The sale of agricultural land in Ukraine
In November, the Ukrainian parliament adopted in its first reading a draft bill aimed at removing a moratorium on selling agricultural land. This is currently a hot topic in Ukraine. Our Project Manager Nataliya Sjøvoll, therefore, asked Dmytro Lyvch from EasyBusiness, who has been actively working with this issue, why it is important for Ukraine to allow the sale of agricultural land, and what foreign investors should be aware of.
1. Besides the economic freedom to landowners, could you mention three main reasons why it is important for Ukraine to allow the sale of agricultural land?
“Starting from the benefits of farming market reform in Ukraine. First it is the economic effect that it can bring into the Ukrainian economy. According to our latest research in 2019, land reform in Ukraine can bring an additional 85 billion USD of total GDP growth in the next ten years after opening of a liberalized market. It means that the farming price will grow five times after 10 years, the lease rates will grow as well, and the income of Ukrainian landowners and citizens in general will grow in the period of the next 10 years after the land market reform. Coming back to the other benefits of the land market reform its international recognition of Ukraine. Because Ukraine is one of the lowest countries in index of economic freedom and a land market reform is one of the main reasons why we lies behind the developed countries. Ukraine remains the only democratic country with no land market at all. So, the land market reform in Ukraine can bring a positive effect on economic development and international recognition of Ukraine as well”.
2. Could you also mention the main risks of opening the land market for sale?
“To be honest there are almost no risks. But there is equally growth between market demand and market supply. If we are talking about the supply side, there are landowners. There are 7 million of them, who don’t have a right to dispose their property, and right after the market opening, they will be able to dispose of their property properly, and prices will increase. And from the demand side there are a lot of farmers and agricultural companies, who are paying now relative lower farmer lease rates then in European countries, and these lease rates will grow after the opening of the land market. There is the risk of losing some margin or profitability for agrarian businesses But still the Ukrainian agrarian business can adapt to the farmer market reform and can get an even bigger benefit from the launch of the land market reform in Ukraine. Because basically they can invest more in supply, they can invest more in changes and crop mix, to go for high margin crops rather than for low margin crops. They can also create cooperatives or clusters, they can be involved in supply chain financing and develop this connection between smaller and bigger companies, and they can benefit from the farmer market reform. So, the potential benefits of the opening of the land market are relative higher than the potential risks”.
3. What advice, if any, would you give to foreign investors, who are keen on buying agricultural land in Ukraine if it should be permitted by law?
“The first they need to know their markets, they need to know the market landscape, to do the market research and understand the real benefits of the investing in the Ukrainian economy. There are a lot of benefits to investing in the Ukrainian economy. Currently, the productivity gap between Ukraine and European countries is from 25% to 40%. By investing in basic supply we can grow productivity rates in Ukraine. Also, they can invest in high margin crops like fruits, berries and vegetables. The most common crops for the European Union but the least common crops for Ukraine. Because 90% of value added created in the Ukrainian economy goes for traditional crops like wheat, barley and corn. Only 10% goes for high margin crops. Investors need to understand this landscape in Ukraine and this economy. They also need to make sure that the farmer price will grow 5-10 times in 10 years. So, there is some economy behind investing in agricultural land and the creation of agrarian business in Ukraine”.
NUCC would like to thank Dmytro Lyvch from EasyBusiness for sharing with us some insights regarding the land market reform in Ukraine.