Experts say the biggest obstacle to development of Ukraine’s promising agriculture sector is the continuing moratorium on the sale of farmland. The enduring rationale for the ban is that the nation’s land should belong to all the people – perhaps a holdover from the era of Soviet collective farms. Many also don’t want foreigners to be allowed to own any of the soil.
However, the ban on land sales is curtailing much-needed investment. Investors, naturally, don’t want to sink a lot of money into developing land that they don’t own.
Critics say that parliament is delaying passage of two laws needed to lift the moratorium, as many influential businessmen and politicians profit from a land market that is kept in the shadows and rife with corruption and manipulation. For instance, land not used for agricultural purposes can be bought and sold.
Extended last December through 2012, the farmland moratorium prevents the soil from being used freely as commodity and collateral. Farmers, therefore, find it difficult and costly to borrow.
Investors in Ukraine’s agricultural sector also find the ban a disincentive to commit, blocking millions of dollars of investment. “Many traditional multinationals are afraid of moving into the [Ukrainian] market because of the risk involved with leasing land and having it possibly revoked for unknown reasons,” said Jens Bruno, business controller for Grain Alliance, a Swedish company that operates 40,000 hectares in Ukraine.
At stake are 32.5 million hectares of highly fertile arable land, equivalent to one-third of the European Union’s arable land stock. With demand for food on the rise, the value of farmland in Ukraine continues to creep up, although it remains below European levels as the absence of a land market makes pricing difficult.
Land could sell for about $500 to $1,000 per hectare once the moratorium is lifted, according to Roman Fedorowycz, chief executive officer and land acquisition manager for Ukrainian Agrarian Investments, a private company.
Prices in Romania and Poland, Ukraine’s neighbors, range from $4,000 to $5,000 per hectare, according to Fedorowycz. “Although prices for land here are heading in that direction,” he added.
But without a properly functioning land market based on rational market principles, the playing field for farmers and investors is murky.
“There is no database on current landowners and hence no information on how immense the areas of reserve lands are being allotted. It is unknown today who has the seal and the right to sign documents determining ownership,” said Leonid Kozachenko, president of the Ukrainian Agricultural Confederation, a non-profit that services the sector. “Worse yet, there is no legislation to transparently and clearly monitor the land market when it appears.”
It takes just a 16-kilometer drive along the Boryspil highway from Kyiv to see the adverse effects of the moratorium. Here picketers have been stationed for three years holding banners and waving flags that say: “Give Our Land Back!”
They’re from two nearby villages that, in 2007, discovered that a Boryspil city district judge had approved the transfer to land developers of 599 agricultural land deeds belonging to them involving 1,041 hectares.
This thriving black market for agricultural land is “wild, unregulated and in the shadows,” said Our Ukraine parliamentary deputy Kseniya Lyapina. She believes it’s the reason why her colleagues in December 2009 extended the moratorium until 2012.
“Land speculators have a vested interest in the [land] moratorium. They have no desire to see a transparent land market. These people have relations with local governments. One scheme they use is by first registering [agricultural] land to themselves, changing its land classification and then selling it to completely legal companies,” she said.
After land reforms stopped in 2001, following the distribution of land deeds to former collective farm members, two key laws remain to be adopted before the moratorium is lifted: the land market law, which will determine how the land market will function, including the rules and regulations; and the law on land cadastre, which focuses on the organizational functioning of the cadastre, including establishing boundaries and a single land registry.
The Ukrainian Center for Independent Political Research estimates that it will be two years before the land cadastre system starts working, as an index of aerial maps will have to chart Ukraine’s 58 million hectares of territory and set up a modern computerized information tracking system.
The World Bank is assisting Ukraine in setting up a cadastre, but the project is slated to end only in 2012.
Some are optimistic that things could move fast. Alex Frishberg, founding partner of Frishberg and Partners law firm, said that, with President Viktor Yanukovych consolidating power, one political group can benefit from lifting the moratorium sooner than 2012.
“Now that Yanukovych has galvanized power vertically throughout the country, we could see the moratorium being lifted much sooner than 2012,” Frishberg said. “It could happen in a year.”
Frishberg also added that, in the most likely scenario, Ukrainians well get first dibs on land before allowing foreigners to scoop up land. Agriculture Minister Mykola Prysyazhnyuk said on June 1 that the moratorium could be lifted as of Jan. 1, 2011, provided the relevant legislation was approved by the end of this year.
Others are more skeptical. “The top politicians…are not ready for a transparent system. Many are big landholders and they’ll have to explain how they obtained some lands in huge amounts,” said Oleksandr Polivodskiy, legal adviser to Ukrainian Agricultural Confederation, alluding to the incomplete land cadastre which would show who owns what land and where.
As for the picketers along the Boryspil highway, they’re still there, despite visits from former President Viktor Yushchenko, former Prime Minister Yulia Tymoshenko and other politicians who promised help.
Their lawyer, Oleh Sheremet, was shot to death on the doorstep of his own home in Boryspil on Nov. 30, 2007. The case remains unsolved.
The judge who approved the transfer of the land deeds, Mykola Korniyets, was arrested by the Security Service of Ukraine following a three-year manhunt.
Korniyets, 51, went missing on Oct. 13, 2007, in Yalta, after he learned investigators were looking for him. In 2009, 412 members of parliament voted to strip him of his judicial title and immunity and ordered his arrest on charges of corruption and fraud. State security officers detained him in Kyiv on April 23, as he was preparing to descend an escalator in the Khreshchatyk metro station.
Staff writer Mark Rachkevych can be reached at [email protected]
