“Ukraine moves to liberalize its prime farmland”
Europe’s breadbasket is up for sale.
The Ukrainian government is looking to lift a ban on sales of 41.5 million hectares of the country’s agriculture land — an area roughly equivalent to Germany and Denmark combined. The draft of the reform is being reviewed by lawmakers and, if adopted, will be one of the biggest reforms in the modern history of Ukraine.
Reforming the land law, which forbids owners from selling their farmland, was an electoral promise by President Volodymyr Zelenskiy. Since his party holds a majority in parliament, the new rules are likely to be adopted in the coming months and to enter into force as soon as October.
“For us, this issue is huge, because the amount of land is incredible and the potential has been blocked for 29 years,” Roman Andarak, deputy head of the Ukrainian mission to the EU, told POLITICO.
The agricultural land makes up almost 70 percent of the country’s territory. Thirty-three percent of the world’s black soil, the most fertile type of earth, is located in Ukraine.
Ukraine is the third biggest exporter of farm-grown foodstuffs to the EU, based on data from November 2018 to October 2019. According to the World Bank, the land reform would boost economic growth in Ukraine by between 0.5 percent and 1.5 percent annually over a five-year period.
POLITICO has all you need to know on the plans.
What’s the status quo? After Ukraine won independence from the Soviet Union in 1991, the land — previously in the hands of the state — has been redistributed among farmers in small parcels that cannot exceed 2 hectares. The law has forbidden them from reselling it. Many farmers decided to lease their parcels to big agriculture companies, meaning businesses operating on 100-hectare areas have had to strike hundreds of lease contracts. Since the companies don’t own the land, they often overexploit the soil and don’t invest in innovation and technology. The rules also prevent landholders from using the land as the asset, for example as collateral to access credit.
What does the draft law propose? The main aim of the reform is to liberalize the market — meaning all individuals and entities registered in Ukraine would have the right to buy and sell land. To fight against excessive concentration (and powerful regional oligarchs), the law foresees that the total area of agricultural land that can be rented and owned by one person cannot exceed 8 percent of the region and 0.5 percent of the country. Any individual (even operating through different companies) will be able to own a maximum 10,000 hectares of land, with an exemption for banks and financial institutions.
But what about foreign investors? The Ukrainian government says the law should continue to attract foreign investors to the country — but not immediately, since in principle the law won’t allow foreign businesses to buy land in Ukraine. “Before allowing foreigners to own the land or acquire the land, we need to make this market operational and well-functioning,” Andarak says. This issue of foreign ownership is supposed to be resolved in a nationwide referendum but the date for the poll is not set out in the legislation. The draft specifies EU and non-EU actors would always be treated the same — apart from Russian businesses and citizens, who will forever be forbidden from buying land.
So will Ukrainians get a say? Andarak says the referendum on foreign ownership won’t happen before the law enters into force. “If we have it [the referendum] before October 1, we’ll lose it immediately. The market doesn’t function, people don’t understand what the reform is about. There’re speculations about foreigners coming and buying,” Andarak says. He says it could take a couple of years before the referendum happens, and he said in the meantime there is a risk that land currently leased by foreign farmers may be resold to Ukrainian nationals before the market is open to all. But normally, if the land is leased, the lease agreements will not become immediately invalid and must be respected by the new owner in case the parcel is sold.
How does it play with the EU? Ukraine is tied to the bloc by the Ukraine-EU Association Agreement agreed in 2017. The treaty says that five years after it becomes operational (in 2021), the Ukrainian government and the European Commission will discuss when the country should comply with the rules of the freedom of movement of capital. Andarak says these talks will be dependent on potential future perspectives of Ukrainian membership in the bloc and could take decades rather than years.
What happens next? The bill was proposed to parliament in November, and the lawmakers were supposed to vote on it in December. But due to the extraordinary number of amendments (more than 4,000 to a six-page bill), the vote has been postponed and will most probably take place in February. The amendments will most likely be grouped and voted on together. The final shape of the bill (and its impact on investors) is therefore very much still up for grabs.