Opinion: Ukraine Is Not Ready For A Free Market In Agriculture Land

October 9, 2017, Written by

By: Dr. Vitaly Skotsyk And Yuri Vanetik

Opinion: Ukraine Is Not Ready For A Free Market In Agriculture Land
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In its recent agreement with the International Monetary Fund to obtain its next round of funding, Ukraine has taken on an obligation to pass laws launching an agrarian land market in May 2017. As of now there is a moratorium on the sale of agrarian land, but it is to be lifted next year. Free marketplace for agrarian land in Ukraine sounds attractive on the surface, but it is an obligation difficult to fulfill quickly without dire consequences for Ukraine’s already devastated economy.

There are major challenges to opening a private market for land in Ukraine. First, historically Ukrainians view a marketplace for land with suspicion. Without a proper education and infrastructure that ensures fair dealings, Ukrainian populace is likely to turn to mass scale violence if farm land is turned into a commodity. An open market in agrarian land in Ukraine needs to be predicated on a well thought through system that considers interests of farmers. Even if the laws are drafted in a manner that contemplates an even-handed marketplace, the implementation of new laws is likely to be manipulated from the get-go. A free market in a rigged system is inexorably destined for major abuses, and in Ukraine it would enable a small group of oligarchs tied to government elites to seize full control of all the agriculture land. Finally, as it stands, Ukraine’s Constitution does not allow for private ownership of agrarian land. It would need to be amended for such laws to legitimately exist.

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Millions of Ukrainians are forced to survive on less than $150 per month. According to the United Nations, about 70% of them live below the poverty line. Ukrainians have always been agrarians, and perceive land as a national treasure rather than a commodity. Moreover, Crimea and important Eastern regions of Ukraine are occupied by movements for independence backed by Russia. The backdrop to an unregulated market for agricultural land is a war-torn, famished, and corrupt country.

Opinion: Ukraine Is Not Ready For A Free Market In Agriculture Land
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Ukraine has no subsidies system for farmers, like the Europe or US. Nor is there a system of affordable farming loans like in America. Ukrainian farmers are economic peasants, forced to subsist in a survival economy.
If a private land market is launched today, most farmers would not be able to buy the land that they work on via leasehold. According to research by Ukrainian Agrarian University, only 4% of agricultural producers can afford to purchase land plots.

There is a great risk land resources will be monopolized and used for short term speculation. Ukraine is known for its anti-economic monopolies. Back in the 1990s all state industries ended up in the hands of several financial clans. The ubiquitous poverty of the Ukrainian people allowed several oligarch families to obtain nearly all industries for next to nothing on the ‘gray’ market manipulated by side deals and illicit schemes. Instead of investing in development, they simply pumped out resources from factories and plants. Naturally, majority of these enterprises are either no longer competitive or have been depleted and abandoned.

The private land market planned for next year is destined for the same dire consequences, unless there are major changes in the rule of law, ensuring fair dealings. Otherwise, a small corrupt elite with large assets, but neither experience not desire to cultivate the land, will buy it up. Their goal will be to resell it with profit. This will lead to possible paralysis of agricultural production. The country that is known as a ‘bread basket’ of Europe will face extreme shortage of food.

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Sadly, ubiquitous corruption is a symbol of Ukrainian reality. It can make any reform, even the most progressive one, fail. The system of government bodies managing land issues is also riddled by it. Farmers often complain that officials demand bribes from them for processing paperwork. Law enforcement apparatus, prosecutors, and courts are also burdened with corruption that is challenging to measure and even harder for westerners to truly comprehend. Recently, there has been an increase of third-world style business “takeovers”, where farmers were illegally deprived of their land or property, or their harvest was stolen either under color of law or through brute force and threats of violence. It often happens that police take “a neutral stance” in Ukraine, and ignore brazen criminal activity perpetrated by their financial sponsors. The courts themselves are part of these criminal schemes with aggressive takeovers of businesses usually occurring based on paid for courts decisions. Foreign investors with high hope to literally grow their business in Ukraine are not spared.

Opinion: Ukraine Is Not Ready For A Free Market In Agriculture Land
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The land plot records are terribly mishandled. There are 61 administrative districts that have more land registered than there is actual land. Upon a detailed check, one can find out that some plots that have been designated as farm land are in fact a forest or a lake. In over 26 years since Ukraine became a sovereign nation, no proper land inventory has been carried out, no national land cadaster has been formed, and no borders for private, community and state property have been set. If the agricultural land is seized by Ukraine’s business and political elite, many villages will be destroyed. Ukraine should set its land policy and infrastructure prior to opening its land market. Successful land reform is predicated on predictable and fair rule of law that addresses monopolization by foreign factions or corrupt elites.

The land reform drafts proposed by the Ukrainian government so far would lead to chaotic sales of land, benefiting corrupt government officials and business oligarchs. No long term rational land policy has been proposed by Ukraine’s government. Ukrainian agriculture experts believe that proper agricultural reform can contribute $504 billion in investments in the Ukrainian economy, provide about 3 million additional jobs over the first five years, and double the income of every Ukrainian.

Opinion: Ukraine Is Not Ready For A Free Market In Agriculture Land
Image by Шенклян Сергій

Thoughtfully implemented, economically sound land market in Ukraine will assure Ukraine’s economic revival. A stable Ukraine can guarantee food security for many countries of the world, a high stake given the impending global food crisis. On the other hand, a hastily implemented speculator-driven market introduced into a corrupt regime, is destined to fail.

Dr. Vitaliy Skotsyk is the Chairman of the Agrarian Party of Ukraine. He is an expert on agriculture and economy. Yuri Vanetik is a private investor and GOP Strategist. He serves on the board of Gen-Next Foundation and is a Lincoln Fellow at the Claremont Institute.