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Expert discussion: Moratorium on land sales – risks and benefits

Kyiv, May 18, 2017.

What are the potential benefits and risks of open land market for the state and shareholders? Experts, both supporters and critics of lifting the moratorium, tried to answer these questions at a discussion held at Ukraine Crisis Media Center. A key conclusion was that the land market has to emerge sooner or later, but this is a very complex issue requiring careful and thoughtful decisions and all stakeholders’ consensus. 

Potential benefits

Proponents of lifting the moratorium on land sales emphasize that shareholders cannot currently exercise their right to property. They can only lease. Today there are about 7 million of them. This is about 80% of all households in rural areas. The land rent in Ukraine is also lowered, and sometimes lessees sell lease rights to another business without the owners’ consent. “If it is their property, people have every right to dispose of it – not through lease rights, as some politicians are proposing, but after the launch of the land market. (…) Of course, this may have its effect, but it will only be positive. Market opening will result in the inflow of investments. It means more jobs in the countryside and in agriculture. The effect will be positive for the entire economy,” believes Dmytro Yablonovskyi, expert of the Center for Economic Strategy and the Reanimation Package of Reforms.

 “Firstly, the moratorium is unconstitutional as it is a limitation of rights. Secondly, the creation of a free land market in Ukraine will stimulate economic growth and lead to additional economic benefit of $100 billion from increased consumption, investment and government spending over the next 10 years after lifting the moratorium,” said Dmytro Livch, EasyBusiness project manager, Reanimation Package of Reforms expert. He added that the analysis of the situation in 60 countries, like Ukraine, showed that of all 60 only in Tajikistan there is no private land ownership; about 18 countries have limited foreign land ownership. The more open the land market, the better the performance of the agricultural sector in the country.

After lifting the moratorium, the cost of land as an asset and the rent will increase, thus share-holders will benefit from the changes – they will get a higher rental income and more opportunities for business loans. Higher rent will also motivate tenants to use land more efficiently. Lifting the moratorium will make business more transparent and increase tax revenues.

Oleh Nivievskyi, senior economist of the project “Reform support in agriculture and land relations in Ukraine”, added that lifting the moratorium would reduce the share of public lands that are not used transparently.

According to supporters of lifting the moratorium, it will not lead to the concentration of land in the same hands. “85% of land is cultivated by small households, so it is unreasonable to demonize agricultural holdings. Of course, we have to ensure that there is no concentration or attempts to use a dominant position, but we should not exaggerate the problem. […] Of course, politicians do not want this [lifting the moratorium], because some of them earn on lobbying the moratorium to hold,” explained Dmytro Yablonovskyi. Denys Nizalov, head of the project “Reform support in agriculture and land relations in Ukraine”, noted that according to recent surveys, only 10% of share-holders would like to sell them.

Lifting the moratorium is disadvantageous primarily for large agricultural holdings, says Andrii Vadaturskyi, MP of Ukraine (faction “Block Petro Poroshenko”). “Agricultural holdings grew during the moratorium, and they are not interested in the land market. There are farmers who take land from individual farmers, 2 – 3 thousand hectares, and do not pay any taxes, do not report – it is all black cash. What is their interest in buying the land? […] This reform is primarily for the society that is losing infrastructure; businesses do not pay taxes, people cannot get the market rent for the land. And the land market is supposed to raise rents for land instead of encouraging the sale or purchase of land,” he stressed.

Obstacles to the reform

Yurii Zmii, Head of the Reform Support Office of the Ministry of Agrarian Policy and Food of Ukraine, and Serhiy Bilenko, expert at the Reform Support Office of the Ministry of Agrarian Policy and Food of Ukraine noted that Ukraine is currently not ready to lift the moratorium because of such problems as insufficient quality of the land cadaster work, uncertainty about land shares, estate of inheritance, and land in public ownership. Vadym Ivchenko, MP of Ukraine (All-Ukrainian Union “Batkivshchyna”), noted that the statistics do not accurately show the real situation. In some districts land has not been parceled out among people. Although it is cultivated, they do not get the grain rent. The solution to all these problems is to prepare the necessary “steps” to lift the moratorium.

“Unfortunately, the land legislation is not ready yet for the proper land market. […] Measures are taken to address these issues. […] Some of them are developed by the Ministry of Agrarian Policy and Food of Ukraine, others – by the State cadaster. We hope that the legislation will have been prepared until the Verkhovna Rada finds a political decision on the date of lifting the moratorium,” noted Serhiy Bilenko. “All agree that there should be the land market in the long-term, but we must understand how we are to come to it. […] The main thesis is that such important decisions cannot be made immediately, under pressure from one party or the other. There should be a compromise and broad discussion involving the maximum number of representatives of the general public and professional business associations. Only when society, expert community and the government consolidate, we will make a final decision,” added Yurii Zmii.

Potential risks

Critics of the reform, including the farmers, see the risk in the fact that the land market will lead to concentration of land in the hands of a small number of oligarchs, get small farmers in bad and even threaten the country’s food security. “In the current situation, the sale of land should be banned until we solve the key issues and when people can apply to other institutions to protect their rights. […] Now, in times of total corruption it can pose threats,” emphasized Mykola Stryzhak, farmer, Vice President of the Association of Farmers and Private Landowners of Ukraine. “We begin preparations for mass protests and will not allow the authorities, who do not enjoy our confidence, to destroy the country,” stated Ivan Tomych, president of the Association of Farmers and Private Landowners of Ukraine.

Experts also stress the need for reliable protection against speculations, i.e., clear requirements imposed on the buyer. Besides, maximum transparency of the processes and easy accessibility of information on land ownership should be ensured online.

Status quo is the worst scenario

According to Denys Nizalov, the status quo will only deepen the existing problems. “The greatest risk in this reform is the lack of reforms, and today, unfortunately, it is the most likely scenario. The status quo means ongoing losses incurred by the state, owners and manufacturers. For owners it is lost profit, for manufacturers – losses of loans and growth opportunities. For the state it is losses of foreign currency revenues and agricultural products,” he explained.

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