DNIPROPETROVSK, Ukraine – Canadian farmers take for granted the ability to buy and sell land.
Ukrainian farmers have been waiting a long time for that right.
Under reforms that began with Ukraine’s independence in 1991 following the collapse of the Soviet Union, farmers now own their land but they can’t sell it or buy more.
The result is a burgeoning lease market that sees those with money arranging five- to 10-year leases that they hope will put them first in line when sales are eventually permitted.
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Roman Schmidt, a deputy minister of agrarian policy in Kiev, said the government has regulated lease rates at three percent of land value but still has no legal framework to allow sales.
“We don’t have a register of plots,” he said through a translator.
“There is no law for a database, no law on the land market. There is no law on land collateral or mortgage collateral.”
The government was supposed to consider such laws with a view to enabling land sales but has never completed those discussions. Political uncertainty in Ukraine, along with the global financial crisis, suggests it won’t happen soon.
Before 1991, all land, machinery and farm production belonged to the state and were shared by collective and state farms. Independence brought the idea of private land ownership, and the government began the process of splitting up the assets of the farms.
Little happened until 1999, when a presidential decree dismantled the collective and state ownership system and legalized leases.
The idea was to encourage entrepreneurial spirit and provide an incentive to produce.
About seven million people became landowners at no cost to them. Villagers, collective farm members and rural residents such as doctors and teachers were all entitled to receive land.
The majority of the landowners are small household plot owners, sometimes called peasants or villagers.
There are about five million of these farmers, who each own not more than five acres and produce mainly for household consumption and farmgate sales. Their total holdings are about 39 million acres; urban residents also own these plots.
There are also about 44,000 private farms, which most closely resemble Canadian family farms. The average size is 210 acres but some are as big as 12,000 acres. Total holdings in this category are about 9.1 million acres.
The largest 15,000 farms, known as agricultural enterprises, were formed mainly from the dismantling of the collective farms. They vary widely in size, with an average of about 3,000 acres, and total 43 million acres. Many of them rely on investors, both domestic and foreign, and lease peasant shares to make viable economic units.
Schmidt said there are also about 100 large companies that don’t own land but rent as much as 490,000 acres from landowners who can’t or don’t want to farm themselves. Most of these operations came about through the flow of capital from industry to agriculture, he added.
Svetlana Boganova, a legal specialist at the Dnipropetrovsk extension office of the Canada-Ukraine Facility for Agricultural Reform and Modernization program, said the distribution of land holdings has been complex. Plot sizes varied depending on the region. Some people were left off the entitlement lists when collective farms were split. Many facilities were abandoned, particularly large livestock barns.
“You can’t just own one wall,” Boganova said.
The equipment was supposed to be divided but wasn’t in all cases. An estimated 70 percent disappeared and much of it went to the former heads of the collective farms, who started their own operations.
When the land was divided, a draw determined where an individual’s land was located. Some ended up with a parcel in the middle of a large field, with no access and no equipment.
Boganova said some people were so used to the old ways that they stuck by the former farm managers.
“The leaders kept most of the people’s land and the people,” she said.
“In some ways things didn’t change.”
Some families have worked together to merge their plots and register as farms. Others have been assisted by international development programs.
However, unless a land market develops to inject cash flow into the rural economy, large investor farms seem to be the way of the future. They have the money to invest and to lease the land they need until they can buy it.
“Large farming operations will come to Ukraine,” said development worker Gennadiy Rusanov.
“It’s only a matter of time.”
Ukraine has nearly 99 million acres of agricultural land, and 80 percent of it is arable.
A study commissioned by the World Bank and the Organization for Economic Co-operation and Development in 2004 valued the land at $40 billion US.
Some suggest the government won’t complete its transition to a market economy because the land is seen as a national asset.
Others think the government wants to keep land in local hands to prevent wide-scale social problems in villages. If a small number of companies or individuals accumulate large amounts of land, rural migration to the cities would escalate.
There are few job opportunities, and many live in poverty.
“There was a village. These people have to be employed,” said Gennadiy Vorobyov of Farmer magazine.
Schmidt agreed that is a concern.
“Before reform, all of these people were employed,” he said.
“What are people doing now? In most cases (farming) is their only source of income. We’re trying to support them, to diversify.”
However, Vorobyov believes that, given a choice, many people would sell their land. Rents are often paid in kind through grain or flour rather than cash.
“Big companies are fighting for the right to fix (the land) and get first in line,” he said.
“They bring the development.”
Sergii Valdimirovich, deputy director of the agribusiness Unirem, said selling land plots would leave a lot of people without income.
“Now, they get some rent,” he said.
“The problem is they will use up all the money and have no income.”
Meanwhile, some are already getting around the land sale moratorium. The land can be rezoned, or farmers arrange for a private loan and put up their land as collateral without ever intending to make a payment. Although banks can’t take land as collateral, that doesn’t extend to private arrangements.
