The landform went into force yesterday. It comes after 30 years, where the sale of farmland has been prohibited in Ukraine.
Ukrainians can now start to buy and sell farmland. The so-called landreform entered into force yesterday and ended a more than 30-year ban on selling Ukrainian farmland. The landreform was passed last year under the leadership of President Volodymyr Zelensky after fierce debates in parliament with more than 4,000 amendments to the law.
Ukraine has 42 million hectares of farmland, and the reform should help release the potential in the agricultural sector, as farmers can now own their land. The Ukrainian Agri Council estimates that the Ukrainian state budget losses around 815 million dollars per year due to the land market working in the shadows. If the reform is implemented correctly, that will now be over and the reform will incentivize you to invest in your land.
“There is not a single successful country with a moratorium on the land market,” said Prime Minister Denys Shmyhal recently, according to Kyiv Post, and called the opening of the land market for “the most important reform in the history of independent Ukraine.”
Today the agricultural land market opens in Ukraine, after decades of moratorium, against suspicious popular opinion and fierce political resistance. Not everything may go right in the first months, the main risks being in the cadastre. But the step and its potential are huge.
— Matti Maasikas (@MattiMaasikas) July 1, 2021
What are the rules?
The land market is opened in phases. Only Ukrainians will be able to buy farmland in the first period and not more than 100 hectares per person. That will change from January 2024, where all companies registered in Ukraine can buy farmland up to 10,000 hectares. That means that foreigners aren’t allowed to buy farmland directly but can do so through a company registered in Ukraine. It can, however, change through a referendum later on.
The market will open small and have been criticized by some, who have been arguing that it will give the Ukrainian oligarchs a chance to buy everything in shady schemes. Anders Åslund, an economist with the Atlantic Council, has, however, been arguing the opposite.
He has previously told Ukrainenu that a quick opening of the market could risk large foreign companies buying everything without using it. They would simply speculate on the price of the land increasing in the future to make a profit on sales. Åslund refers to Russia, where the full opening of the land market years ago had a negative result.
Today, July 1, Ukraine liberalized its agricultural land market. The market starts with limits – sales are only permitted between Ukrainians for areas less than 100 hectares. This makes sense. If the liberalization is too fast, big financers could buy too much.
— Anders Åslund (@anders_aslund) July 1, 2021
What will happen now
The question now is what the new reform will mean for the agricultural sector in Ukraine. Will output increase over time or will prices of land simply skyrocket and damage farmers? Oleg Nivievskyi, an assistant professor at Kyiv School of Economics, told Kyiv Post that prices would increase by 10 percent, so one hectare will cost 2,000 to 2,500 dollars.
In comparison, a report from 2016 said that one hectare of farmland in Sweden costs approximately 1,500 euros per hectare in the north and 15,000 euros per hectare in the south. Prices in Denmark were about 20,000 euros per hectare, according to the report.
The World Bank estimated back in 2017 that Ukraine can boost its annual output by 15 billion dollars with an ambitious landreform.
“Land reform—lifting the moratorium on agriculture land sales—is the most powerful measure the government can take to boost economic growth and job creation, particularly in rural areas. More than 70 percent—some 43 million hectares—of Ukrainian territory is classified as agricultural land,” wrote the World Bank in the report.
“And that land is exceptionally fertile: Ukraine has one-third of the world’s black soil. But despite this abundance, agricultural yields in the country are only a fraction of those in other European countries whose land is not of the same quality. This is because land users have little incentive to invest in land management, as neither landowners nor users know if, when, or how the moratorium will be lifted. Moreover, getting credit is difficult and costly as land cannot be used as collateral,” the bank elaborated.
Today is a big day for Ukraine's agriculture: launch of the land market! We've been waiting for 30 years for this day to come and finally it's here. In the long term, this will bring more investment into agri market, more technology and, therefore, much fatter ROE.
— Ivan Verstyuk (@VerstyukIvan) July 1, 2021