Here we publish key highlights from the interview with Mr. Nizalov on land reform issues in Ukraine. You can watch the full interview on the video attached to this article.
Ban on sale of agricultural land in Ukraine
Ukraine does not have a functional market for agricultural land Ukraine imposed a ban on sale of agricultural land, a moratorium, impacting most private plots and all state agricultural land – about 42 million hectares in total.
Under this moratorium, owners cannot fully exercise their constitutional rights for free disposal of their private property. Moratorium causes significant inefficiencies in agricultural production and remains a key reason why agricultural productivity is among the lowest in Europe despite the fact that Ukraine has some of the best soils and weather conditions in the world for crops. The moratorium is also the reason why agriculture is under invested.
Farmers cannot use land as collateral for borrowing from banks. And in the case of foreclosure, banks have no use for land that it cannot sell. This moratorium prevents potential investment of billions of dollars in Ukrainian agriculture.
Most vulnerable are small and medium farms, farmers which are credit constrained. Large farms have access to international markets and cheap credit.
The original reason for moratorium on sale of land in Ukraine was the fear that land would be quickly accumulated by a small group of landowners and large producers. Property rights and land plots need to be properly recorded by the government.
Agriculture producers learned that operating under the moratorium was more profitable in the short-term because land rental prices remained very low. As such, these producers have established a significant lobby in the government. However, the market has hit a ceiling and things have changed
Land reform advantages
Political populism interferes with land reform. Significant grey market, shadow market for land, competes with large producers who operate formally. Shadow market has different, lower cost structures, and established opportunities for corruption
Land reform would have significant economic benefits to Ukraine’s economy. Most producers, however, are involved in commodity crops, low value-added crops. Relative to other countries, Ukraine has a small share of high value-added crops, e.g. fruits, vegetables, specialty crops, orchards, livestock. Significant amounts would be invested in irrigation infrastructure, greenhouses, etc.
User rights, rental rights are not properly recorded or registered. Tenants are vulnerable to wrongdoings. Many errors were made in recording land parcels.
No banking products or financial instruments that would accept land as collateral; Government of Ukraine should establish various instruments such as partial guarantee funds, special programs for small farmers, partial interest rate reimbursement, etc. Without this infrastructure, land reforms in Ukraine will not succeed. Rights of all owners and users must be equally protected, otherwise, there will be excessive concentration of land ownership, control, and other negative consequences
Gradual market opening and transition period will see an oversupply of land flooding the market because unused land parcels accumulated during the moratorium. The government should impose controls on excessive speculation and pricing during this period.
Biggest opposition to land reform
I spent 50% of my time in Ukraine communicating directly with different stakeholders: farm associations, local government representatives, etc. Most producers understand the moratorium is a roadblock.
People have very little trust in government. Regardless if reforms are good or not, any action by the government is viewed as a potential threat. People are afraid of changes a potential threat. People are afraid of change.
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About Dr. Denys Nizalov
- Associate Lecturer in Economics at the University of Kent, UK
- Former Assistant Professor at Kyiv School of Economics, Ukraine
- Director of the project “Capacity Development for Evidence-Based Land & Agricultural Policy Making Project in Ukraine”
- Editor at VoxUkraine