The closer we get to Jan. 1, 2008, the day the moratorium on farmland sales ends, the more passionate the public debate on whether it is worthwhile extending the ban. Also adding fuel to the fire are political passions because the attitude to the moratorium is one of the main ideological slogans for some parties that made it into parliament. In this writer’s opinion, we should disregard political speculations on this issue and look at the problem from a purely economic angle.
A few words must be said about the losses inflicted on the economy and society as a whole by the Law of Ukraine “On Introducing Changes to the Land Code of Ukraine Concerning the Ban on Selling Agricultural Land Pending the Adoption of Relevant Legislative Acts,” which was passed on Dec. 19, 2006. The law was a compromise between the supporters and opponents of the moratorium, which eased political tensions in society but also dealt a powerful blow to the national economy, with agriculture suffering the brunt of losses. It is futile to expect serious investments in agriculture, long-term loans, and capitalization of businesses unless commercial farmlands are involved in the economic cycle. To ban the free circulation of land plots means to hinder the creation of optimal-sized competitive market-type businesses. It also hinders the optimization of land use and land management in those private farming businesses that have emerged since the land reform was launched.
Having banned the target designation of farmlands, the law stemmed the development of mines and enterprises that manufacture construction materials, build roads, etc. For example, according to the State Land Management Agency, strategically important industrial facilities need 22,100 ha of farmlands, including 5,210 shares of land with an area of 11,900 ha and 7,900 ha of reserve farmland, for the purpose of expansion.
At the same time, the shortage of lands that are subject by law to amortization for important public purposes has touched off rivalry for areas that do not belong to the farmland category. This has had an especially deleterious impact on Ukraine’s woodlands. For example, if a public road is being built, the law protects every inch of the arable land but allows the felling of hundreds of hectares of nearby forests, which will take more than a decade to restore. We are very unconcerned about reviving our destroyed forests. Whereas from 1966 to 1990 newly-planted woodlands in Ukraine accounted for 55,000 to 100,000 hectares annually, today this area is only 45,000-50,000 ha. In 2006 trees were planted in Kyiv oblast in an area only 318 ha larger than the area in which trees were cut down. Poltava oblast saw trees planted on 2,044 ha and felled on 1,392 ha. It will take years for the new plantations to become a full-fledged forest.
So, in protecting one category of land, the state leaves others out on a limb. The least protected are forests whose only master, the state, sometimes cannot come to its rescue.
The expectation that the moratorium on the purchase and sale of farmland in Ukraine would check sales operations turned out to be an illusion. Economists are perfectly aware that any ban on free trade brings about a shadow market. The same happened to agricultural lands.
Given the absence of a transparent land market, Ukraine has ended up with a series of alienation schemes for this category of land, such as concluding leasing contracts that provide for a buyout after the moratorium is lifted, signing letters of attorney that empower other persons to alienate the land, concluding preliminary contracts on transferring the land alienation right in the future, etc. The exploitation of farmland for personal, not commercial, purposes has also become widespread. Therefore, as economists grimly joke today, it may happen that there will be a market with nothing to sell.
On the list of those who lose out as a result of these machinations are farmers, who get a considerably lower price if the land is sold illegally than if there were an open market; lessors, who receive reduced rent for their lands; the state, which is not paid taxes from farmland operations; and the agricultural producers and the agrarian sector in general because they are unable to bring land into economic circulation and obtain mortgages.
This situation requires urgent actions. In this writer’s opinion, we have to bring into play the Law “On State Registration of Real Estate Rights” and make changes to the Land Code about the maximum and minimum size of land that an artificial or natural person can acquire. I hope that the new draft law “On the Market of Lands Designated as Farmland,” which emerged during the revision of the bill “On the Land Market” and will be submitted to the Verkhovna Rada, will vest the state with some essential rights while a farmland market is still being formed. Among them are the regulation of resale quotas, the creation of a high state duty rate, which will keep speculative tendencies in check, and the establishment of a realistic land sale price. We should also revert to the Law “On the State Land Cadastre,” which was enacted during the second reading on March 20, 2007, but vetoed by President Yushchenko on April 13. If necessary, a new law should be drafted, which would take into account the president’s remarks. In my view, the opening of a farmland market also requires the adoption of an extremely important law on mortgage banks, which will help create conditions for the development of state- controlled land market relations, support for the national agrarian producer, and investment of additional funds in the agrarian sector. Only then will we be able to create conditions for a full-fledged, open, and transparent land market.
