On 31 March 2020, Ukraine finally passed a new law to open up the land market. The new law put an end to the moratorium on the sale of the land and established new regulations for the land market. With Ukraine currently facing a looming economic crisis and severe budget cuts, the decision is vital for economic growth: land becomes real capital that owners can sell, use as a pledge to take loans from banks, etc. Lawmakers disputed specific conditions and rules in regards to how the land market should be launched.
The final version of the law seems to be balanced, as it takes into account that although the market should be opened, it also has to develop steadily, to avoid inflated or undervalued prices of land, and to avoid the concentration of land in the hands of a few monopolists.
Ukraine previously faced a similar scenario after the collapse of the Soviet Union where the state experienced the sudden release of state control over the economy and large-scale privatization of previously public-owned assets. This resulted in a race to strip all of the country’s assets by a few people who knew the value of these assets. As a result, the oligarchy in Ukraine was established through the consolidation of recently privatized state assets in the 1990s. That experience was the main reason as to why there were objections to the immediate opening of the land market.
The voting process was equally important, and it proved that President Zelenskyy willingly withdraws from populist rhetoric when it comes to promoting land reform, which is the main condition set by the IMF for Ukraine to receive a new loan. President Zelenskyy himself was present in the voting hall and, contrary to the pre-election TV-series Servant of the People, highlighted the importance of cooperation with the IMF and the need to open the land market.
Meanwhile, Zelenskyy’s Servant of the People party, which holds 56% of seats in the parliament, wasn’t able to reach an inner consensus on the law and failed to pass it. Thus, the president’s single majority proved to be an illusion as the party was divided. Instead, the land law was adopted by the ad-hoc coalition of MPs from pro-Zelenskyy Servant of the People, and anti-Zelenskyy European Solidarity and Holos.
The effect of the land reform regulations for the Ukrainian market
After the land market law was adopted in the first reading, more than 4,000 amendments were submitted by MPs to this six-page law. The Ukrainian parliament had to vote on each amendment, reject or approve it before the law could be approved in the final voting. The entire process took several months. Although most of the amendments were submitted by the opponents of the law to entirely block it from passing, some amendments were aimed to promote a gradual opening of the market, so that not all Ukrainian land would be immediately purchased by oligarchs or international companies who have more money. Instead, the priority had to be given to local Ukrainian farmers. The toughest discussion that the MPs encountered was about the access that foreigners will have to the market. On 31 March, the MPs finally reached a consensus on the different amendments and passed the law. 1. A Strict protectionist market. Foreigners are not allowed to purchase land in Ukraine. Ukrainians are able to vote against this proposal in the referendum. However, foreigners can still rent land. Thus, there would be no significant difference for foreign agricultural companies in Ukraine who already rent land except for the gradual rent price increases. The final version of the law also removes the possibility for foreign citizens to purchase Ukrainian land through Ukrainian legal entities owned by foreigners. According to the current law, only Ukrainian legal entities can buy land in Ukraine “participants (shareholders, members) of which are only citizens of Ukraine and / or the state, and / or territorial communities.” 2. The opening of the market will be postponed to 1 June 2021. At first, the opening of the market was planned for October 2020. However, MPs decided to postpone it due to the current economic situation from the COVID-19 crisis. This was done to give enough time for Ukrainian farmers to collect capital, mitigate the economic crisis and undergo preparations to purchase land once the market is opened. One important aspect to consider is the ability of Ukrainian farmers to pay for land, which is still under question. There is a provision within the law regarding state programs for cheap loans, but they still have to be arranged by the government with money that should come from the limited state budget. 3. The gradual opening of the market: up to 100 hectares per farmer without legal entities participating in the market during the first stage. The transitional period has been introduced to the law. Until the end of 2023, one person can buy only up to 100 hectares of agricultural land. Legal entities are not eligible to buy land during the first period. The transitional period was designed to allow small local farmers to buy land first, and give access to the market for larger companies afterwards. This was the conditional amendment proposed by the Holos party in order for the party to support the law. While a 100 hectares seems to be a good starting point, some deputies claim that the immediate transition from 100 hectares to 10,000 hectares in 2024 will lead to the concentration of land and emergence of local land monopolies. 4. 10,000 hectares per person/legal entity as the general limit for land purchase starting in 2024. This norm was heavily disputed as some MPs claimed that a limit of 10,000 hectares is too much per person, and that would allow a relatively large concentration of land per person or legal entity. Why 10,000 hectares is a worrying limit for land purchases in Ukraine starting in 2024? At present, there are no major landowners in Ukraine. The large share of land in Ukraine is still owned by the state, while the rest was distributed among members of former communist collective farms by small portions. Today, there are up to 7 million small landowners in Ukraine. People either lease this land to large companies, having very small rent payments, or establish their own small farms. The limit of 10,000 hectares is a big deal for Ukraine since it will allow one person to purchase dozens or even hundreds of portions of land that were distributed among people after the collapse of the USSR. There is concern that this may give rise to local monopolies. 10,000 hectares is also the square of many Ukrainian local municipalities. Such a limit gives way for potential situations when there is only one landowner for the whole municipality.
How MPs voted for the law “under the pressure” of the IMF
Before the last parliamentary session, Zelenskyy met with his party. He tried to persuade MPs to vote for the land market reforms and also support the so-called “anti-Kolomoyskyi” law. The latter was meant to prevent the oligarch from taking back the largest Ukrainian bank that previously was bankrupt and subsequently nationalized by the state.- Read also: Ukrainian parliament approves at first reading bill against oligarch Kolomoiskyi to receive IMF loan
Batkivshchyna party asks to cancel the land market law
Batkivshchyna and the Opposition Platform were in sharp opposition to any version of the land market reform, claiming that it will only serve to benefit western investors - although foreigners are not allowed to buy land in the final version of the law. Subsequently, even after the adoption of the law, Batkivshchyna didn’t stop fighting against the law. The party submitted 7 different draft decrees to the parliament to cancel the law due to various reasons. One of the key arguments was that the law passed, but the law approval process was violated . As some amendments were being considered, the majority of deputies were not present in the parliament. As a result, this means that judicially, there can be cause to have the law be reconsidered. Without the consideration of the submitted 7 decrees by the parliament and their rejection by the voting, the law can’t be signed by the president and attain legal status. Thus, the law is currently on hold. Whether the IMF will agree to provide the new loan program in such circumstances remains an open question. Read also:- Vitaly Portnikov: It’s simply a matter of life and death
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