In a June essay, Ukraine’s Minister of Agrarian Policy Roman Leshchenko characterized removal of a 2001 moratorium on farmland sales as one of the most significant landmarks in the country’s 30 years of independence.

Under the law that took effect July 1, Ukrainian citizens can acquire up to 100 hectares of farmland. Legal entities registered in the country will be allowed to amass portfolios as large as 10,000 hectares after 2024, when a referendum will consider further opening to foreign capital.

Public opposition to the moratorium’s removal has largely been the result of disinformation about the negative effects of market liberalization, Leshchenko said, spread by political elites looking to preserve their own access to the 42.7 million hectares of highly productive farmland, which constitute Ukraine’s “greatest physical asset.”

“Even in the highly conservative format which will launch in the coming days, this reform represents a major step forward for the country that will enable the transition from a shadow land market towards a more transparent and efficient model,” Leshchenko said.

Sources familiar with Ukraine’s ag market told Agri Investor that while lifting of the farmland moratorium is indeed an important milestone, longstanding concerns about corruption and geopolitics persist in a Ukrainian ag market being shaped by new developments in investment regulation and climate.

The Polish model

Adam Oliver, a partner with brokerage Brown & Company, told Agri Investor there is widespread agreement that the often-cited goal of Ukraine mimicking Poland’s use of farmland as a capital base for broader economic development can only be achieved after a period when local actors have been allowed to catch up.

“Poland has gone through ups and downs as far as its freedom or de-regulation of the land market, but in a way that seeks to try and protect the local Polish farming entity rather than allowing those large-scale investors to come in and buy large swaths of land,” explained Oliver, who lives in Poland and is familiar with Ukrainian farmland markets.

“That’s Poland’s experience and certainly Ukraine will be looking at that experience and trying to limit some of what they consider to be the excesses in land.”

An April analysis by the International Monetary Fund used the comparison to Poland to gauge the potential impact of structural reform on Ukraine’s economy. It found that even under the most optimistic projections, it will take Ukraine’s farmland market at least 15 years of sustained commitment to reform to reach Poland’s level of development.

Under a scenario where reform is allowed to backslide, which would include continuation of a closed farmland market, the IMF projected Ukraine’s GDP will grow just by 1.67 percent annually and remain at less than half of Poland’s by 2040.

Oliver said Ukraine’s position relative to other developing world markets will be hampered by indications that the government’s current plans call for imposition of a minimum farmland price of between $1,500 and $2,000 per hectare.

“That’s not cheap land,” he said. “If that was $250 a hectare, or even $500 a hectare – remembering that in Russia you can still be buying land at $600 or $800 per hectare – that would influence the equation. At those numbers [$1,500 to 2,000 per hectare], people will take a cautious approach.”

Another factor favoring a cautious approach, Oliver said, are the concerns about conflict with Russia and its economic effects that have helped keep investors away in recent years. Any perception land reform has cleared the way for foreign investors to build large land positions in Ukraine would be politically disastrous for its leadership, he added.

“There are so many market participants within the theater that have wrong or ill motivation. It’s going to be very difficult to control,” said Oliver. “It’s such a sensitive issue. Always has been, always will be.”

Despite Ukraine’s complicated political backdrop, Oliver said, there is interest among investors in a variety of agribusiness opportunities within the country. A summary of projects provided by the Agrarian Policy Ministry in 2019 showed cereal processing and livestock production as each accounting for about 20 percent of the total volume of active ag-related investments in Ukraine. Food production and permanent plantings also registered significant activity.

Oliver said recent drought in central and southern regions of the country has drawn attention to the potential for irrigation investments in Ukraine, which accounted for just 2.9 percent of active projects according to the 2019 list.

Though direct investment in Ukrainian irrigation remains unlikely for most investors lacking the long-term security of land ownership, he said, recent dry conditions have highlighted that such investment will ultimately be an important part of reaching the country’s full production potential.

“That is in the here and now,” he said. “That’s not in the forecast for the next 10 years, as far as climate change is concerned. We’re seeing that, on the ground.”

Irrigation investment might be considered, Oliver added, by those already backing leased operations in Ukraine.

Bate Toms is a corporate lawyer with decades of experience in Ukraine, which he said includes advising the European investors who founded Continental Farmers Group, a collection of agricultural assets in Ukraine later sold to Saudi Arabia’s Public Investment Fund-backed SALIC.

Toms told Agri Investor that although conditions for similar investments are still present in Ukraine, most of his foreign investor clients interested in ag have long since partnered with local firms supplying or operating large agricultural operations with leased land.

“Buying agricultural land is not going to be in everyone’s interest,” Toms explained. “There are some farmers that are buying land, but most find that the lease rates are so low that it’s economically cheaper, and probably will be for the foreseeable future, to have long leases and operate leased land in large quantities.”

There are no restrictions on foreign citizens or companies to lease agricultural land in Ukraine, according to a July guidance from the Ministry of Agrarian Policy and Food. The guidance explains that lease terms must be for at least seven years and less than 50 years, and expressed in contracts negotiated between private landlords and tenants.

Ukraine’s generally high levels of education mean that investors can manage large lease holdings relatively easily, according to Toms, who has chaired the British-Ukrainian Chamber of Commerce since 2008.

“Yes, you need several rooms of accountants, but the good thing about Ukraine is that it’s a country with a highly intelligent workforce,” he said. “There are a lot of Westerners and competent Ukrainians that have been developed over the years and who could be the management for further farming developments.”

In his essay, Leshchenko also noted the growing foreign participation in managing Ukraine’s farmland and wrote that it may eventually become possible for foreigners to own land.

“Foreign ownership will not be considered earlier than 2024 and only if Ukrainians agree during a referendum on the issue,” he wrote. “Meanwhile, Ukrainians will continue to welcome the many foreign farmers and international agricultural groups who rent and cultivate Ukraine’s farmed black earth while investing millions and creating thousands of jobs in every region of the country.”

Toms said he too expects the draw of Ukraine’s human and natural resources will eventually create conditions allowing for further development of its ag sector.

“As Ukraine becomes richer, Ukrainians will be more confident about allowing foreigners to invest in their country by paying a price more at the European level for farmland,” he predicted.