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Land reform 2020

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Land reform 2020 13.12.2019 16:31

Land reform, which began after Ukraine gained independence and was intended to provide an effective legal mechanism for the transition from a planned to a market-based model of the economy, has lasted for three decades. During this time in our country has not been formed a full-fledged land market. That is why the land reform that has not yet been completed has become almost the longest in the world, even bypassing land reform in Mexico, which has lasted over 23 years.

The reasons for such an archaic and ineffective system of legal regulation of land relations originate from the socialist past of our state. Thus, according to the legislation of the Ukrainian Soviet Socialist Republic, individuals and non-state enterprises could not own land. After the proclamation of the State Sovereignty of Ukraine on July 6, 1990 and the adoption of a new Land Code on December 18 of that year, every citizen of the Ukrainian SSR enshrined the right to land. The Land Code of 1990 prohibited agreements on the sale, donation and pledge of land.

On December 3, 1999, Presidential Decree No. 1529/99 established a requirement for the liquidation of PCBs (collective agricultural enterprise) by dividing their property, including land shares (shares) between their members.

Subsequently, the process of allocation of shares to Ukrainians became widespread, resulting in millions of citizens receiving property rights.

The history of the current moratorium on the sale of agricultural land dates back to October 25, 2001, when a new Land Code No. 2768 –III was approved. In Item 15 of Section X “Transitional Provisions” placed a temporary ban (till 1 January 2005)   for the citizens of Ukraine and legal entities to sell or otherwise alienate their land or part (shares), intended for conducting peasant (farmer) farming and other commodity agricultural production, except for public needs.

The ban was in force until 01.01.2005, but the Laws of 06.10.2004 and 19.12.2006 extended the moratorium until 01.01.2008 with the overcoming of the President's veto on 11.01.2007. Therefore, by the Laws of 03.06.2008 and 20.12.2011, the moratorium was in effect indefinitely, after all its validity was prolonged with the entry into force of the Laws of Ukraine “On the State Land Cadastre” and “On the Land Market”, which provided for the lifting of the moratorium on the sale of agricultural land since 2013 and the creation of the State Land Bank. The draft law also provided for the possibility of selling land only to citizens of Ukraine and not more than 100 hectares, at the same time, the maximum leased area was limited to 6,000 hectares or 5% of the total land area in the region. However, this bill has not been further considered.

Amendments introduced by the Law of Ukraine "On Amendments to the Land Code of Ukraine" of 20.11.2012, again extended the moratorium before the enactment of the law on turnover of agricultural land, but not before 1 January 2016. However, in October 2016, the Law of Ukraine "On Amendments to Section X" Transitional Provisions ", of the Land Code of Ukraine, to continue the ban on the alienation of agricultural land The Verkhovna Rada continued the moratorium, replacing one date in the Land Code with another, as indicated by "accepted figures "2017" replace numbers "2018".

In September 2019, incumbent President of Ukraine Volodymyr Zelensky instructed the government to develop and approve a land reform model, and abolish the moratorium on agricultural land sales until December 1, 2019.

According to the President's instruction, on September 25, 2019, the Cabinet of Ministers approved and registered in the Parliament a draft law "On Amendments to Certain Legislative Acts of Ukraine on the Circulation of Agricultural Land" № 2178, which, as of 1 October 2020, lifted the prohibition on the alienation of agricultural land of all forms of ownership.

As stated in the explanatory note, the draft law was designed to create a legislative framework for conducting market circulation of agricultural land, ensuring the constitutional rights of the citizens of Ukraine to dispose of their property freely, creating transparent conditions for the acquisition of agricultural land by citizens and legal entities.

The provisions of the draft Law determines the peculiarities of the legal regulation of the circulation of agricultural land on the basis of market mechanisms for the transfer of rights to them. In this manner:

  1. To acquire ownership of agricultural land can:
  • Citizen of Ukraine.
  •  Legal entities created for the legislation of Ukraine.
  • Territorial communities.
  •  State.
  1. A minimum starting price for the sale of land and state and municipal property at land auctions shall be set at a level not lower than the regulatory monetary valuation.
  2. Restrictions are imposed on the aggregate area of agricultural land, which may be owned by a citizen and a legal entity, and persons associated with it. Restrictions do not allow the acquisition of more than 15% of agricultural land in the region and 0.5% of agricultural land in Ukraine.
  3. The pre-emptive right of the tenant to purchase the land is secured.
  4. It is the duty of the state registrar to provide information on the price (value) of real rights, including rights of use in the Register of Real Rights.
  5. The right of citizens to purchase land for the maintenance of peasant (farmer) economy, which they belong to the right of permanent use and the right of lifelong inherited possession, is ensured. It is possible to buy with installments of up to 5 years at a price equal to the normative monetary valuation of such land.

The moratorium cannot be lifted in one day. And for a fair sale of land you need to do a great job. The main prerequisites for the creation of a civilized land market and efficient, highly competitive agricultural production are the completion of agricultural inventories, the elimination of deficiencies in cadastral land valuation, the timely updating of the State Land Cadaster and state registers. In addition, before the introduction of agricultural land in Ukraine, it is also necessary to elaborate and adopt a legislative framework for the formation of a developed network of farms and agricultural cooperatives.

Equally important is the creation of a financial and lending institution to provide an opportunity to obtain a preferential mortgage loan for the purchase of land by those who wish to work on it. Experts believe that the loan should be provided at 1-2% for 40 years. It is clear that in the current difficult conditions, this can only be done with the help of the international community, which, by the way, expresses its keen interest in opening a civilised land market in Ukraine.

According to World Bank estimates, the land moratorium causes significant damage to the Ukrainian economy. Due to the fact that the land cannot be sold and bought in the state there is no full-fledged land market, the value of allotments is reduced. And it also affects the lease, from which the shareholders annually keep about $3 billion. State budget losses from the reduced rental price in 2018 amounted to at least $60 million. Interestingly, these figures only take into account the land registered in the land cadaster. The lifting of the moratorium would allow Ukraine to increase its GDP by 1-1.5% annually.

However, while maintaining a free land market, many experts, including the Ukrainian Agrarian Club, believe that there must be some restrictions. Thus, to prevent chaos, the government's concept of the land market is based on small and medium-sized agricultural producers. It is proposed to introduce a maximum holding size of no more than 200 hectares per hand. That is, a family of four will be able to set up a farm with a land bank of 800 hectares, which is more than enough for efficient farming.

In addition to the government, the agrarian committee of the Verkhovna Rada has its position. Taking into account the proposals of the Institute of Agricultural Economics, USAID, the World Bank and other specialists, he developed the project "Concepts of agricultural land circulation", which also provides for a maximum size of land for individuals - citizens of Ukraine up to 200 hectares, and legal entities, taking into account the control relations can own no more than 30% of agricultural land in the area, or 10 thousand hectares within one area or 2% of agricultural land in the region, or 40 thousand hectares within one area; or 0.5% of agricultural land in Ukraine. However, it is noted that such restrictions do not apply to the area of land leased by legal entities that they are already cultivating. It is hard to say that the proposed restrictions will prevent the creation of land monopolies.

At the same time, a number of politicians, experts and just ordinary citizens are strongly opposed to the opening of the land market. First of all, small and medium-sized enterprises, and especially farmers, mainly against the land market. Their concerns include the rise in rents, the emergence of a basis for raid attacks or protests by shareholders, lack of money to buy land, inability to borrow, and so on. Some farmers "predict" that after the introduction of the land market, Ukrainian black earth will buy foreigners. But if they agree to introduce the land market, then only after three conditions are fulfilled: the end of hostilities in the East, overcoming corruption and resumption of sustainable economic development in the country.

In addition, people vote against because they understand that under the current conditions, neither they nor their children will be able to buy land. If the holdings are ready to buy everything now without borrowing money, then the ordinary peasants do not have the money for it. Therefore, the poverty of the vast majority of the population is a serious obstacle to the establishment of a fair land resources market.

Therefore, the main problem with the existence of a moratorium is that land remains an illiquid asset, and the peasants therefore do not have access to financial resources. And it should be noted that the abolition of the moratorium on the sale and purchase of land is already in favor of 42 organizations that bring together about 1500 agricultural producers, enterprises, banks, organizations and associations. The lifting of the moratorium is a positive phenomenon. Because it’s prolongation each time impedes the development of rural areas and agriculture, hinders the redistribution of land resources to a more efficient owner and producer, lowers the rent and owner income, and also limits access to credit. Under such conditions, landowners have no incentive to invest in the development of such land.