Ukraine, often referred to as the “bread basket of Europe” has the largest stock of agricultural land in Europe comprising 42 million hectares, yet the current ban on the trading of freehold agricultural property in the country, to both Ukrainian and foreign nationals, is stifling growth and investment in the country. With a new Government there often comes change and under President Volodymyr Zelensky, is Ukraine now ready for change and open their doors to overseas agricultural investment?
A moratorium on agricultural land sales, designed to prevent the concentration of land ownership, has been in place since 2001, banning landowners from freely disposing of their private property or using the land as collateral to attract investments to the rural economy. The very existence of the moratorium has been often debated in Ukrainian politics, with the latest extension, the tenth, being agreed in December 2018 for the moratorium to remain in place until 1 January 2020. According to the World Bank President, David Malpass, “Ukraine is ready to seize its chance to reform”.
The potential for growth in the Ukrainian agricultural sector is enormous. Over 70% of Ukraine’s total land mass is agricultural land of which 32 million hectares is arable. Of this, 68% comprises rich black fertile soil known as chernozem representing a third of global black soil stocks however crop yields are generally significantly lower than in France and Germany. Following a meeting with President Zelensky, Mr Malpass said that “lifting this moratorium and establishing an efficient market for agricultural land will encourage improvements, including more investment in mechanisation and irrigation, a shift to higher value-added products, and better access to finance for smaller farms”.
Agricultural land ownership in the Ukraine is largely made up of pais, small holdings of one to three hectares in size, which formed part of the Soviet collectivised farms and redistributed to former workers following Ukrainian independence. There are estimated to be in the region of 5.5 million of these “small farms” and whilst they do not conform to the image of modern, well capitalised agriculture, they represent 45% of agricultural GDP in the Ukraine.
Previously, opinion amongst landowners diverges on whether or not the moratorium should be lifted. According to the Centre of East European and International Studies, those with smaller farms are facing competition from the agroholding companies over access to land fear that lifting the moratorium would intensify competition and squeeze the smaller farms out the market. Those landowners who have migrated to towns are keen to divest themselves of their land and so would be able to sell their land at a profit if the moratorium was lifted.
The challenge faced by previous Governments since 2001 is striking a balance with policy reform that will deliver faster and more sustained economic growth and higher living standards. The World Bank estimates that lifting the moratorium would boost agricultural productivity, adding US$15 billion to annual output and increase annual GDP by 1.5%. It would create open market competition between small farms/pai holders and agroholding companies and could also boost public revenue from the sale of state-owned farmland as well as generating approximately US$250 million annually from land leases.
Whilst there are substantial investment opportunities, should land policy be reformed, it hinges on the Ukrainian Government addressing key concerns in other areas currently limiting growth, namely the monopolisation of key sectors including energy and finance, ageing infrastructure and the conflict in the east of the country. The Ukrainian people have now given their president and new parliament a mandate to deliver on reforms and growth.