Conditions of the land market implementation in Ukraine

During the recent parliamentary hearings there was another attempt to try and find a Ukrainian model of regulation of agricultural lands. And once again farmers, representatives of associations, landowners, and politicians could not find an answer to the key question: how, when and under what conditions the moratorium should be lifted in order to open the agricultural land market?
Obviously, the society, the political circles and the business cannot reach a compromise on the land market model. At the same time everybody admits – though sometimes not openly – that a hidden land market is successfully functioning and thriving in Ukraine. I should say so, since more than 20% of the land is already in private ownership.
At the same time, during the moratorium’s being in action every seventh landowner has died without taking advantage of the ownership of their land. About 1 million of Ukrainians out of 6.8 million owners of land shares haven’t managed to become parties to the land market because of unscrupulousness of the domestic politicum. As a result the escheat inheritance amounts to 1.5 million hectares of land. More than 400 thousand citizens have not exercised their right to own the land and could not transfer it by succession.
The current state of land relations suggests two possible scenarios – prompt but balanced reforming, or creeping towards the abyss – which has been taking place over the last 25 years.
I realize that the main factors that hinder the land market are the apprehensions of the political elites to upset the delicate balance of the situation, as well as the unequal opportunities for large and small landowners, the lack of alternatives in the decision-making process. These apprehensions include the risks of unfair competition, lack of funds to purchase land, poor agricultural management, raiding and other criminal factors.
The current model of land relations, which has been making our government go around in circles for many years, is clear and economically beneficial for many players. The existent Ukrainian quasi-market of land despite its shortcomings somehow satisfies the needs of everybody, but for the landowners themselves, especially the smaller ones. Therefore, the major players are telling “horror stories” in order to intimidate their “smaller” fellows in the market.
The manipulation with fear turned to be a quite effective tool of political influence. It suppresses and forces to abandon attempts to qualitatively change the situation. Therefore, it is necessary to debunk such artificial manipulations in the first place, and create equal opportunities for all participants in the land market before its full opening at the same time.
First of all, we have to give back the financial instruments to the existing land lease market. In particular, these are the right of pledge, sale of lease rights, emphyteusis mechanisms… As a result, all market participants operating on a rental basis will get a significantly improved access to the means of financing of their business or purchase of land, provided the market is opened.
Secondly, it is necessary to provide land owners with the opportunity to receive long-term, preferential bank loans. Mandatory elements in this process are the use of instruments of collateral, provision of project management for the implementation of projects aimed at creation of small farms and family farms.
Long-term (7-12 years) loan financing secured by farm fields should be carried out by public or private banks. The projects should be of a high added value, with a high level of localization of the costs (75%) associated with their implementation. First of all, this is setting up of greenhouse farms, family-style dairy farms, production of environmentally friendly products, their processing, horticulture, berry-culture, vegetable growing, and the like. At least for the next 3-5 years there should be budget programs aimed at providing support for small farms and family farms. Citizens need this time to formulate their business decisions and to be able to realize them.
According to expert calculations, the use of 33.4 million hectares of arable land with the right legislative support will turn into $100 billion of direct investment. These data are confirmed by the fact that the medium and large agricultural holdings attracted $ 2.2-4.3 thousand of investment per 1 hectare. In addition, billions of dollars are invested in logistics, processing, infrastructure, construction and development of terminals at the same time…
The legal aspects of the land market opening should be specified and legislatively regulated in the near future. This will give directions to Ukrainian landowners and investors.
The land market may be opened when several important legislative issues are taken care of. Among them:
1) Provision of pre-emptive right to acquire agricultural land for Ukrainian citizens and communities;
2) Moratorium or a higher rate of taxation on the resale of land;
3) Setting the minimum prices at which the state will have the priority right to buy land;
3) Restrictions on the right of foreigners to purchase arable land for 12-15 years. In case of their selling the acquired land the priority right to purchase will be granted to the citizens of Ukraine.
All these and other steps and conditions have to be spelled out in a package of bills that should be adopted all at once. However, the implementation of laws can be gradual. This is important, given the different time and organizational factors of land reform.
Gradual but steady implementation of these measures will eliminate real risks, as well as it will eradicate the artificial public fears related to the land market relations. By adopting the land market legislative package, the state will officially declare its course towards an effective functioning of the Ukrainian agricultural sector. This will give real prospects of development for small and medium-sized farming, family farms. And this, in its turn, will stimulate the economic development of the state, the employment rate and revival of the Ukrainian village.

Ivan Miroshnichenko
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