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Report on the problems and perspectives of implementation of the market of land in Ukraine at US-UA Business Networking Forum Series Special Event dedicated to "Seeking Ways To Fast Track Ukraine's Economic Recovery"

 

According to Article 14 (1) of the Constitution of Ukraine and Article 1 (1) of the Land Code of Ukraine, land is the main national wealth that is under special state protection. Land ownership is guaranteed. This right is acquired and implemented by citizens, legal persons and the state only in accordance with the law. However, for many years the sphere of land relations in Ukraine has been associated with the absence of regulation, disorder and corruption. There remains a lot of political speculation related to this topic. Formally the situation is explained by moratorium on land sales and the absence of law on the circulation of land. However, the politicization of this issue has led to the situation whereby most of the population is against the free sale because it is afraid of being robbed. Trying to meet the obligations of the IMF, the authorities are accordingly trying to somehow resolve the issue of free circulation of land in order not to take political and electoral responsibility for this step.

As of now, we have the following statistics. 

The total area of land in Ukraine is 60.4 million hectares. 70% of them, i.e. 42.4 million hectares is agricultural land, over 32 million hectares of which are processed annually. For comparison, in Poland twice smaller areas are involved in agricultural production, which is14 million hectares, 12 million hectares in Germany, and 9 million hectares in Romania. The amount of black soil in Ukraine is the largest in the world and is 28 million hectares.

In Ukraine 27.5 million. Ha of agricultural land are distributed. As a result 6.9 million of Ukraine citizens acquired the right to land (share), 6.8 million of which became their owners. In addition, citizens have received the ownership and use of land for commercial farming, subsidiary farming, gardening, mowing and grazing totaling more than 16 mln. Ha, which produces about 45% of gross agricultural output of the country.

As of January 1, 2016 there is 31 million. Ha of agricultural land in private ownership, or 74.8% of the area. State share is 10.4 mln. Ha (25.1%), municipal - 25.5 thousand. Ha (0.1%), collective - 17.4 thousand. Ha (0.04%). About 45K of agricultural groups of a market type are created and operate, 71% of which are farms, 17% are business partnerships, 8% are private companies, 1% are cooperatives, and 3% are other forms of economic enterprise.

At the beginning of 2016, the area of land transferred under leased contracts was15.8 million. Ha, accounting for over 57% of distributed farmland. Total payments for the lease of land shares pursuant to contracts concluded as of 1 January 2016 was USD 12.9 billion. , or USD 862 per 1 hectare, however it is primarily related to the lease of the shares.. Indices zeyel the rental of state property significantly lower. The numbers of the payments for the lease of the state owned land are significantly lower.

An important step in fighting corruption could be the electronic auction for the sale of lease rights of public lands. However, the officials are just imitating the movement in this direction. Although considering a small amount of land sales an annual lease increased by 72% on average in Ukraine.  

The main lobbyists of preserving the moratorium are:

• part of the agroholdings that now have the opportunity to lease land without substantial competition, especially foreign agricultural manifacturers, with minimum costs. They also do not have to raise additional funds for the purchase of land;

• officials who administer the right to use state and municipal land;

• numerous land owners who are afraid of the free market of land for different reasons.

In theory introduction of full market of agricultural land in Ukraine may lead to inflow of money into the agricultural sector and its rapid development. But it is only possible in case of a detailed regulation of the market and full transparency of operation.

By the way, implementation of full market of agricultural land may also become the impetus for the development of Ukraine-US cooperation and significant increase of US investment into the Ukrainian agricultural sector.

As of now, the situation is the following.

No reliable and relevant information on the inventory of agricultural land by ownership and economic entities; the legislative procedure of using unclaimed and undistributed land and land shares of collective land ownership, land consolidation, exchange of land is not regulated;

transfer of information from the State Register of Lands to the State Land Cadastre of Land on the land acquired by the citizens before 2013 in accordance with the law is not completed; 

volumes of environmental and agrochemical soil survey are significantly reduced, as well as state funding to implement measures to ensure the sustainable use and protection of land;

procedure of economic incentives of rational land use and protection, conservation, restoration and improvement of soil fertility is not legally defined.

In these circumstances, the introduction of the land market will likely lead to negative consequences.

The issue of losses incurred by population due to the underestimation of the value of the land will not be the most negative one. There is a risk of land degradation through their misuse.

That is, for the effective implementation of the land market in Ukraine it is necessary to:

1. Create a complete open electronic land registry with information on land, their owners, imposing limits on related areas, boundary disputes, etc.

2. Create the system of requirements regarding the use of agricultural land, including environmental requirements and requirements for crop rotation. 

3. Create anti-monopoly restrictions and other mechanisms to prevent the shadow land market circulation.

4. Create infrastructure of agricultural land (land auctions, land banks, appraisers, insurance companies, land management organizations, registration rights, etc.) 

5. Introduce automated electronic system of registration of payers of land tax and lease for land and financial transactions during the sale of ownership rights or lease rights to the land.

The first, second, fifth and partially fourth paragraph are directly related to the issue of creating a full e-government system in Ukraine based on a single architecture at all levels, as the creation of separate registers lead to excessive loss of funds for their establishment and functioning, as well as the inability to use them effectively. The last example of the actual blocking of the effective implementation of the system of e-declatation by the Ministry of Justice and several other governmental institutions are a great example.

While these and other issues are not resolved, efforts to implement free market of agricultural land, or even a simulated market of lease rights to such land, considering populist restrictions on the rights of foreigners may actually lead to the situation whereby Ukrainian oligarchs (with some of them being half-Russian) will buy agricultural land for nothing and finally rob their own citizens. And given the mentality of some of them, which is embedded in the famous phrase "let there be deluge after me", it may also result in the loss of quality of Ukrainian agricultural land, which is still considered to be one of the best in the world.

 

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