Ukraine’s Farmland Dilemma
*No money — no soil
Opening up millions of family plots to the free market would boost growth, but the social cost could be incalculable.
Development of Ukraine’s vital agriculture sector is being slowed by a generation-old system designed to undo the damage caused by Stalin’s repressions, Bloomberg writes.
Last month lawmakers extended a moratorium on sales of small family fields for the ninth time since 2001. The small plots comprise a significant part of the country’s more than 40 million hectares (155,000 square miles) of agricultural land.
- Agriculture generates more money from exports than any other sector, yet Ukraine’s productivity and yields are among the lowest in Europe, Bloomberg says, citing a World Bank report that blames this situation on the moratorium.
- Ukraine has some of the most fertile farmlands in the world, yet according to the bank, wheat yields are less than half of those in Germany.
The small plots, worked by families or leased out for an average of $190 a year, were created by a 1991 law intended to undo the forced collectivization of farms in the 1930s, which led directly to the famine in which millions died, Bloomberg writes.
Yet this attempt to recompense Ukrainians for the sufferings of their forebears, by preventing privatization of some 166,000 square kilometres of farmland – nearly the size of Belarus – is a major drag on the economy, Western-led financial institutions and domestic agribusiness argue.
“This is a huge challenge for all of us [in the industry]. … We are all farming on short-term leases, which is not in line with the long-term returns that everyone expects to get in agriculture,” Simon Cherniavsky, chief executive officer of the Mriya company, told Bloomberg.
The International Monetary Fund is so concerned about the moratorium that it has made privatization of family farmland one of its conditions for further disbursements of its multi-billion dollar bailout package, writes senior Atlantic Council fellow Anders Aslund.
Both the IMF and the European Union held up financial aid last year over the government’s perceived inability to reform the economy. The main concern for the IMF and foreign investors, however, remains the slow progress against entrenched corruption, exemplified by the government’s inability to legislate an independent anti-corruption court, Aslund says.
Even though macroeconomic indicators are improving, the economy’s achingly slow recovery from the shock of the war with Russian-backed separatists means Ukraine is vying with Moldova for the title of Europe’s poorest country, Aslund maintains.
- Along with abolishing the land sale moratorium, the IMF last year said Ukraine needed to work on privatizing state-owned enterprises, pension reform, judicial reform, and reducing the drag effect of oligarchic influence and excessive regulation.
- Lawmakers who backed extending the moratorium say it’s needed to prevent European and U.S. companies flooding into the agriculture market.
- An adviser to the Ukraine branch of France’s Credit Agricole Bank, Jean-Jacque Herve, said in 2015 that owners of small land plots don’t have enough money to purchase them. “Speculators with access to foreign currency would be the biggest winners [if the land market was opened],”
Agriculture in Ukraine secures approximately 10-11% of national GDP and employs a quarter of working population. Ukraine has 42.8 m ha of agricultural land comprising 71% of the country’s total area, of which 32.5 m ha is arable (excl. pastures, grasslands, permanent plantings etc.). Ukraine has favorable climate for large-scale agriculture, rich agricultural soils and access to abundant land and water resources.
- Currently, owners of land cannot sell it due to Moratorium on Sale of Agricultural Land. However, a draft law “On Turnover of Agricultural Land” has been already passed to the respective Verkhovna Rada Committee for further consideration.
- If the Law is adopted, it will open up a completely new market for investors. The price, according to experts, may range between$ 480 at its minimum and $6030 at its maximum per 1 ha.
Ukraine is richly endowed with chernozem (also known as “black soil”), one of the most fertile soils worldwide. Chernozem, a black-colored soil that contains a very high percentage of humus (3% to 15%) along with phosphoric acids, phosphorus and ammonia, occupies 41% of Ukraine’s total area and even more of its agricultural land (54%), and plow land (58%).
Thirty percent of the world’s black soil is in Ukraine, and 42 million of the country’s 60 million hectares (231,660 square miles) is agricultural land where wheat, barley, rapeseed and sunflowers grow in abundance. The crops constitute about 55% of the total agricultural output. Among the leading crops are wheat, maize, sunflowers, sugar beets, tobacco, legumes, fruits and vegetables. Livestock farming includes cattle, pigs, sheep, horses etc.
Compiled by Ky Krauthamer
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