Ukraine’s agri­cul­tural sec­tor be­set by raiders, fraud­sters

Kyiv Post - - Business Focus - BY VERONIKA MELKOZEROVA MELKOZEROVA@KYIVPOST.COM

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.

Landown­ers

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.

Cheap land

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.

Raid­ing

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.”

No pro­tec­tions

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.

Still prof­itable

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.

More se­cure

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)

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