Vested in­ter­ests block­ing agri­cul­tural land mar­ket


There’s no chance that Ukraini­ans will be able to buy and sell agri­cul­tural land this year. The cre­ation of a mar­ket is stalled yet again, po­ten­tially cost­ing the na­tion $50 bil­lion in new in­vest­ment in the sec­tor.

With law­mak­ers un­able to reach an agree­ment, Prime Min­is­ter Volodymyr Groys­man will likely ex­tend the 15-year mora­to­rium, set to ex­pire in Jan­uary, for another year. As cam­paign­ing for the 2019 pres­i­den­tial and par­lia­men­tary elec­tions be­gins, prospects for creat­ing an agri­cul­tural land mar­ket have dimmed.

There's plenty of pow­er­ful in­ter­ests — and mas­sive cash from agro­hold­ings to politi­cal par­ties — to block the re­form. As it turns out, lo­cal farm­ers, medium-sized agri­cul­tural firms and mas­sive agro­hold­ings are not par­tic­u­larly in­ter­ested in chang­ing the sit­u­a­tion.

One op­tion for com­pro­mise could be a plan un­der which the govern­ment pri­va­tizes some parcels of state-owned agri­cul­tural land.

Vested in­ter­ests

The mora­to­rium bans the sale and pur­chase of farm­land that wasn’t pre­vi­ously pri­va­tized by the govern­ment.

For many agro­hold­ings. the ban equals profit.

“It’s cheaper to pay rent than to buy land and pay in­ter­est,” Mikhail Sokolov, a lob­by­ist for agro­hold­ings, said in his Lypky of­fice. “It’s not cheaper by 20 or 30 per­cent, but two to three times cheaper. The ma­jor­ity of our mem­bers are against lift­ing the mora­to­rium."

Maksym Mar­tynyuk, the act­ing agri­cul­tural min­is­ter, said the main ben­e­fi­ciary of the mora­to­rium is agribusi­ness. "Agribusi­ness will se­ri­ously op­ti­mize its op­er­a­tional ex­penses as long as the mora­to­rium ex­ists."

He said many in­di­vid­ual landown­ers who rent out parcels are pen­sion­ers with lit­tle abil­ity to ne­go­ti­ate with large agrofirms. Be­yond big busi­ness, Ukraini­ans who work the land feel pro­tected by the mora­to­rium.

“Many of th­ese peo­ple re­mem­ber the early 1990s, when pri­va­ti­za­tion steps were be­ing taken, and are wor­ry­ing about how it could be done,” said Olek­siy Pavlenko, the agri­cul­tural pol­icy min­is­ter un­der former Prime Min­is­ter Arseniy Yat­senyuk.

Politi­cal wave

Many of the fears that Pavlenko de­scribes co­a­lesce around one as­pect of the de­bate: whether le­gal en­ti­ties should be al­lowed to pur­chase land. But what sounds like a schol­arly de­bate has been used to arouse fears that the land of av­er­age Ukraini­ans will be stolen en masse.

Sokolov said that if le­gal en­ti­ties were banned from buy­ing land, only those with “hot money and cash” would be able to do so.

“This is ex-pros­e­cu­tors, judges, the po­lice, etc. Be­cause they have a lot of free money in cash, and have ways to le­gal­ize this money,” Sokolov ar­gued.

That po­si­tion is echoed by the Agrar­ian Party, a na­tional group with 3,105 seats in lo­cal coun­cils. De­spite hav­ing no seats in the Verkhovna Rada, Ukraine's par­lia­ment, it is the fifth largest party na­tion­ally.

As the head­line of one party news­pa­per reads: “We will not let the land be stolen: the fight con­tin­ues!”

Vi­taly Skot­sik, the party’s chief, told the Kyiv Post dur­ing an in­ter­view at his of­fice in­side the Na­tional Academy of Agrar­ian Sci­ences that the rhetoric is not di­vi­sive, but ac­cu­rate.

“Land re­form here was started in 1990, and it is not even close to be­ing fin­ished, un­for­tu­nately,” Skot­sik said.

The Agrar­ian Party sup­ports a three-stage ap­proach that would see the govern­ment item­ize all agri­cul­tural land, eval­u­ate the land and set def­i­nite phys­i­cal borders on plots, as well as com­plet­ing the land cadas­tre and creat­ing an in­de­pen­dent land reg­u­la­tion com­mit­tee.

Crit­ics ar­gue that the plan would take years.

Skot­sik, a charis­matic English speaker, touts con­nec­tions with top U.S. politi­cians, dis­play­ing a photo of him­self with U. S. Speaker of the House Paul Ryan, a Wis­con­sin Repub­li­can, on his desk.

“We are pre­par­ing our­selves to be in the Ukrainian par­lia­ment by the next elec­tions,” Skot­sik said. “We'll need to per­form im­me­di­ately, and there­fore we are work­ing with col­leagues in the U.S. to be ready.”

A Jus­tice Depart­ment lob­by­ing form shows that Skot­sik hired U.S. com­pany Me­dowood Man­age­ment LLC for rep­re­sen­ta­tion in Washington, D.C. Me­dowood is a Wy­oming reg­is­tered firm with no ap­par­ent ex­pe­ri­ence, apart from con­cur­rent rep­re­sen­ta­tion of Rad­i­cal Party mem­ber of par­lia­ment Ser­hiy Ry­balka.

Cor­po­rate records show that Me­dowood is con­trolled by Yuri Vanetik, a Repub­li­can Party donor and at­tor­ney. The con­tract states he will “high­light the party’s mes­sage for land use re­form” and to ad­vo­cate agrar­ian in­ter­ests in Ukraine.

Father­land fund­ing

The Agrar­ian Party re­ceives most of its fund­ing from agribusi­nesses.

Hr 13.4 mil­lion out of the party’s Hr 15.3 mil­lion in fi­nanc­ing comes from le­gal en­ti­ties, most of which seem linked to agri­cul­ture.

When asked if cash from agribusi­ness af­fected the party’s politi­cal po­si­tions, Skot­sik replied, “ab­so­lutely.”

“It af­fects the politi­cal po­si­tion be­cause we have to pro­tect them and de­velop tax leg­is­la­tion and other things, and that is nor­mal,” Skot­sik said. The same ef­fect ex­tends else­where. Yu­lia Ty­moshenko, the former prime min­is­ter and cur­rent leader of the 19-mem­ber Batkivshchyna Party fac­tion in par­lia­ment, was an ar­dent sup­porter of land re­form in 2008. She wanted lib­er­al­iza­tion along sim­i­lar lines as a cur­rent pro­posal by Bloc of Petro Poroshenko mem­ber Olek­siy Mushak. Now, Ty­moshenko op­poses end­ing the mora­to­rium, warn­ing of “hunger and a lack of drink­able wa­ter.”

Since 2008, her party has re­lied more on agribusi­ness, ac­cord­ing to pub­lic dis­clo­sures. Some of the party’s big­gest back­ers are agri­cul­ture-con­nected le­gal en­ti­ties, in­clud­ing Agrokon­takt, the party’s sin­gle big­gest vis­i­ble cor­po­rate fi­nancier.

State ben­e­fits

The state owns around 25 per­cent of farm­land in Ukraine.

The sec­tor is rid­den with waste and cor­rup­tion. One pop­u­lar scheme in­volves tak­ing a 100-hectare land par­cel, and sign­ing a con­tract with a com­pany to farm 10 hectares of the field, while the com­pany in fact gains ac­cess to the en­tire par­cel.

A por­tion of the ex­cess prof­its go as a kick­back to the man­ager of the state-owned en­ter­prise, while the pri­vate com­pany’s tax bur­den is sig­nif­i­cantly less­ened.

“The in­di­vid­u­als who are re­spon­si­ble for the man­age­ment of state and com­mu­nal land are ben­e­fit­ing from th­ese schemes,” Denys Nizalov, a pro­fes­sor at the Kyiv School of Eco­nomics, said. “And they get pri­vate ben­e­fits rather than state and com­mu­nal ben­e­fit for this land.”

One com­pro­mise — which has some sup­port within govern­ment — would see Ukraine pri­va­tize its state farm­land, owned in part by the Min­istry of Agrar­ian Pol­icy, as well as other en­ti­ties like the Na­tional Academy of Agrar­ian Sci­ences (where Skot­sik’s party is based) and the In­te­rior Min­istry.

Mar­tynyuk has had the op­por­tu­nity to launch a pi­lot pro­gram on pri­va­tiz­ing 10,000 hectares of min­istry land, which has been around since 2015.

But the min­is­ter has yet to en­act the pro­posal.

Nizalov ar­gued that only al­low­ing state land to be pri­va­tized would fail to open the mar­ket, in spite of ben­e­fits like low­er­ing cor­rup­tion on state land and let­ting land prices float.

"We would ex­tend the mora­to­rium for sell­ing pri­vate land with all of its neg­a­tive con­se­quences, in­clud­ing the vi­o­la­tion of con­sti­tu­tional rights of landown­ers and lim­it­ing their ac­cess to work­ing cap­i­tal,” he said. “That's close to the def­i­ni­tion of re­form with­out re­form.”

Agrar­ian Party chief Vi­talii Skot­sik emerges from a trac­tor in Rivne Oblast in July 2016. The Agrar­ian Party, the fifth largest in Ukraine by lo­cal coun­cil rep­re­sen­ta­tion, sup­ports a long process of re­form be­fore open­ing the land mar­ket to trad­ing. (Ukrin­form)

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