Rent seek­ing on land: What changes Ukraine's land market needs

How the sta­tus of land in Ukraine af­fects its own­ers and big agribusi­nesses

The Ukrainian Week - - CONTENTS - Olek­sandr Kra­mar

The is­sue of the land re­form, es­pe­cially of lift­ing the mora­to­rium on the sale of farm­land, re­mains one of the fetishes of Ukrainian po­lit­i­cal life. Politi­cians and ex­perts re­it­er­ate the threat of land be­ing "bought up dirt-cheap" from farm­ers in case the mora­to­rium on its sale is lifted. How­ever, in re­al­ity, for the sec­ond decade in the row the mora­to­rium has served the in­ter­ests of big agribusi­nesses: their own­ers can ap­pro­pri­ate the lion's share of land in­come, while the real own­ers of the plots get next to noth­ing.

The lack of the land market puts the own­ers of land plots on un­even play­ing field com­pared to agri­cul­tural firms in terms of ac­cess to bank loans for ma­chin­ery, seeds, or fer­til­iz­ers. The farm­ers, who own the plots, can­not take a loan se­cured by land, and there­fore usu­ally can­not get the money nec­es­sary to cul­ti­vate it prop­erly on their own. They also have no chance to sell their plots due to the mora­to­rium. That leaves them with the only op­tion: to lease out the land on dis­crim­i­na­tory terms to big agri­cul­tural firms, which are usu­ally mo­nop­o­lists on the land lease market in some ar­eas. Oth­er­wise, if farm­land stays idle for a long time, the plot owner may lose the right to it through the mis­use of land.

The data of the State Statis­tics Bu­reau’s Bul­letin "Ba­sic Eco­nomic In­di­ca­tors of Agri­cul­tural Pro­duc­tion by Agribusi­nesses" in­di­cate that out of the over­all costs in­curred by agri­cul­tural com­pa­nies for crop pro­duc­tion (the to­tal of UAH 156bn in 2015), only UAH 18.24bn was spent on the lease of land plots. The same year, the net in­come of prof­itable agribusi­nesses in­volved only in crop farming, amounted to UAH 109.4bn. In this way, out of UAH 127.7bn of in­come earned from the cul­ti­va­tion of Ukrainian land, its own­ers re­ceived only 14.3%, while 85.7% went to the hold­ers of leas­ing rights — large agri­cul­tural com­pa­nies.

UN­REG­U­LATED MARKET OF LAND LEASE RIGHTS

The right to lease to­day costs much more than the rent fee it­self. This is not nor­mal and sug­gests that the money is be­ing plun­dered from peas­ants — the land own­ers. Land lease rights are as­signed through the sale of cor­po­rate rights (i.e. the sale of the com­pany that holds the lease rights un­der the rel­e­vant con­tract). The sit­u­a­tion is so fa­vor­able of agribusi­nesses that for the last 15 years they have been ac­tively op­pos­ing the in­tro­duc­tion of the land market, which could un­der­mine their monopoly and make them pay sev­eral times more to the own­ers of land plots. As is tra­di­tion­ally the case in many other ar­eas of life in Ukraine, their own money-fo­cused in­ter­ests were cov­ered by the pump­ing up of pho­bias amongst farm­ers and the pop­u­la­tion in gen­eral, as well as by lob­by­ing the de­lay of the land re­form at the leg­isla­tive and ex­ec­u­tive branches, on the level of in­sti­tu­tional ca­pac­ity build­ing and the launch of nec­es­sary in­stru­ments, es­pe­cially the sin­gle state elec­tronic land reg­istry, in full scope.

As a re­sult, the changes that could have been ac­com­plished within three to five years, if such was the will of the lobby and elites, have never been re­al­ized till this day. Re­cent com­ments of of­fi­cials in charge sug­gest that they are un­likely to be­come re­al­ity even by 2019–2020.

Truth be said, there has been some progress in terms of the land regis­ter. In 2013, its elec­tronic ver­sion was launched. In 2015 users ob­tained ac­cess the e-data­base of land plot own­ers, the Pub­lic Cadas­tre Map.

This gives a num­ber of ben­e­fits: one can find how ac­cu­rate the in­for­ma­tion about a given land plot is; use the feed­back func­tion to en­quire about in­ac­cu­ra­cies. This year, the State Land Com­mit­tee de­vel­oped soft­ware to au­to­mat­i­cally ex­change in­for­ma­tion on land plots be­tween it­self and the Min­istry of Jus­tice. With the hu­man fac­tor ex­tracted, the process could be­come more ac­cu­rate and less vul­ner­a­ble to cor­rup­tion. Also, dis­clo­sure of 100% of or­ders on man­age­ment of lands has been in­tro­duced at the Pub­lic Cadas­tre Map to en­able full pub­lic con­trol over it.

Yet, it is yet not enough for the state land regis­ter to fully per­form its func­tion. A num­ber of mis­takes have been made in the process of build­ing it: the in­for­ma­tion on all land plots is not full; land cadas­tre in­for­ma­tion has not been uni­formed; and new eval­u­a­tion of farm­land is badly needed.

The state land regis­ter is filled with data very slowly. In Fe­bru­ary 2016, the then Agri­cul­ture Min­is­ter Olek­siy Pavlenko said that the e-data­base was only 20%-full. Ac­cord­ing to the land ge­o­log­i­cal cadas­tre, all lack­ing in­for­ma­tion on land plots can be gath­ered no sooner than in “2-3 years”.

What­ever the hur­dles, 15 years af­ter the first mora­to­rium on land sale the head of the land ge­o­log­i­cal cadas­tre claims that the state is not ready for the land market. The Min­is­ter of Agri­cul­ture says that there will be no votes in Par­lia­ment to sup­port full launch of it. In­stead, both of­fer al­ter­na­tives.

The state ge­o­log­i­cal cadas­tre depart­ment has sug­gested lift­ing the mora­to­rium on the land that re­mains in pub­lic own­er­ship first. Then, a few years later, do so with pri­vately owned land plots, un­less rea­sons come up to post­pone it again.

The Min­istry of Agri­cul­ture went fur­ther and of­fered a surrogate market in­stead of a full-fledged one: trad­ing in lease rights and em­phy­teu­sis, in­stead of trad­ing in land.

RE­DUN­DANT OWN­ERS OF LAND PLOTS

A closer look at the ar­gu­ments of­fered by the Min­istry of Agri­cul­ture in fa­vor of the surrogate land market leaves an im­pres­sion that the ini­tia­tive is rather a des­per­ate at­tempt to ad­just the im­per­a­tive IMF re­quire­ments on launch­ing the sales of agri­cul­tural land to the pres­sure from Ukrainian agribusi­ness lob­by­ists to pre­serve their monopoly on rent-seek­ing from land.

Ukraine’s ef­fec­tive land leg­is­la­tion does not al­low free cir­cu­la­tion of land leas­ing rights on farm­land owned by some­one else. Sublease by an ini­tial lease holder is also only pos­si­ble when the owner does not ob­ject that, and the con­tract specif­i­cally states so.

As a re­sult, agri­cul­tural com­pa­nies that hold leas­ing rights (af­ter im­pos­ing long-term lease con­trats on land own­ers on dis­crim­i­na­tory terms) are un­able to sell, ex­change or do­nate these rights to any­one else. This lim­its their op­por­tu­ni­ties to mon­e­tize land and con­vert their own­er­ship of leas­ing rights into hard cur­rency.

THE RIGHT TO LEASE LAND TO­DAY COSTS MUCH MORE THAN THE LEASE FEE IT­SELF. THIS SUG­GESTS THAT THE MONEY IS BE­ING PLUN­DERED FROM PEAS­ANTS — THE LAND OWN­ERS

Un­even play­ing field. The lack of the land market de­prives land plot own­ers of ac­cess to bank loans for ma­chin­ery, seeds or fer­til­iz­ers. They thus be­come un­com­pet­i­tive com­pared to big agribusi­nesses

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