The Concept of Land Reform: Experts Come Up with 4 Alternative Algorithms to Lift the Moratorium – Now It is Politicians Who Should Take a Decision

The concept of land reform has been presented for expert consideration. This concept was developed by experts at various levels and positions dealing with land issues in Ukraine. These include individual representatives from the SAGSUR group of advisers to the Prime Minister; from the State Service of Ukraine for Geodesy, Cartography and Cadastre; the World Bank Group; the USAID ARDS project; and the World Bank’s project “Capacity Development for Evidence-Based Land & Agricultural Policy Making”

The concept of land reform has been presented for expert consideration. This concept was developed by experts at various levels and positions dealing with land issues in Ukraine. These include individual representatives from the SAGSUR group of advisers to the Prime Minister; from the State Service of Ukraine for Geodesy, Cartography and Cadastre; the World Bank Group; the USAID ARDS project; and the World Bank’s project “Capacity Development for Evidence-Based Land & Agricultural Policy Making”.

Why this issue is overripe

The fact that without opening of agricultural land market, the agricultural productivity growth and rural development are almost impossible is evidenced by economic estimations presented at different levels – the annual benefits of lifting the moratorium and creating an agricultural land market can range from 0,7 to 1,5 billion US dollars (as additional investments, local incomes and incomes of landowners), which is equivalent to the GDP annual additional growth by 0,6-1,6%. Anders Aslund, a Swedish economist, called the legalization of agricultural land sale in Ukraine as “the most accessible source of economic growth,” which the state failed to use By the way, this was one of the reasons for the IMF’s refusal to grant the next tranche to Ukraine in November 2016.

An analysis of the European legislation indicates that a market of agricultural land is the basis for effective use of such land – and each country itself chooses the model for such market. Ukraine is one of the two European countries which prohibit sale and purchase of agricultural land. According to the analysis done, an attempt to launch the turnover of lease rights only (instead of the right to buy / sell agricultural land) will not allow this potential to be realized both by small-medium producers and by rural pensioners. The first group will still have no access to obtaining bank loans secured by land as collateral; and the other one – to improving their well-being. Meanwhile, the number of land share holders has decreased by about 1 million in recent years – they did not have time to dispose of their shares at their own will; and the remaining 6 million share holders are not young people either.

At the first glance, conserving the situation is beneficial to certain agricultural producers who rent their land areas at overtly understated prices – simply because the elderly land share holders who cannot cultivate their hectares have no other choice but to lease out their land. Yet, among producers there is also a spreading understanding that without a land market further development of the sector will be extremely problematic.

In fact, land reform in Ukraine has been hampered for about two decades by the populism of politicians, as well as the low awareness among the citizens of the opportunities that they will personally benefit from the land market. Moreover, to distinguish a “chicken” and an “egg” among these two issues is difficult. Politicians view lifting of the moratorium a “political suicide”, yet only because such a step is unpopular among the citizens. And the citizens are afraid of lifting the moratorium because the situation is constantly fueled by politicians who do not hurry to talk about the opportunities their electorate will have for their businesses and family budgets.

Both the Prime Minister and the Parliament’s leadership have qualified the voted prolongation of the moratorium until at least 2018 as a time-out which is necessary for Ukraine to develop its own model of the market – the Cabinet of Ministers is to submit a relevant draft law to the Verkhovna Rada before July 1, 2017. So, it is high time to start looking for the answer to the question: what should be reflected in that bill?

For this purpose, a group of experts met in October and their efforts resulted in a concise document – the Concept of Land Reform Implementation in Ukraine. This document focuses the search for a formula that Ukraine could choose and enables a move from general discussions to, so to say, a constructive approach: to choose the most appropriate way which will undergo expert discussion and follow-up finalization. This concept was presented in expert environment at the “Reanimation Package of Reforms” office on December 13, 2016.


Required legislative elements to regulate the turnover of agricultural land

The presented Concept proposes the following approach.

Firstly, it is proposed to establish a minimum set of norms regulating the land market (such as restricting the access of foreign individuals and legal entities, preventing the monopolization and limiting speculation in the land market, regulating the change of the designated use, ensuring the land market transparency, etc.). In other words, define the norms describing the market model in Ukraine.

Secondly, a transition period (3-5 years) with stricter restrictions aimed at social protection of landowners and land users should be introduced.

The transition period special norms could include restrictions on the maximum area of land owned by one person, the rules for participation of farmers and other legal entities in the land market, preemptive rights to buy land, etc.

Thirdly, the timeline (its alternatives are listed below) for opening agricultural land market should be approved.

Finally, an important element of land reform should be to inform citizens about the economic opportunities that the agricultural land market opens for them, about their rights and possibilities to protect their constitutional rights.


Four alternative models for agricultural land market opening

The purpose of the Concept was to record the main alternative models for agricultural land market opening, which would stimulate economic growth and rural development. The discussions identified four options:

  1. Nationwide and simultaneous lifting of the moratorium on alienation of agricultural land of all types of property.
  2. Decentralized market opening. Authorizing local self-government bodies to determine the moment for lifting the moratorium on alienation of agricultural land within the territories of communities or other local self-government bodies within the transition period, while at the national level the moratorium would be abolished only by the end of the transition period.
  3. Phased opening of land market: First, the sale of state and communal land starts, and private land sale would start in 1-3 years.
  4. Hybrid model: at the first stage, the market opens for state and communal land via auctions and for certain categories of private land owners (including, for example, the owners of inherited land, of adjacent parcels in a land array, of parcels acquired via land auctions; the owners who obtained ownership right to land parcels after the enactment of the Law on the Turnover of Agricultural Land; and the owners of land not subject to current moratorium).

Each of these models would stimulate economic growth in agriculture and rural areas. The only difference is how fast the new market will stabilize and to what extent the distribution of the benefits of its opening will be even. Choosing any of these options requires a political decision that will allow for designing a plan and setting the timeline for adoption of the required legislation. The possibility for such a decision primarily depends upon the Parliamentary hearings on “The Regulation of the Turnover of Agricultural Land: Searching for the Ukrainian Model”, scheduled for December 21, 2016, and upon the Government’s activities when preparing for those hearings.

Main issues of land reform progress and ways to overcome them

The biggest problem of land reform in the last 20 years was and still remains its politicization, populism and manipulation with the opinions of citizens, the majority of whom neither realize the social and economic purpose of land market, nor have sufficient awareness of their own rights and ways to protect them, and of the reform essentials in general.

The second problem is related to unequal access to loans, which should be addressed by introducing appropriate safeguards, as it can lead to land deprivation of peasants and accumulation of extremely large areas of land by a small number of owners. Therefore, the most important instruments for opening a market should include an awareness campaign targeting the rights of citizens, the creation of tools for making unpopular political decisions, the development of mortgage market, and the introduction of temporary safeguards, as mentioned above.

Immediate action plan

Considering that the Cabinet of Ministers has been commissioned to submit a draft law on land turnover by July 1, 2017, which should open the way to the land market launch in early 2018, it is straight away necessary to come to a clear decision on urgent measures to be taken by February 2017 at latest. Namely:

  • make a political choice regarding the model of market opening and approve the concept of the reform;
  • in accordance with the chosen model, develop and submit to the Parliament a draft law which would meet the above-mentioned principles;
  • approve the Plan [Road map] of Land Reform for 2017-2020.

A delay with making a political choice and designing an immediate action plan endangers the launch of agricultural land market in Ukraine even after the next year ends.

The presentation of the Concept aims to initiate expert discussion of the proposed models and preparation of constructive proposals for the parliamentary hearings.

Denys Nizalov, Serhiy Kubakh, Oleg Nivievskyi, Pavlo Kulynych
Capacity Development for Evidence-Based Land and Agricultural Policy Making in Ukraine’ project