Thanks to the efforts of the Ukrainian Government, international institutions and expert community, today Ukraine is on the brink of taking a landmark decision for agricultural development – i.e. lifting the moratorium on sale of agricultural land and creation of a land market.
According to the preliminary statements of the Government, the land market model to be introduced envisages the right to buy agricultural land exclusively for individuals – citizens of Ukraine. Thus, foreign citizens and legal entities can be eliminated from the market. In addition, the model announced by the Government involves the introduction of quantitative restrictions: up to 200 hectares for one buyer.
Experts fully agree with the Government that the reference point in determining the market model must be the landowner and the protection of his/her interests. And it is by finally lifting the moratorium that we can create conditions for the enforcement of the constitutional rights of landowners, as they will have an opportunity to freely dispose of their property rather than depend on monopolies in the rental market, as it has been the case for the last 15 years since the introduction of the unconstitutional moratorium.
However, in the context of selecting the most effective model for the Ukrainian market, experts see the need for a number of adjustments in favor of a liberalized market. In particular, experts do not support the restrictions on the market participants and emphasize the need to open the market not only for individuals but also for businesses. There are serious risks involved in the establishment of the maximum area of land (200 hectares) and setting the minimum standard price suggested within the preliminary model voiced by the Government.
In addition, Reanimation Package of Reforms emphasizes that market players should also include foreign nationals and legal entities (other than Russian), since narrowing the circle of participants will curb demand and distort the market that has already been distorted by years of the moratorium. In addition, the limitation of the list of market participants is contrary to the Association Agreement between Ukraine and the EU (Art. 145, the principle of free movement of capital).
Setting limit values – both for the maximum area and minimum standard price – seriously limits demand. This can lead to a market glut. Apart from the illusory protection of landowners, restrictions will have a negative effect on the value of their assets – namely, they will contribute to its reduction.
In experts’ view, reasonable proposals in the context of land reform include the application of the mechanism for retaining the right to use the land plot in case of ownership change foreseen by the Law of Ukraine “On Lease”, as well as electronic bidding.
However, Reanimation Package of Reforms does not share the approach that involves stage-by-stage market launch and the introduction of pilot projects in the regions. Experts are in favor of the proposal supported by the IMF to simultaneously allow the sale of land both of public and private property nationwide from January 1, 2018. The study of the land reform in sixty countries conducted by the RPR clearly indicates that the most effective model of the land market is a fully liberalized market.
Experts of the Reanimation Package of Reforms urge the Cabinet of Ministers of Ukraine and the Parliament to assess the impact of potential restrictions on pricing and agricultural development in Ukraine and to introduce the land market based on market mechanisms, which, in turn, will maximize the value of landowners’ assets.