A landmark law on the abolition of collective farms is giving a boost to the country's small farmers and contributing to the revival of Ukraine's moribund agricultural sector
collective farms, which was passed by President Leonid Kuchma in late 1999 and implemented by the Yushchenko government last year, is giving a boost to the country’s small farmers and contributing to the revival of Ukraine’s moribund agricultural sector, analysts say.
Though it remains illegal to buy or sell agricultural land in Ukraine, the law has made it possible for former collective farm workers to begin tending their own land, or to rent their land to others.
Ukraine, which boasts one-third of the world’s total acreage of “black soil,” the richest on Earth, has been slow to privatize its most precious commodity.
Farmers first received land privatization certificates in 1995, but most never actually got any land. The certificates merely conferred the right to own land, without allotting specific plots.
It wasn’t until last year, when the government reorganized all state-owned collective farms into private entities, that former collective farmers finally got the right to actually own land plots.
The new law on collective farms gives farmers land deeds entitling them to about five hectares of land. More importantly, it specifies each farmer’s land plot. In many cases, farmers have been given deeds for plots located right next to their home garden plots. Thus, some farmers have suddenly become the owners of small farms located right in their backyards.
According to Agricultural Policy Ministry data, to date 22 percent of Ukraine’s 33 million hectares of arable land has been distributed among the nation’s farmers with the help of the new land deeds.
Vasyl Fedyayev, an advisor for the Association of Landowners and Renters, said that the distribution of land and land deeds is expected to accelerate soon. The government recently selected U.S. firm Chemonics to handle the distribution of land deeds. Fedyayev reckons it will take two years to complete distribution of land nationwide.
Those who already have their land deeds are already reaping the economic benefits. And those benefits don’t necessarily take the form of a bigger and better harvest. Many farmers are finding it more advantageous to lease their newly acquired land plots rather than tend to them.
Fedyayev said that only one-fifth of the country’s new landowners are harvesting their new plots, with the rest choosing to lease their land. Landowners receive cash or in-kind rent payments over the term of the land-lease contracts, which average between five and 10 years in duration.
The nascent market for leased agricultural land has spawned new businesses and fueled lending to Ukrainian agricultural enterprises.
Mykolayiv-based Nibulon is one company that is thriving off the liberalization of the agricultural land market. The Ukrainian, Hungarian and British joint venture, which has been farming at least 50,000 hectares of rented land at a time since 1996, tries to sign rental contracts as soon as farmers receive their government land deed, according to Deputy Director Oleh Starostenko.
It has proven a successful strategy so far. The company rents land from 7,000 former collective farmers in the Kharkiv, Mykolayiv, Luhansk and Vinnytsya oblasts.
Dietrich Treis, the head of the German-Ukrainian Agricultural Project, also touts the benefits of renting land. He says rental opportunities have created a new type of farmer and that lending to agriculture is growing impressively.
Ukrainian banks loaned Hr 1.1 billion ($200 million) to agricultural enterprises during the first three months of this year, more than during all of last year. Bankers say they are impressed by how quickly farmers are moving from a Soviet-style approach to borrowing to a more businesslike way of thinking. Not long ago, bankers say, farmers were asking for loans without knowing how – or if – they would repay them. Today, many farmers approach banks with business plans in hand. Most offer their future crops as collateral and banks have been increasingly willing to take the risks.
Yet private farmers still can’t sell the land that they own. And many say that will continue to stifle the sector’s development. The fact that farmers can’t trade land means that they can’t use it as collateral for agricultural loans.
Zhanna Revnova, an analyst with the International Finance Corporation’s Agribusiness Development Project, said a green light to land sales would attract cash to the under-funded industry and help develop basic business practices, like marketing. With a majority of Ukraine’s left-leaning parliament opposed to land trading, that may be a distant prospect.
Others say that the right to lease land is almost as important as the right to sell it. Treis says the government’s new agricultural policy neutralizes many of the negative effects of not having a viable Land Code.
At the very least, the success of the new agricultural policy has fueled hope that the days of an agricultural sector run by corrupt collective farm bosses and interventionist state officials might soon be over.
Ukrainian farms existed for years in a vicious cycle wherein the state paid for farmers’ fuel and fertilizers in the spring, only to take their crops later in the year as payment.
Managers at state farms and regional officials concerned themselves mainly with retaining their positions, according to Pavlo Kulinich, a lawyer at the IFC’s Agribusiness Development Project. That meant keeping the old system in place.
When the Yushchenko government stopped interfering in the sector last year, it allowed farmers to begin to tackle the problems of operating an agricultural business on their own. The results would appear to speak for themselves.
Farm losses fell by 90 percent, while agricultural output rose by 6 percent in the first three months of this year.
“Agriculture is expected to grow by at least 10 percent over the next three years, even without a major inflow of investment,” said Revnova. “That’s simply thanks to the new landowners.”
