Background
During the Soviet times, the only landowner was the state. Consequently, the prerequisites for the agrarian reform were laid down by the principles of land ownership.
In 1990, the Land Code of the Ukrainian SSR was adopted, establishing the existence of land title in the form of lifetime-inherited possession, permanent possession, as well as permanent and temporary use. However, inherited possession is not equal to the right of ownership, since the right to dispose of land was reserved to local councils.
The first step towards real reform was the adoption by the Verkhovna Rada of a resolution “On Land Reform” in March 1991. The purpose of the document is a redistribution of lands to create conditions for the balanced development of various business patterns in the rural areas. This became the impetus for the transition of land to the private ownership of citizens, agricultural enterprises and other users under certain conditions.
Another important step was the adoption in January and March 1992 of the law “On land ownership” and the new edition of the Land Code, respectively. These documents introduced three equal forms of land ownership: private, collective and state. In addition, all landowners could legally lease it. Due to the adoption in the same year of the Law “On the peasant (farmer’s) economy”, privatization of the average land share which is accounted for one tenant on the respective territory, became possible.
The further implementation of the reform became possible due to the adoption of presidential decrees on its acceleration (November 1994), on the procedure for land parceling, transferred to agricultural enterprises (August 1995), on land lease (April 1997), etc.
Finally, according to these documents, a real denationalization was carried out. That is, the lands were disposed of for the collective and private property to produce agricultural products. Land parceling was also carried out. Certificates confirming the right to land share (portion) were issued. Thus, 7 million Ukrainians received agricultural land in private ownership. The owners of the certificates could freely dispose of them, including the right to conclude sales contracts (was canceled later). In 2000, the process of replacing land certificates with Certificate of Title under the Land Transfer Act was started.
It should be noted that the new draft of the Land Code has been ready already in October 1996, and the Cabinet sent it to the Parliament. Then, as now, the launch of the land market was a prerequisite for prolongation of Ukraine’s international assistance program. However, despite the pressure from the World Bank and the IMF, in March 1997, the draft was rejected by the Parliament. The government and the president followed a different way. In 1998-1999, the land denationalization through the system of the above-mentioned decrees began. At this time, it was possible to sell the land, but this did not last long – until 2001.
The completion of the land market forming at that stage of Ukraine’s development was the adoption of a new version of the Land Code (October 2001), which is significantly different from the previous document. Thus, a legal basis for the use of land as a pawn, its sale, and land use restrictions was created. In addition, the list of forms of ownership was changed: private (population and legal entities, including the form of joint ownership of the land plot), communal and state.
Moreover, the new version of the document established the norms for the free transfer of land plots to citizens, the conditions for acquisition of the right to land (property rights or rights of use) by the population and legal entities are considered. At the same time, the Land Code made it impossible to concentrate land in private ownership and set a ban on agricultural land ownership for non-residents. The restrictions were set until the necessary laws for the effective functioning of the land market were developed. That is, the moratorium was planned as a temporary solution, but it just so happened that it is a constant norm up to now.
The central element of agrarian reform in modern conditions is the land reform, which has two goals: the creation of a real land sales market and associated infrastructure, as well as the development of farming.
Key authorities
The Ministry of Agrarian Policy and Food of Ukraine – is the successor of the Ministry of Agrarian Policy created by the presidential decree in June 2000, and in December 2010 it was reorganized in its current form.
State Service of Ukraine for Geodesy, Cartography, and Cadastre (land cadastre support) – established in September 2014 by reorganization of the State Agency of Land Resources of Ukraine, which existed since 2011.
The main aspect of the reform
The cornerstone of the land reform is a moratorium on sale or another way of alienation of agricultural lands. To regulate land use, the Verkhovna Rada adopted a new Land Code in 2001. At the same time, a ban on alienation of agricultural land and a change in their designated purpose (moratorium) was introduced. This restriction was originally set before January 1, 2005. However, since then, the moratorium has constantly been extended.
In November-2015, the Verkhovna Rada adopted a law on amendments to the Land Code, which extended the validity of the moratorium until January 1, 2017. In October 2016, the Verkhovna Rada again prolonged the moratorium for one year – until January 1, 2018. President Petro Poroshenko signed the law passed by the Parliament, although earlier he stood up for the cancellation of the moratorium. That is, in fact, the Ukrainian land market is in a state of legal uncertainty for more than 16 years.
The moratorium is valid until the entry into force of the law on the circulation of agricultural land. As early as in 2015, the Deputies obliged the Cabinet to draft this bill by March 1, 2016, but such a document was not adopted.
The land reform in Ukraine is a 16-year history of permanent moratorium prolongations, a history of unused opportunities, primarily – investment. Because of the reform, land should become a commodity and a subject of a pledge, which will allow receiving bank loans. Rented land for obvious reasons cannot be used as a pledge to receive financing. Agrarians, especially small and medium-sized agricultural enterprises, are complaining that they cannot attract bank financing at the current level of credit rates. However, large agricultural holdings often lack working assets too. At the same time, large agricultural companies have more opportunities for product development and higher profitability than small farms. The average yield in agro holdings is two times higher than that of small farms, but the latter mainly give the job to most of the rural residents employed at the agro-industrial complexes.
At the same time, the figures of agro-industrial complex development in Ukraine show positive dynamics. The production of agricultural products is increasing (by 6.1% in 2016, including agricultural enterprises by 9.8%); harvesting record grain crops for the last few years (in 2016 – the largest cereal harvest during the period of independence – 66 million tons, which is almost 6 million tons more than the result of 2015), while agricultural exports make up about 40% of its total volume.
Despite the availability of black earth and a favorable climate, Ukraine has low yields: on one-hectare farmers grow crop production less (at least 20-30%) than in Europe. The reason is underdeveloped agro technologies, lack of investment and the pending issue with the land market. Significant grain production is not due to the high yields, but due to the large size of the area. In addition, low efficiency of Ukrainian agro-industrial complex is that our products are quite cheap compared to European ones. A major problem for the agricultural sector is the significant domination of exporting raw materials in comparison with the specific weight of finished products, which create value added.
Thus, Ukraine requires huge investments (hundreds of billions of hryvnias) to make the agro-industrial complex more effective through introducing modern agro technologies, expanding of the processing capacities and infrastructure, and the first step is liberalization of the land market.
The current situation
Land reform is one of the most important of the 62 reforms, which are described in the Strategy for Sustainable Development “Ukraine-2020”, approved in January 2015. At the same time, it is not included in the priority list. Nevertheless, the heightened tension around the issue suggests that this reform is sensitive in the political and electoral sense, but important in view of the economic impact. The IMF calls land reform one of the three top-priority.
In 2015, the Ministry of Agrarian Policy presented a Single Integrated Strategy for the Development of Agriculture and Rural Areas for 2015-2020, in which, according to the Minister, all priority directions of agricultural sector reform were reflected. The National Council of Reforms supported the strategy, and the European Union has allocated 3 million euro for its implementation. However, the only real achievement so far is the consideration by the relevant committee of the Verkhovna Rada, which took the strategy to the notice. At present, the Strategy for the Development of the Agricultural Sector for the period until 2020, dated October 17, 2013, signed by Mykola Azarov, remains in force.
In 2015-2016, the government made several positive steps towards the land market. The requirements for renting state land through auctions were strengthened. The access to the state register of rights to real property and land cadastre was opened. The notaries have been provided with functions for property registration and lease. The electronic provision of extracts from Land Cadastre and land evaluation was established.
The government has an obligation on liberalization of the land market to the IMF, as stated in the memorandum dated March 2, 2017, and should be approved by the Verkhovna Rada in the draft law on agricultural land circulation by the end of May 2017. Formally, the 2017th is the last year when it is possible to carry out the land reform. The next chance will appear only after the presidential and parliamentary elections, and not one of the Ukrainian politicians want to take a risk. Meanwhile, according to the Ministry of Agrarian Policy, Ukraine has lost approximately USD 43 billion since 2004 due to the lack of a free market of agricultural lands.
Consequently, the government must submit a bill to the Verkhovna Rada in the short run (there are already two draft bills on this matter), but people’s deputies may not vote for it. Political statements of the party leaders represented in the Verkhovna Rada predict the complex consideration of the draft law submitted by the Cabinet of Ministers. It should be noted that 297 deputies voted for the extension of the moratorium at the end of 2016, which is almost 2/3 of the Parliament. Moreover, some political forces even have planned to collect signatures against the cancellation of the moratorium, although it would be too difficult to implement this plan. That is, the subject of moratorium cancellation is too politicized and is the basis for populism and gathering of political points in the eyes of the electorate.
However, to settle all land issues, in addition to the Act on the circulation of agricultural land, it is also necessary to make an inventory of land by ownership and economic entities, to clarify the validity of entries in the land cadaster (imposition of borders of adjacent areas, nonconformity of coordinates) and register of rights to real property, etc.
Many politicians and experts say that Ukraine is not ready to launch the land market. In the context of the unfinished land reform, the expectation of lands being bought up by foreigners, large agricultural holdings, and speculators, as most small farms have no funds for it and will not have in the nearest future.
Meanwhile, in one form or another, the Ukrainian agro-market is enlarging: production is increasing, agro holdings’ land banks of cultivated areas are increasing. However, the level of consolidation is far from over. There are more than 38 thousand farmers in Ukraine (during last five years their number has decreased by approximately 10%), and 72% of them have up to 100 ha in land tenure. According to official statistics, the farmers cultivated only about 10% of all agricultural land (total area of Ukraine’s cropland is more than 40 million hectares), and large and medium-sized agricultural holdings – 15%. The absence of a legal market significantly reduces the land price and makes its owners less competitive compared to large capital. In general, 41 million hectares (more than 96% of agricultural land) of Ukrainian lands fall within a scope of the moratorium.
At the same time, some parliamentarians, who understand the possible resistance to the cancellation of the moratorium, went a different way. In February 2017, 55 people’s deputies sent a petition to the Constitutional Court with the demand to cancel the moratorium on the sale of land, which violates the rights and freedoms of citizens. However, according to the rules of the Constitutional Court, proceedings may be held only six months later.
Authorities are seeking various “compromise” alternative for land reform: the possibility of selling the rights for its lease, setting limiting size of land ownership of 200 hectares, and the sale of land only to residents, etc. Realizing that this issue is sensitive for many Ukrainians, the government does not want to carry out radical changes and agrees only to gradual ones, which would not change anything in the agro sphere.
If the government is tinkering at the margins of the land reform, which could satisfy the Verkhovna Rada and people, but for large agricultural holdings, whose land bank counts tens and hundreds of thousands of hectares of land, such a reform will create additional difficulties. For example, they will be forced to renew lease agreements with owners of plots up to 200 hectares. Large agribusiness will find ways to continue its activities, but Ukraine’s land market will remain non-transparent and investment-unfriendly, and most importantly, such a reform will not have the expected economic effect on the country.
The existing moratorium hinders development of the agro industrial complex, since it hampers the transfer of land to more efficient owners and producers; reduces the rental price and owner’s income (now rental payment for the agricultural land is one of the lowest in Europe and the CIS); limits the possibilities of fund raising on the security of land. With its withdrawal, providing the establishment of the appropriate regulatory framework, one can expect an increase in the land value, an increase of lease payments, obtaining the opportunity to give land on a gage, the creation of a large mortgage market, increase of investments and revenues to the state budget.
However, the success of the land reform depends on the overall investment climate in the country. If the conditions for business remain non-transparent, the secondary land sale will be complicated, so banks will reluctantly grant loans on its pledge. That is, alongside with the liberalization of the land market, it is necessary to provide qualitative improvements of the overall investment climate in Ukraine.
It should be noted that the land reform is an element of agrarian reform, which requires parallel implementation of a number of other measures: improve the tax system and create favorable conditions for the development of the industry; deregulation; improve sectoral legislation; harmonize Ukrainian standards of product quality with international ones; improve the efficiency of state land management; create the food security systems; develop the value added chains in agriculture; increase competitiveness of domestic agricultural enterprises, etc.
International obligations
International Monetary Fund. At present, the main factor of the land reform is Ukraine’s obligations to the IMF to receive another loan tranche from the fund. In a memorandum dated March 2, 2017 (this commitment was taken from the previous document), the following actions are indicated:
• liberalization of the land market, including the sale of agricultural lands;
• drafting a bill on the circulation of agricultural land (the Verkhovna Rada’s approval of this document is expected by the end of May 2017), which will allow the current moratorium to expire at the end of 2017;
• launching a public awareness campaign to explain the benefits of this reform.
NGOs
Independent experts and journalists are closely monitoring the implementation of the land reform. Among the organizations that monitor the implementation of the reform, the following can be noted:
Better Regulation Delivery Office – brdo.com.ua
Independent analytical platform VoxUkraine – voxukraine.org
Non-profit organization EasyBusiness – easybusiness.in.ua
Interesting Facts
During the permanent prolongation of the moratorium, the politicians acted contrary to their own convictions. In October 2004, this decision was supported by the lefts and nominally rights the newly elected President Viktor Yushchenko. However, at the end of 2006, when the Rada once again extended the moratorium, Yushchenko vetoed this decision, but the parliament was able to override it. President Petro Poroshenko also signed the law on the extension of the moratorium passed by the parliament in late 2016, even though earlier he stood for its abolition.
Ordinary Ukrainians have controversial views on the land issue. According to the results of the sociological survey conducted by the Kiev International Institute of Sociology in September 2015, more than half of Ukrainian citizens and one-third of landowners understand the benefits of the possibility of buying and selling agricultural land, although only one in six Ukrainians approve the lifting of the moratorium. The main concerns of landowners are the low prices of land, the pressure regarding land sales and fraudulent acquisition schemes.
Timeline
March 1991 – The Verkhovna Rada adopted the Resolution “On Land Reform”.
January 1992 – the law “On forms of land ownership” was approved.
March 1992 – the Land Code of Ukraine was adopted (it replaced a similar document, which Ukraine inherited from the Ukrainian SSR).
November 1994 – the president signed a decree “On urgent measures to accelerate land reform in the sphere of agricultural production”.
August 1995 – The president signed a decree “On the procedure for land transferred to the collective ownership of agricultural enterprises and organizations”.
April 1997 – President signed a decree “On land lease”.
October 2001 – a new edition of the Land Code of Ukraine was approved.
July 2011 – the law “On the State Land Cadastre” was adopted.
January 2015 – Strategy for Sustainable Development “Ukraine-2020” was adopted
November 2015 – Single and Comprehensive Strategy and Action Plan for Agriculture and Rural Development in Ukraine for 2015-2020 was approved.
March 2017 – a memorandum with the IMF was signed, where land reform is one of the obligations of Ukraine.