had been lobbying their bills for almost entire 2017. They even resorted to tribune blocking and agitation posters in the Rada, and Oleg Lyashko was kissing the soil.
As we know, their efforts were not in vain. The Rada has indeed extended the moratorium until 1 January 2019. Even despite the calls to prolong the moratorium up to 2022. Tymoshenko, for instance, even proposed to prohibit the land sale for 10 years.
The main sentiment these people appeal to is the fear of the Ukrainian land being carved up to pieces and foreigner-phobia. For these reasons, the land must be ‘protected’.
Yuliya Tymoshenko believes that before opening the land market, one must enhance the Ukrainian farming and the agricultural sector overall. Sure, it is a wonderful idea. The problem is that there were more words than action.
According to the State Statistical Service, the number of farms has been reducing since 2013. Now, there are nearly 44 thousand farms against 49 thousand of farms that we had 5 years ago. The production of meat, dairy products, vegetables is declining.
Yet the shadow turnover of land is increasing. According to the Ukrainian Agrarian Business Club (UABC), the number of shadow schemes to sell land accounted for 40 thousand in 2017 against 14 thousand in 2016. And that’s despite the current moratorium.
It turns out that the moratorium itself will not save the Ukrainian land from being carved up. It is being carved up behind the scenes as we speak.
The bill no. 5535 prepared by “Solidarity” (Petro Poroshenko Bloc) also caused a lot of noize. It suggests three stages to launch the land market that are outlined up to 2030.
The first thing it aims to lift is the ban to sell land to communal services, local governments and State Service of Ukraine for Geodesy, Cartography and Cadastre (StateGeoCadastre). At this stage, only natural persons can acquire land plots – not more than 500 ha for one person. Then, only shareholders will be entitled to sell the land, and the legal entities and foreigners will join them afterwards.
Unfortunately, this document also contains unpleasant moments — the government plays a huge role there. For example, the bill binds StateGeoCadastre to force banks and other financial institutions into selling the land they received as collateral. Moreover, these entities will also have to pay 10% of the land plot to StateGeoCadastre. This initiative creates corruption risks.
Among them are agrarian e-tenders which become subject to regulation despite the Decision No. 25-рп / 2008 as of 11 November 2008 adopted by the Constitutional Court of Ukraine that binds agrarian tenders to be governed solely by the Law of Ukraine. There are many inconsistencies like these, which makes the bill no. 5535 questionable.
Let us remind you that preparing the land market for a set-off is a very complicated and global process. For that reason, it has to be implemented on all levels.
It is not enough simply to design the rules of purchase or sale, one must take corruption risks into account, develop financial and credit mechanisms, develop programs for low-interest loans to small farmers, regulate the judicial legislation so it can resolve disputes effectively.
These measures need changes to be made in the agricultural, financial, judicial and even constitutional law.
Most of the bills proposed are of restrictive nature. They outline only basic aspects, yet omit important details. For that reason, even if any of the laws passes the Rada now, it will not meet all the challenges associated with the land market.
This post is also available in: Russian