Agriculture suffers from politics
Land market in Ukraine is deadlocked
Land ownership is a hot topic for Ukrainian politics. The fragmentation of agricultural land means that the sector misses opportunities to grow. The progressive agricultural companies do not invest in their main means of production and lack a long-term vision. The political climate is too uncertain for that.
Despite being a huge agricultural exporter, Ukraine relies on ancient and complex laws governing land ownership. The subject has been controversial for over 100 years; since 6 million Ukrainians died of famine after Stalin's forced collectivization. The government does not dare to burn its fingers on it. Bloomberg made a report about the problems that this entails.
40
procent
Yield Potential
Between January and September 2017, the country's agricultural exports amounted to $13 billion. This accounts for 40% of total exports. Ukraine is one of the largest producers of sunflower oil, barley, wheat and grain maize in the world. The well-known black soil is very fertile. It is therefore special that the crop yields are among the lowest in Europe.
The sector's biggest problem is the land market, which is completely locked up. After the dissolution of the Soviet Union, all Ukrainian residents, who had lost land through collectivization, were offered a plot of land. Average size: 1,6 hectares. A total of 166.000 square kilometers was thus distributed. Since 2001, the government has prohibited the sale and purchase of this land. The ban has already been extended 9 times. On December 7, the government continued it again until January 1, 2019. There are even rumors of extending this until 2024.
Most of the more than 4 million land owners are now retired. They receive an average of $190, or €158, per 1,6 hectare plot of lease. They can also choose to have the equivalent of the lease paid in grain or other products. The lease periods are 3 to 5 years. A large and fertile plot of arable land is thus owned by up to 270 different people.
Huge challenge
The International Monetary Fund (IMF) has repeatedly pressed the government to lift the ban, but without success. Large agricultural companies also want to be able to buy land. “The ban is a huge challenge for our company,” said Simon Cherniavsky. He is director of Mriya Agro Holding. It is one of the largest arable farms in the country and annually cultivates about 1 hectares. In addition to grains, the company also grows 180.000 tons of potatoes. "We only work with short-term lease contracts, while the agricultural sector looks at income in the long term."
The reason for the strict legislation is the fear of buyers from the European Union (EU) or United States (US). According to Oleh Lyashko, chairman of the Radicals Party, the land would otherwise be bought for next to nothing. “This land is meant to feed children and grandchildren, rather than enrich land barons and huge institutions,” he says.
Despite the opinion of conservative politicians, there are more calls to let go of the land market. The economy suffers noticeably compared to other former Soviet countries (such as Poland and Romania). The growth of the gross domestic product is meager and was even negative in 2014 and 2016, partly due to the conflict in eastern Ukraine. The agricultural sector is the largest supplier of export products.
Significantly lower yield
According to a report from the World Bank, the country's productivity and hectare yields are only a fraction of the European average. According to them, the cause lies almost entirely with policy. Farmers believe that they can improve soil health by taking ownership of the land.
In addition, managing many hundreds of lease contracts costs a lot of time and money. Special agencies are hired to ensure that everything runs smoothly. If some lessors do not cooperate, 'gaps' will appear in large plots. Extremely tricky when trying to efficiently farm a 100-acre plot with huge machines.
The big farmers argue that a free land market does not lead to lack and poverty. They believe that landowners can get a good price when the market is broken open.
Niels van der Boom
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