A group of 25 Ukrainian lawmakers, along with former Economy Minister Aivaras Abromavicius, are pushing for new legislation that will finally allow agricultural land in Ukraine — some of the most fertile in the world — to be bought and sold on the open market.
They plan to propose a draft bill in parliament later this month based on the belief that now is the right time to make such a move, given that pressure on Ukraine to enact land reform is rising, especially from the International Monetary Fund.
Alongside pension reform and privatization of state enterprises the Washington, D.C.-based international lender has made land reform one of the key conditions for the continuation of Ukraine’s four-year, $17.5 billion bailout, of which $8.38 billion has to date been disbursed.
When it released the latest tranche of $1 billion on April 3, the IMF said in a statement that although it had seen some positive developments in Ukraine since the economic crisis of 2014–2015 the agricultural sector remains “underdeveloped due to a moratorium on the sale of land.” It said this leaves “the rural population poor” and urged the government to act so that incomes in Ukraine will catch up to those in other European countries.
A ban on trade in farmland has been in place since 2001. Initially meant as a temporary measure, it has regularly been renewed by successive parliaments and is due to run until Jan. 1.
An open market
The legislation now being put forward by Abromavicius and the MPs proposes a liberal market model which would allow both individuals and legal entities registered in Ukraine to buy land, with limits set on how much any one actor could acquire at the district, regional and state level. Transactions would be conducted by an electronic auction system with the initial price set at somewhere around $1,500 per hectare, the price land currently trades at on the shadow market. That figure is expected to rise over the years to something closer to $5,000 per hectare, mirroring a trend seen in the Baltics and central Europe.
“The whole spirit of the reform is about maximizing the value for the owners of the land,” Abromavicius said at an April 26 U.S.-Ukraine Business Council conference.
The former minister believes that opening up the market for land would have wide-reaching benefits including that it would allow land to be used as bank collateral, stabilizing the banking system and making possible greater financing across a wide-range of sectors of the economy. He has suggested that the sale of inefficiently used state-owned land could generate as much as $2 billion in revenue for the government in the first year after the creation of the land market while within a few years investment in agriculture would rise to $10 billion.
The plan now being put forward by Abromavicius and the MPs comes in response to a land reform package presented last month by Prime Minister Volodymyr Groysman. Under Groysman’s proposals, only private individuals would be able to buy and sell land and only up to a maximum of 200 hectares. Critics of this system say that the restrictions it imposes would prevent Ukrainian agriculture from being globally competitive, discourage banks from using land as collateral and would likely allow corrupt schemes to flourish in Ukraine’s weak legal environment.
Others, meanwhile, fear that introducing a liberal market model will only deepen the problem of large land holdings being concentrated in too few hands. In an interview with the Atlantic Council’s Diane Francis, published May 3, Mikheil Saakashvili, the former governor of Ukraine’s Odesa oblast, said with President Petro Poroshenko already one of the country’s top three landowners, opening up the market will lead to him and other oligarchs expanding their portfolios.
Seizing the moment
Competing visions of land reform are due to be presented in parliament later this month. MPs will have the opportunity to select one, opt for a model which includes elements of both or reject all the options. The issue is complicated by the fact that a new round of parliamentary elections will be held in 2019.
“Because of the future elections everyone is afraid to take any radical steps,” Oleksiy Mushak, a Ukrainian member of parliament and one of the leading figures pushing for land reform, told the Kyiv Post in a May 3 interview. “Nobody wants to think long-term. Everybody wants to make some very short-term, tactical steps. Unfortunately, leaders in Ukraine are very populist.”
Meanwhile, Ukraine’s Constitutional Court is currently considering an application made by MPs earlier this year to lift the moratorium on the grounds that it violates citizens constitutional right to buy and sell their land. Mushak says that the appeal to the court was designed to act as a “catalyst” which would spur lawmakers to act because if they fail to adopt any of the market models presented to them now, the ban on trading farmland will be lifted by the court anyway and the market will come into operation without any limits whatsoever.
For the young parliamentarian the creation of a market for farmland is just one of many areas where Ukraine needs to take decisive action.
We have to take some risks to make Ukraine better, even if we risk losing the country entirely,” Mushak said. “If we don’t take those risks, in the long-term we’ll lose the country anyway, because no one will want to live here.”
