When the 33-year-old Taras Vysotskyi assumed the post of deputy economy minister of Ukraine, one of his biggest self-confessed goals was to push through the land reform. On March 30, the Ukrainian parliament finally adopted the land market law – an important part of the land reform.
"It was a political issue, first of all, why we spent so much time to come to the opening of the agricultural land market," Vysotskyi tells Hromadske.
It took Ukraine nearly two decades to come to this stage. With two revolutions, a global financial crisis, constant elections, it was never considered a "good time" for the approval of something that became so divisive in the Ukrainian society.
"Political parties understood that the agricultural land is a very sensitive topic for Ukrainians historically," he explains. "They started to create different stories that it can never happen, that it will be the end of the state, that the land will be just given away, and so on. And since this time, it had been this battle, really, to communicate the truth to people."
Hromadske spoke with Ukraine's Deputy Economy Minister Taras Vysotskyi via a video call about the opening of the land market and how the peak of the global pandemic turned out to be the right time for the disputed land market law.
When you announced that you had gotten this position in September 2019, one of the goals you talked about was pushing through the land reform. It's taken over 19 years for people to be able to buy and sell land, and actually it hasn't happened yet. The legislation has just passed this week – could you give our viewers some context about why in Ukraine people haven't been able to buy and sell land?
In 2002, when the moratorium on agricultural land was put in place, the idea was to prepare the infrastructure. I mean the geo cadastre system, all the information about ownership, and to prepare infrastructure, and also the protection of the ownership, and then, by these ideas, the market should have been opened in 2004. But then it became a political issue. Political parties understood that the agricultural land is a very sensitive topic for Ukrainians, historically a very sensitive topic, and started to build for us different stories that it can never happen, that it will be the end of the state, that the land will be just given away, and so on. And since this time, it has been this battle, really, to communicate the truth to people. So, first of all, it was a political issue, why we have spent so much time to come to the opening of the agricultural land market.
It's clear that land and the banking system are tied very closely together because land can be used as collateral which can increase investments. At the same time with the agricultural history of Ukraine, how are farmers being protected as part of this new legislation?
The land reform in Ukraine is around 10 different laws, and the law on turnover, on the agricultural market is only one of them. Then we saw that the additional law was adopted where the ownership rights, the leaseholders’ rights, all of the systems [...] secure. Also, we have almost finished adding all the necessary information in the national geo cadastre system, by August 1 this year all the information about that will be there. And what's more important, it's completely transparent. All Ukrainians can see what's going on, who the owner is, and so on. And also the special instrument of the state support which they're going to provide the farmers, especially of small lands, is financing at the affordable price. In Ukrainian terms, that will be like 5% annual interest rates, which is four times less than the average one. But all of these instruments are in place really to support investment attraction, especially in agriculture for Ukrainian farms.
Let's talk about the size of the investment. Right now the buying and selling of land is limited to 100 hectares, is that correct? I had to look that up, that's about 180 football fields. The USDA in the United States qualify that size of a farm as a small family farm. Are these going to be land sales where people are actually going to be farming for their subsistence, because it doesn't sound like it's a big business at that size?
We have two phases in the reform. From July 1, 2021 when the market opens next year, the limit will be 100 hectares for 2.5 years. And from 2024, the limit will be 10,000 hectares, which is more than enough. And for this period, first of all, it can be used for the horticultural development. So in case of growing vegetables, fruits, berries, it's enough. It's enough to have 20, 30, 50 hectares, really, to develop quite a large business or, at least, a medium one. This decision was related to the economic crisis. In the first version, it was 10,000 hectares from the beginning – which is more than enough for the normal food farm, average size in Ukraine is 5,000 hectares. But since no one knows now what the economic situation will be, what the investment situation will be, we decided to postpone to 2024. Start with small ones, small investments, and see how the situation develops. Hopefully from 2024, everything is normalized and investments will be able to flow into agriculture.
You're right, nobody knows what's going to happen and it's taken 19 years for this legislation to pass. Many politicians before you and people in your position said it was never a good time. Well, right now you're working under a brand new minister, there's the COVID-19 pandemic worldwide – why is now the best time to do this? What about the timing?
Actually, it should have been done in the autumn. This law was listed in September and should have been adopted at least in November. So we were almost at the final line when the COVID crisis appeared. And, understanding that this is a really crucial reform, the decision was not to postpone it, but to finalize it with some change of the criteria. I mean, postpone the amount of land which can be sold under one umbrella to 2024. Not to lose this chance, I mean, to vote it politically as all the amendments have been run through, and the decision should have been made.
I imagined the IMF gave pretty clear criteria for what they were expecting with this part of the land reform. This legislation had over 4,500 amendments and it was a marathon session of Parliament. Does the land reform still meet the criteria of the IMF?
We are currently discussing. The IMF who rely on the World Bank – because the World Bank is the biggest supporter of the land reform in Ukraine – now already announced their official position that they congratulate us with this voting, but are still learning all the details. So we are actually having daily video calls discussing why it is the best solution for now, and waiting for the official answer in the coming days.
In the past, because land couldn't be bought and sold, a lot was done with leases in Ukraine. Up until now, farmers have been tied into 7-year leases. When the land market opens up in October 2021, will people that are stuck in the middle of a 7-year lease be let out of that, or are they stuck in it for the remainder of their lease?
So, there are two things. First of all, lease agreements are still in force – and the average time is 10 years, 7 years is the minimum – and all the lease holders will be able to keep cultivating their land. The change of the owner of the land doesn't mean that change of the lease agreement. All the farmers, all the investors can be sure about that. At the same time, the owner of the land will be able to sell it. These are the current lease conditions.
Okay, let's talk about the basic economics of it. A really smart person once told me if you can buy land, you should, because they're not making more of it. But the market is going to be flooded with availability. Are land prices going to drop or what's going to be done to prevent that?
So far, we can't say what the land price is because we don't have the market. History shows and international experience shows that, of course, the price of the land goes up after the opening. We anticipate the same situation in Ukraine. But, at the same time, our interview survey shows that no more than 10-15% of landowners are ready to sell their lands. They understand that leasing the land is much more profitable. That's why we don't expect lots of supply of land flown to the market and really a drop of the price.
Let's talk about disparities in income in Ukraine. There's going to be people that want to buy land and don't have finances available, there's going to be people that have a lot of finances available and are going to buy a lot of land in 2024. Let's look at the first group – people that want to buy land and don't have a lot of money. Having not been able to buy and sell land in Ukraine, people managed to find workarounds. This 100-hectare limit – don't you think people that want to buy large chunks of land are still going to be able to find workarounds with straw men or something like that? What's being done to prevent that?
Well, again, let’s look at the figures that only 15% are ready to sell. So this limitation for 2.5 years is not critical. And for this group of people who don't have enough money, we announce the special state support program, which is a partial credit guarantee fund that will allow people to only invest 15 to 20% of the value, and the state will provide the credit. And for small farmers up to 50 hectares, the state provides the programs to pay out this land in 10 years with zero interest rate. The small land farmers will finally be supported by the state. And to check the availability of investments, it’s very important that all the transactions will be secured, but only through bank. So no cash, and the buyer should prove that the source of this money is legalized and all the taxes are paid. So it's not some speculative investment or something like this.
President Zelenskyy has promised that he's only going to stay in for one term. In 2024, he'll be out of office and that's when the land market opens. That puts him in a comfortable position of not having to deal with what's going to happen in 2024 when the large land purchases can be made. Lots of people are worried that foreign investors are going to come in and buy up huge slots of Ukraine, the land which is very important to the cultural identity of Ukrainians. What kind of plans are being made to keep Ukraine in Ukrainian hands?
By the current version, foreigners are not allowed to buy land in Ukraine. Any type of foreigners, including investors, can't buy the land – even in 2024. So the current version provides the possibility only for the Ukrainians, individuals, to buy the land from 2021 and legal entities founded in Ukraine and only by Ukrainians from 2024. And in order to allow or not allow foreigners to come in, a special national referendum should be in place. But so far, foreigners are not allowed to come and invest into the agricultural land of Ukraine.
After watching the legislation be processed, the bills finally passed, what are your ideas for the future of landowners in Ukraine?
We will definitely have two phases. First of all, from 2021, a lot of small and micro businesses will be able to invest. A lot of people who have [...] living in the cities [...] especially horticultures and animal production, small businesses, they will do it. And, from 2024, there will be a possibility to invest in long-term things like irrigation, to have millions of acres of land that should be irrigated but no infrastructure, in animal production, which has dropped four times since the 1990s, and in other directions like processing wells, the return on investment in 10-15 years as you need ownership in order to invest. So, anyway, there will be economic growth but now it is quite... it will take time. We anticipated to start in 2020 but now understand that it will really be from 2024. But we'll have three years to get prepared, to learn all the lessons. If necessary, to change some parts of the legislation, to adopt it, and to really keep investing from 2024.
/Interview by Kari Odermann
/Text by Maria Romanenko