Taras Kutoviy: “The state can be a proper owner only in exceptional cases”
«The state can be a proper owner only in exceptional cases»
Minister of Agricultural Policy and Food on problems in the agricultural sector, the lobby of landholders and the land market
The Ukrainian Week talked to Ukraine’s Minister of Agricultural Policy and Food, Taras Kutoviy, about current problems facing the AIC, the large landholder lobby, and how to establish a land market.
What are the Ministry's plans for key reforms in the farm sector?
— We’ve called our new AIC development strategy “3+5” and, so far, it’s been discussed quite widely. Both agribusiness and the international community have given us positive feedback. The strategy includes three main objectives and a few smaller ones. First is progress with land reform. Second is transforming state support for the sector. Third is improving efficiency at state-owned enterprises and putting them up for sale. Other priorities include developing organic products, markets, rural areas and farming infrastructure, and shoring up the institutional capacity of the State Consumer Product Service.
We’ve prepared legislation for each of the three priority areas, because there are a number of transformations that need to take place. In order for them to succeed, laws have to be changed.
We’ve also launched our Reform Support Office. We hired young, ambitious specialists on a competitive basis and their work is being funded by donors—the EU, US and Canada—at market salaries. Right now, the Office is going through an internal audit. When the results become available, we plan to undertake comprehensive changes in the way the Ministry is organized.
How do you see land reform taking place?
— I’m ready to review a bill on the transfer of land designated for agricultural purposes. Together with our team, we propose introducing the right to lease land and to use it as collateral against bank loans.
Why have we decided on this formula rather than a broader, more comprehensive approach to resolve land issues? Because I think that this is the precise step that will gain support in the Verkhovna Rada. I joined the Cabinet from the legislature, where I chaired the related committee, so I have a pretty accurate sense of the mood among deputies: better that we take this small but significant step than to get caught up in something more ambitious and fail.
The transfer of land leasing rights will open up a number of doors. Firstly, with this, the value of farmland can be established. Today, the main argument populists offer is that the minute land can be freely bought and sold, it will all be snapped up from Ukrainians for peanuts1. Once leasing rights can be traded and it becomes clear that people are willing to pay 1,000, 2,000 or 5,000, nobody will be able to sharply drop the price, since buying land could never cost less than leasing it. Secondly, investors will have the opportunity to draw up long-term business plans. And even if they should suddenly decide to get out of the farming business, they will be able to do so relatively easily by simply selling off their land lease rights.
How will this affect the mandatory timeframe for land use leases?
— Right now, land leases are for a minimum of 7 years and a maximum of 49. I don’t think that needs to be changed. Within this range of time, people decide for themselves what suits them. Then the picture looks something like this: rights to a 10-year lease on land in X Oblast costs Y, a 15-year lease is a bit more, and a 20-year one more again. So people then determine what term suits them best.
There is one important social issue, however. Many people live off their land shares. When they sell the right to lease it, they aren’t selling the land itself. So whoever owns the lot continues to get paid for leasing it. Whoever owned the land and had the right to hand it down to heirs, continues to own it and has the right to hand it down. This can’t be emphasized enough.
What changes do you anticipate in state support for the sector?
— The key change here is that we want to support agricultural SMEs with cash. We’re talking about those farms that are working no more than 500 hectares [about 1,250 acres]. Today, 86% of farming enterprises fall into this category in Ukraine. Yet only 2% of them are companies that are using credits. Why? Because there is no collateral and the situation with land remains unclear.
There’s been an innovation in state support that I initially only presented as a philosophical notion, but now it’s close to being reality since the PM announced it publicly as the Government’s position. We propose that 1% of gross production of agricultural products go for state support. Right now, this means UAH 5.5bn, the amount that will be directed at support for the AIC next year—provided that the Rada votes in favor. By comparison, in 2016, this line item was allocated only UAH 300mn. In short, we’re looking at a radically larger amount of state support for agricultural producers, with an emphasis on SMEs. Within this framework, we