Ukrainian Economy Minister Defends Land Reform

The Ukrainian parliament has begun the second reading of a controversial land reform bill that has stirred up protests across the country. The first reading, which passed parliament solely on the strength of the ruling party’s majority, occurred on November 13, 2019. Since then, the bill has accrued 4,018 amendments and fixes. It is so far not known how long Parliament will take to consider the proposed amendments.

The Ukrainian Minister of Economic Development, Trade, and Agriculture, Tymofey Milovanov, spoke to hromadske about how the bill envisions the new land market. Particularly, about whether foreigners will be allowed to purchase Ukrainian agrarian land, what the banks will do, and what effect the land market will have on Ukraine’s economy.

Will foreigners be able to buy land?

“Foreigners will not be allowed to buy land in Ukraine, and for this, there are a lot of financial monitoring safeguards (for locating when foreigners attempt to own land through surrogates), notarial inspections and contract nullification, if fraud is found,” said Milovanov.

What will happen to foreign agro-companies, who are already working in Ukraine?

According to data provided by the Ministry of Economic Development, Ukraine plays host to about 1,300 agro-companies funded by foreign capital. They are not all large agro-holdings – some of them are small farms that simply belong to foreigners. If the law is adopted, then these companies will no longer be able to manage agricultural land.

“We’ll defend them, just as other participants in the land market, but they will have to rent land,” noted the minister.

When will foreigners be able to purchase land and will there be a referendum on this question?

The second reading of the bill has revealed a norm stating that the right for foreigners to purchase agricultural land can only be given by the Ukrainian people during an all-Ukrainian referendum. This point was emphasized by Ukrainian President Volodymyr Zelenskyy.

“In order to hold a referendum, we’ll need to adopt a law on it. It’s currently in development, and discussion is ongoing regarding the conception of this law. Afterwards – we’ll hold a referendum,”  commented Milovanov.

How would the price of land change following the opening of the land market?

The market will determine the cost of land. The government expects that after the opening of the land market, its price will gradually rise.

“Additional infrastructure will be created around land, the land market – a processing industry, the ports will improve, the output will improve (in this sense, the output per hectare of land – ed.),” believes Milovanov.

According to the minister, high land prices would mean an increase in local taxes and better financing of rural wealth.

What will happen to land seized by banks as collateral?

One of the benefits of opening the land market will be the ability of farmers to obtain loans in banks for its purchase, or for improving production using land as collateral. Farmers do not currently have this ability, which restricts the development of small farms and of large agro-companies alike.

If a landowner does not service the loan, then the bank will be able to confiscate their land.

“All banks, regardless of how they function, cannot hold land for long. They’ll be able to receive land as collateral, but they have a set period, during which they have to sell it via transparent auctions,” explained the minister, stating what would happen in the situation if a borrower is unable to repay the loan using their land as collateral.

Milovanov added that if during a short period of time, the bank is unable to sell the plot of land, then the government will simply confiscate it and put it up for auction themselves. The proceeds of this auction will be returned to the bank, but it will take a commission for this action.

How will the land market affect the Ukrainian economy?

A land market is capable of adding an additional 0.23% of GDP growth to Ukraine’s GDP in 2020, despite the fact that the land market is expected to start working on October 1 – that is, this GDP growth will be evident from only three months of operation, says the Ministry of Economic Development.

“Unfortunately, this growth is rather small, because this will only be two-three months [from the opening of the land market to the end of the year]. People will see how it all works,” stated Milovanov.

He also noted that the model used for the land market, which was created for the second reading in Parliament, is expected to bring in an additional percentage point or more of GDP growth starting from 2021.