| A free land market will destroy the Ukrainian village
Ukraine’s land resources are among the largest in Europe; the country possesses up to 30% of the world’s black soil. In view of the current growth of world food prices, agriculture can become one of the main drivers of the country’s GDP growth. However, due to lack of investment inflow productivity and profitability of the sector remains very low. World Bank estimations suggest that the type of climate and soil in Ukraine allows for a near-double increase in the production of grain crops in the country. Moreover, the current value of Ukrainian agricultural export is many times lower than in neighboring countries, because Ukraine sells agro products as unprocessed row material.
The lack of necessary investment is largely explained by the ineffectiveness of land relations. In 2001, the country introduced a ban on selling and buying of agricultural land. It fixed then existed fragmentation of the land plots, which currently hinders large land plots leasing opportunities and prevents big agricultural investors from entering the market. The current leasers cannot obtain loans on leased land to buy high-quality agricultural equipment and fertilizers. Furthermore, leasers are not motivated to maintain long-term soil’s fertility. Naturally, the problem of lifting the ban is actively being discussed, however, it requires a careful analysis of all possible consequences, including its potential effect on the Ukrainian village.
Can we abolish the moratorium on sales of farmland without aggravating the social and economic conditions of the Ukrainian village?
There is still no single register for agricultural land. It leads to significant number of land plots with conflicting ownership rights. In this situation, the launch of a free land market can trigger raider acts for the land’s illegal appropriation as well as open the door for various shams during the process of closing on deals. Moreover, the absence of a proper legal level playing field and peasants’ inexperience with conducting land transactions could let speculators buy land below its fair market price.
Given the existing flawed legal base and lack of experience among peasant in successful land transactions, the launch of a free land market in Ukraine will produce shams and speculations.
Permanent leasing of land provides a sustainable income for peasants. If peasants sell their land following the ban lift, they can remain without any means of financial support. Considering that most peasants do not have entrepreneur skills, they are unlikely to invest the money they will receive from the land sale to their advantage. Moreover, the demand for a local labor force can diminish because new land owners will invest in new equipment and are likely to hire more qualified workers from abroad, as has already happened in some Russian regions, for example.
At present, Ukrainian villages remain in pitiful condition. The majority of economically active population has relocated into larger towns or has moved abroad because they cannot find satisfactory job opportunities in the village. According to the State Statistics Committee of Ukraine (SSCU), more than a half of the economically active rural population works in informal economy. The arrival of big agricultural investors will create food processing clusters, increasing the share of food products with higher value-added. Moreover, creation of big agricultural enterprises will encourage the development of new infrastructure and urge the growth of related sectors and services. This will boost the growth of the regional GDP and create a variety of jobs, eventually slowing down the outflow of the economically active population from the villages, and improving their well-being.
As international experience demonstrates, concerns that the lift of the moratorium will trigger mass land sale are unsubstantiated. For example, in Russia following the ban lift only 10%, or less, of land plots were sold. The 2008 poll conducted by the Foundation for Effective Governance showed that only 30% of Ukrainian peasants were willing to sell their land plots if free land market was launched. Consequently, mass buying of land might not materialize in the aftermath of the introduction of a free land market and considerable social changes in the country might are unlikely to occur.
The potential consequences of lifting the moratorium on selling and buying of agricultural land for the Ukrainian village will be discussed during the public debate held on April 26, 2011in Kyiv. The event is organized by the Foundation for Effective Governance in partnership with the Intelligence Squared.
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Foundation for Effective Governance
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