Ukraine’s agricultural sector beset by raiders, fraudsters
The lack of a free land market in Ukraine has led to weak protection of property rights, corporate raiding, forgery and shady deals in the agricultural sector.
But there is little incentive to reform the sector, as special benefits given by the state and low rent prices for agricultural land have made farming one of the most profitable sectors.
Agriculture has become the target of corrupt officials and corporate raiders, Maryan Zablotskiy, the deputy head of the Ukrainian Agrarian Association, told the Kyiv Post on Oct. 23.
“Now the agro and IT businesses are the main drivers of Ukraine’s economy,” Zablotskiy said. “Both spheres are growing fast, earn a lot of money, and have started to attract the attention of Ukrainian law enforcers, as well as raiders.”
Raiders seized from 1,000 to 3,000 hectares of land in 2017, Ukraine’s Deputy Prime Minister Stepan Kubiv said during a cabinet meeting on Sept. 13.
“In 2017 alone, the Prosecutor General’s Office, along with the National Police, have investigated more than 44 cases of raiding in the agricultural sector,” Kubiv said. “But in reality there is a lot more going on.”
The problem has gotten so bad that many farmers have even started to form armed self-defense groups to protect their businesses.
Source of cash
According to President Petro Poroshenko, the agriculture business accounted for 12 percent of Ukraine’s gross domestic product in 2016–2017.
“The agrarian business has become a source of cash that goes straight to the state budget and ensures the strength of the Ukrainian hryvnia,” Poroshenko said on May 27.
Ukraine’s Ministry of Agrarian Policy and Food reported on Oct. 20 that Ukraine’s agricultural sphere attracted 233 investment projects worth a total of Hr 37 billion ($1.42 billion) in 2017. In the first six months of 2017 alone, agrarian enterprises earned more than Hr 500 million ($18 million) in profits, the State Statistics Service reported. In 2016 the figure was Hr 97 million ($3 million) over the same period.
It has been 15 years since parliament placed a moratorium on agricultural land sales in Ukraine. Most of the agricultural land in Ukraine is effectively in private ownership: During privatization in the 1990s, about 7 million Ukrainians, all former workers on Soviet collective farms, were granted land plots.
The private landowners are hardly wealthy landlords. Without the right to sell their land, they can only work it themselves or rent it out, Dmytro Lyvch, a project manager with the EasyBusiness think tank, told the Kyiv Post on Oct. 25. “Most of these people are seniors, who simply can’t actively control what is being planted on their land. Everybody else is just fighting for the right to use their land,” Zablotskiy added.
The land is worth fighting for. About 28 percent of the world’s black soil, the most fertile on the planet, is found in Ukraine. More than 30 million hectares of land in Ukraine are suitable for agriculture. However, Zablotskiy said only 22 million hectares are officially being used as farmland.
“The other eight million hectares are being cultivated and used for farming businesses by people who haven’t registered their rights to use this land,” Zablotskiy said.
Land is the basis of any agricultural business. According to experts, entrepreneurs can rent a plot of agricultural land for 7–50 years for about $80–100 per hectare, per year.
That makes Ukraine's rich land cheap in comparison to neighboring Bulgaria and Poland ($100–300 per hectare, per annum) and Western Europe, where prices start at $500, Lyvch said.
Zablotskiy said that the cheap rent is the main reason why mostly private farmers oppose a land market in Ukraine, as it is cheaper for them to rent than buy.
Lyvch said that market experts estimated the value of agricultural land in Ukraine to be around $1,000 per hectare, cheap in comparison to Poland, where the price is $5,000.
Experts say a functioning land market would cause land prices in Ukraine to rise to $4,500–$5,000 per hectare within 10 years.
“Critics of the land market said that such prices will kill small farms in Ukraine, as people can’t afford to pay such money,” Lyvch said. “But I think quite the opposite — it makes the small farm businesses stronger and more competitive.”
Nevertheless, many farmers say they would simply be unable to afford to buy the land they rent, and they are afraid that were the moratorium to be lifted, landowners would sell their land to their wealthy foreign competitors.
Ivan Yarmoluk, the vice president of the Ukrainian Farmers and Land Holders Association, told the Kyiv Post on Oct. 24 that if he bought the land he rents, he wouldn't be able to afford the machinery to work it.
Thieves understand the land's value: Vasyl Burlaka, the head of the Farmers and Private Landowners Association of Poltava Oblast, told the Kyiv Post on Oct. 10 that farmers have even started forming self-defense squads to protect their property from raiders.
“The main goal of these attacks is to seize the land,” Burlaka said. “The local authorities and State Land Cadastre of Ukraine have been taking away land from small farmers in favor of agro holdings. We’ve counted more than 50 cases in 2017.”
On Aug. 2 an armed group tried to steal a combine harvester at the Prolisok farm in Poltava Oblast and seriously wounded the farm’s director, Oleksandr Skydan.
On Aug. 29 armed men in camouflage attacked the head of the Svitanok Farm, Oleksiy Gotvyanitsya, and his family. The men did not identify themselves. They showed a bizarre court order that allowed them to search Gotvyanitsya’s house. During the search, they handcuffed him and his wife, the farmer’s daughter, Yulia Gotvyanitsya, wrote in her statement to the local police.
“Nobody has yet been punished,” Burlaka said. “So we're not counting on the authorities and law enforcers anymore. We will protect our land by ourselves.”
During a meeting of Ukraine’s Regional Development Council on Oct. 25, Poroshenko and Prime Minister Volodymyr Groysman suspended the acting head of the State Land Cadastre, Oleh Tsvyakh, and even threatened to put him in jail if law enforcers found evidence that he had been involved in wrongdoing.
The warning to Tsvyakh came after Serhiy Lytvyn, the head of Vasylkivskiy District of Dnipropetrovsk Oblast asked Poroshenko “to pursue the State Land Cadastre and dismiss those of its staff who act as cover for land schemes in the regions.”
The lack of a functioning land market provides fertile ground for fraudsters. There is also little protection of owners’ or tenants’ rights, Zablotskiy said.
There are numerous ways to slip out of a rent contract, he said, and the legislation and rules for drawing up such contracts frequently change. a result, old rental contracts are not in line with the new regulations, often used as an argument in the courts to cancel rental agreements.
“We’ve also seen numerous cases of the forgery of signatures, the theft of electronic accounting keys, shady deals, and other raiding attempts,” Zablotskiy said.
Raiders often attack at harvest time, Zablotskiy said. “They make a claim to a land plot, drive a combine there, harvest the crops and then run away,” the expert added.
Smaller farms are both victims and raiders. There are also professional raiders who act on behalf of local law enforcers and the authorities, Zablotskiy said.
With rents rising, there have also been cases of a tenant refusing to pay more money by falsely claiming they are the victim of a raid.
“When a powerful competitor appears and offers more money to a landowner, the tenant starts a discrediting campaign against him, and claims the new bidder is a raider,” Zablotskiy said.
With the richness of the land and cheapness of rents, Ukrainian farming is profitable. Until 2009, farm businesses didn’t have to pay land tax, value-added tax, profit tax or wage taxes, Zablotskiy said.
But since then, the government has forced farmers to pay wage taxes and increased the land tax. A special value added tax was also canceled for most agrarian enterprises in 2017.
But while the government has taken away benefits, it has also given some. On Feb. 8, the Cabinet of Ministers approved subsidies for the development of agricultural enterprises and stimulating agricultural production in 2017, with priority given to poultry and egg producers. The more that an enterprise produces, the more it gets from the state.
The Kyiv Post reported on Aug. 31, that according to the State Fiscal Service, the government already spent $74.6 million on direct subsidies to agricultural producers in the first six months of 2017.
Four poultry-producing companies that belong to the Myronivsky Hliboprodukt agroholding, owned by Yuriy Kosyuk, an oligarch and friend of Poroshenko, received $31.6 million in government subsidies. The other $37.7 million was split between some 700 companies.
Even though the agricultural sector is on the rise, it requires modernization, Lyvch said.
“Only about 20 percent of companies use smart farming technologies in Ukraine, or invest in modern machinery, fertilizers and other ways of working the land more efficiently,” Lynch said. “Those who are against the land market prefer the old, inefficient ways, and make a profit from the low land rents.”
Farmers who buy their land will feel more secure and will be ready to invest money, he said.
Oleh Tsvyakh, acting head of the State Land Cadastre of Ukraine, reacts during a Regional Development Council meeting on Oct. 24. Prime Minister Volodymyr Groysman suspended Tsvyakh and threatened to jail him if law enforcers prove that Tsvyakh is involved in raidership schemes in the agricultural sector. (UNIAN)
Maryan Zablotskiy, deputy head of the Ukrainian Agrarian Association. (Kostyantyn Chernichkin)