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.
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.
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.
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.
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)