Second phase of Ukraine’s land reform underway, critics say law will hurt small farmers

Second phase of Ukraine’s land reform underway, critics say law will hurt small farmers
 

by Dominic Culverwell

 

Ukrainian businesses can now legally buy land in Ukraine as of Jan. 1 as part of the second phase of a historic decision in March 2020 to lift a near 20-year moratorium on the sale of land.

 

The land market officially opened in July 2021, but until now, only allowed individuals to purchase up to 100 hectares (247 acres). Under this second phase of the law, Ukrainian entities can now participate in the market and along with individuals can purchase up to 10,000 hectares of land (24,710 acres).

 

Despite agricultural land being the backbone of Ukraine’s economy accounting for 20% of its workforce, opening up the country — 71% of which is agricultural land according to the World Bank — to land sales remains a highly contentious issue.

 

Opponents of the reforms claim large companies will reap benefits at the expense of small farmers, while those championing the changes say it will allow further opportunities for agricultural development and bolster Ukraine’s annual GDP growth.

 

“For legal entities, this opens up new opportunities for investment and business expansion, creation of new jobs, and construction of processing complexes. Land ownership will allow legal entities to confidently invest in new construction: elevators, warehouses, and product processing plants,”  Ihor Lisetskyy, coordinator of the Land Committee of the Ukrainian Agribusiness Club (UCAB),  told the Kyiv Independent.

 

During the first phase of the reform, companies nonetheless found ways to purchase land. Employees of a given company would purchase 100 hectares of land as individuals. They argue that being able to legally purchase up to 10,000 hectares will reduce the legal and administrative costs they incurred when purchasing 100 hectares at a time.

 

Groups, such as the Kyiv-based NGO Eco Action, warn that the reforms could lead to the concentration of land ownership by large agricultural companies and oligarchs over small and family farmers. Unlike larger agricultural companies, smaller farmers have received little fiscal support since the start of the full-scale invasion.

 

Lisetskyy said farmers are concerned that large companies will own most of the land, resulting in a decrease in employment in the agricultural sector. In the lead up to the initial stages of the reform, the United Nations (UN) stressed that the land market must primarily benefit landowners, smaller farmers, and local communities.

 

“Further concentration of land in a few hands must be prevented. To take full effect, smallholders and smaller farms must be supported with well-targeted financing instruments, including state support, access to credit, and Partial Credit Guarantees (PCG),” the UN wrote in a 2020 policy paper.

 

Unpopular law
 

The Kyiv International Institute of Sociology (KIIS) found that the creation of a land market was largely unpopular among Ukrainians during a poll in 2021. Out of 2,031 respondents, 65.5% said they supported the 2001 moratorium, originally introduced as a temporary measure to regulate the complicated transition from Soviet-era collective farms to private ownership.

 

Both Lietskyy and Ukraine’s Agricultural Minister Mykola Solsky refuted the fears of small farmers. Solsky told the Kyiv Independent that small farmers don’t need protection from the land market as the reform is simply a “new transparent mechanism for developing their business and investments.”

 

Agriculture is one of Ukraine’s largest sectors accounting for 11% of GDP prior to the full-scale invasion and has been pinpointed as a key pillar for reconstruction. The war dealt a blow to Ukraine’s agricultural economy, reducing harvests and exports. Mines, occupation of arable land, and relentless drone and missile attacks have impacted some of Ukraine’s largest agricultural holdings.

 

Many companies see land ownership as a way to bolster the sector and encourage much-needed investments to help develop agricultural enterprises. Legal entities have greater financial means and can therefore adopt more modern technologies and farming methods to increase land productivity, Lisetskyy claims.

 

Despite calls in parliament to postpone the second stage until 2025, spearheaded by the chairman of the Verkhovna Rada Dmytro Razumkov, Minister Solsky stressed that expeditious action is crucial, even in the midst of the full-scale war.

 

“We generally must move faster than before the war. Business is not guided by sentiment. We must have convenient rules, no worse than in countries where people are willing to invest. Our legislation and agricultural business must be ready for maximum global competition,” Solsky told the Kyiv Independent.

 

Currently, foreign individuals and companies are still prohibited from purchasing farmland, although they are allowed to lease land from local owners. This could change in the near future if a national referendum takes place, but this would likely inflame tensions around an already divisive topic.

 

Stable market, so far

Despite Russian aggression, the land market has proven to be stable, according to Oleksandr Solovei, head of land relations department at Nibulon, one of Ukraine’s agricultural giants.

 

In 2021, 27,696 sales were completed, followed by 23,122 in 2022 and 40,850 in 2023, totaling 283,000 hectares, according to the Agricultural Ministry.

 

Nevertheless, Russian aggression has still caused complications. It is difficult to accurately predict demand and supply in specific regions, Solovei said. Moreover, regions close to the front line or areas highly contaminated by explosives will be excluded as they require major financial investments to de-mine.

 

Land prices across Ukraine are also expected to increase. UCAB predicts the price of a hectare of land could jump by 20-25% this year. Nibulon notes that offers to their company rose from $1,200- $1,500 in 2022 to $1,500-$2,300 in 2023 per hectare of land. Now with legal entities entering the market, the company believes that the initial cost will range from $2,300- $3,300, possibly higher.

 

At the moment, there does not appear to be any great rush to sell land. In the first week of the reform, two plots of land were sold totaling less than eight hectares. But Solskyi claims this will soon change.

 

“I am convinced that in a couple of months, all the myths about the dire threats of land sales to legal entities will disappear, just as they did at the beginning of the reform.”