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30 March, 2012

Land Intrigues

If passed, the Law “On the Land Market” could destroy the land market in the bud

The Verkhovna Rada has extended the moratorium on the sale of farmland until January 1, 2013. Lawmakers have essentially admitted their inability to legalize the circulation of land plots that has been going on for years in Ukraine and fulfill the promise, made long ago by President Yanukovych. The task is actually very challenging for MPs. There are a slew of economic and legal factors resulting from many years of quasi legitimate sales of land, which need to be systemized and summarized in order to complete the land reform, which was launched as far back as the Kuchma presidency.

On December 9, 2011, the Verkhovna Rada passed Draft Law No. 9001-д “On the Land Market” in the first reading. This outraged the parliamentary opposition and thousands of farmers and experts, who pointed out that if passed, the law would ultimately allow large companies-landholders, to buy land plots with hardly any competition, since non-residents are essentially left out of the game.  The subsequent scandal inspired some conclusions among the reformers that are surprising, to say the least: The Verkhovna Rada excluded legal entities from the list of buyers that could legitimately purchase farmland. This is not a joke! Draft Law No. 9001-д clearly determines the list of entities which are permitted to purchase and own land: it includes citizens of Ukraine, the government represented by the land bank, other relevant authorities, the Crimean Council of Ministers, local village, town and city communities and… that’s it. Moreover, private individuals who are residents of Ukraine will not be able to acquire more than 100 ha of land.

What does this mean? First, the current status quo on the land market will remain in place –farmland will still be used by leasers. Formal leasers, as is often the case, will work the land. All discussions regarding agricultural holdings splitting into shell entities are justified, but unlikely. The prospect of the redistribution of certified land plots (those that are not allocated in kind) to the founders of some LLCs in the reorganization process, looks plausible, of course. Yet, some powerful companies have more than 100,000 ha of land. Even feudal lords once had fewer serfs compared to the mass of shell individuals that today’s land-baggers would need to camouflage their ownership of this much land. Notably, the government will take tough measures, including the seizure of land, to stop any attempts to own land in any ways other than those stipulated by law.    

One provision of the draft law imposes a special tax on the buyers of farmland: 100% of the land plot price, if purchased during the first year of its implementation; 90% during the second year, with a similar reduction each subsequent year. The minimum estimated value of a hectare of black soil was UAH 12,000 in 2011 and is likely to grow in 2012. How many people will want to buy land at such a price?

Nobody could predict this finale to land reform. Numerous nuances apart, if the current version of the law is passed, the situation with land will not differ significantly from that under the Soviet regime. Back then, land was publicly owned, just as it is now. The only problem is that then, the government managed farmland, while now, power is in the hands of leasing land-baggers. Moreover, if the draft law is approved, any lease contract can be terminated if the State Inspection for Agriculture finds that the renting entity damages the quality of the land plot. The government can essentially be the only owner of farmland under such rules. This situation is beneficial for those closest to the government. But even these business owners are not likely to be happy with the victory of such “bureaucratic capitalism”. Given the proposed rules, the fundamental draft law requires a different title, such as, “On the Ban of the Land Market in Ukraine”. 

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