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 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