Ukraine may dole out huge tracts of un­used farm­land

Kyiv Post - - Business Focus - BY MARK RACHKEVYCH [email protected] Kyiv Post staff writer Mark Rachkevych can be reached at [email protected] com.

Ukraine’s gov­ern­ment says it has found a so­lu­tion for do­ing its part to ad­dress food se­cu­rity in a world that will need to pro­duce 1 bil­lion tons more ce­real and 270 mil­lion tons more meat an­nu­ally to feed 9 bil­lion mouths by 2050.

The Kyiv Post has ob­tained a blue­print that out­lines a bold agri­cul­tural pro­duc­tion shar­ing plan that the gov­ern­ment plans to roll out to in­vestors. It at once ad­dresses ris­ing global de­mand for food, as well as ru­ral Ukraine’s dire eco­nomic state that suf­fers from un­em­ploy­ment and in­fras­truc­tural de­cay.

Es­sen­tially the plan will “in­ten­sively de­velop the agrar­ian sec­tor with­out pri­va­tiz­ing farm­land” while bring­ing badly needed in­vest­ment and mod­ern tech­nol­ogy, which in turn will “cre­ate sus­tain­able ru­ral jobs,” a gov­ern­ment source close to the plan said on con­di­tion of anonymity be­cause the plan isn’t of­fi­cial yet.

Al­though in the con­cep­tual stage, the pub­lic-pri­vate part­ner­ship pro­gram en­vi­sions let­ting in­vestors farm up to 4 mil­lion hectares of cur­rently un­used gov­ern­ment land for up to 50 years in large-scale 400,000-hectare projects. The gov­ern­ment source said each project would re­quire an ini­tial in­vest­ment of $200 mil­lion, and much more down the road.

Not all the gov­ern­ment land ear- marked for cul­ti­va­tion is zoned as agri­cul­tural so the pro­gram wouldn’t pre­sum­ably sig­nif­i­cantly en­croach on the 32.5 mil­lion hectares of farm­land that the coun­try has.

To­gether, this would al­low in­vestors to reap from economies of scale by us­ing mod­ern land man­age­ment prac­tices and equip­ment such as, GPS mon­i­tor­ing, satel­lite im­agery, as well as other up-to-date farm­ing tech­niques to boost pro­duc­tion.

In­cen­tives in­clude giv­ing in­vestors tax breaks, free land use, and ex­empts them from hav­ing to pay im­port du­ties and value-added tax on im­ported goods, la­bor and ser­vices. In ad­di­tion, there’ll be no ex­port du­ties, li­censes and quo­tas, and in­vestors won’t have to pay taxes for repa­tri­at­ing prof­its or in­come.

“This is just what the gov­ern­ment of Ukraine needs to do,” said Mor­gan Wil­liams, pres­i­dent of the U.S.-Ukraine Busi­ness Coun­cil based in Wash­ing­ton, D.C. . “It solves many ma­jor prob­lems with the us­age of gov­ern­ment land and gets it into pri­vate hands and pro­vides proper in­cen­tives and pro­duces in­come for the gov­ern­ment. It would be a ma­jor break­through, a ma­jor step for­ward and a very pos­i­tive sig­nal the pri­vate sec­tor.”

In­vestors will do con­trac­tual busi­ness ex­clu­sively with the na­tional gov­ern­ment, not with lo­cal ad­min­is­tra­tions. And the plan fore­sees in­ter­na­tional ar­bi­tra­tion should dis­putes arise.

Wil­liams con­tin­ued: “One, the gov­ern­ment lands would be taken out of the con­trol of lo­cal and mostly cor­rupt politi­cians; two, there would be long-run con­tracts which are good for in­vestors, good to pro­mote in­fra­struc­ture in­vest­ment and good for long-run strate­gic buy­ers of com­modi­ties; three, these would be con­tracts un­der a PSA [pro­duc­tion shar­ing agree­ment]-type plan which could be taken to in­ter­na­tional court.”

Es­ti­mates vary, but up to 25 per­cent of Ukraine’s arable land is only farmed by so called ef­fi­ciency farms that lease more than 50,000 hectares. And they are the ones driv­ing pro­duc­tiv­ity and yields. In­vest­ment bank Con­corde Cap­i­tal said in a re­cent agri­cul­ture re­port that the sec­tor as a whole suf­fers from poor land man­age­ment prac­tices, lower ap­pli­ca­tion of fer­til­iz­ers, and de­pre­ci­ated farm­ing ma­chin­ery that harm yields.

Ex­perts fur­ther­more es­ti­mate that up 5 mil­lion hectares of arable land lies fal­low and un­used.

And al­though there are many gov­ern­ment ideas float­ing around on how to op­ti­mize Ukraine’s still hugely un­ful­filled agri­cul­tural po­ten­tial of dou­bling har­vests to above 100 mil­lion tons of grain and oil seeds, ques­tions linger about their proper ex­e­cu­tion.

“I’ve heard about this (plan),” said John Sh­morhun, CEO of Harmelia, a 75,000-hectare grain farm­ing busi­ness in Kharkiv Oblast. “An agri­cul­tural PSA would be unique in the world… the gov­ern­ment is treat­ing land as a re­new­able re­source… (which is) a pow­er­ful in­stru­ment if man­aged prop­erly. And, if the gov­ern­ment man­ages to do this right it’ll be quite a coup.”

To qual­ify, how­ever, in­vestors will have to com­pete glob­ally through what the gov­ern­ments says will be a on­estop shop run by an in­ter-gov­ern­men­tal agency com­mit­tee which will de­cide who qual­i­fies for the project.

Pref­er­ence will be given to in­vestors who meet the fol­low­ing cri­te­ria: an op­ti­mal busi­ness strat­egy, qual­ity of pro­duc­tion dis­tri­bu­tion pro­posal, sus- tain­able land pro­duc­tiv­ity, agri­cul­tural ex­pe­ri­ence, fi­nan­cial ca­pac­ity and best com­bi­na­tion of in­ter­na­tional knowhow and Ukraine ex­pe­ri­ence.

But the plan over­all thus far lacks in specifics, and much re­mains to get the project off the ground.

How­ever, the gov­ern­ment source the Kyiv Post spoke with said that an agri­cul­tural PSA bill could get adopted as early as mid-Oc­to­ber, giv­ing the en­deavor solid leg­isla­tive foot­ing. The plan also skirts Ukraine’s snail pace ac­tion on cre­at­ing a land mar­ket. Cur­rently agri­cul­tural land can’t be bought or sold but gov­ern­ment will al­low in­vestors to use land for 50 years with­out ad­dress­ing the is­sue of pri­va­ti­za­tion.

Again, “the prob­lem is ex­e­cu­tion, and how these (pub­lic shar­ing) agree­ments will be prop­erly ex­e­cuted, so this wait and see …its’ also about gov­ern­ment lands and how they’re clus­tered, the land cadas­tre has to be com­pleted… ac­cu­rately,” said Sh­morhun.

What­ever the shape and size of land, the po­ten­tial is still there, said Sh­morhun. “Whether it’s agri­cul­tural or pas­ture land, you can do a lot, you could grow crops of all sorts of dif­fer­ent sorts of op­er­a­tions…there’s dairy pro­duc­tion, pig farm­ing, green­house veg­eta­bles, fruits, or­chards and berries – there’s room for re­newal in so many sec­tors.”

John Sh­morhun

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