Last week, the European Court of Human Rights announced a decision that reverberated strongly across Ukraine’s political landscape. The country’s ban on farmland sales, the ECHR said, violates the European Convention on Human Rights; the court ruled that it should be lifted.
That’s unlikely to happen very soon: that moratorium, in place since 2001, was extended until 2019 last December. When it is, though, there’ll probably be heavy consequences. Supporters of the ban say its lifting would allow Ukrainian tycoons to snap up the land for next to nothing. Opponents reckon it would enable greater investment, lessen corruption and bolster productivity.
Beyond debate is the fact that it would push up land prices. In the medium term, they would likely more than triple from their current levels, says Satu Kahkonen, World Bank country director for Belarus, Moldova and Ukraine.
She sees three main reasons to think a big jump in values would occur over time. First, lease rates in neighboring countries are about five times higher than in Ukraine today, “even though the quality of land in Ukraine is higher,” she says. Second, following the introduction of mandatory transparent auctions for the lease of state land in 2015, lease prices have jumped, and are continuing to rise. Third, the lifting of restrictions would make it easier to grow higher-value-added crops, thanks to injections of fresh capital into farming operations. That would also make land more valuable.
The real question is, how fast would prices rise? Little is known about how prices have evolved in recent years, because reliable statistics are few and far between. Creating better systems to record prices and publish them is part of the initiatives the World Bank is working on alongside the Ukrainian government.
More fundamentally, the speed of price hikes would be tightly linked to how land reforms are implemented. “The price of land will increase at different rates in different stages,” reckons Pavlo Koval, general director of the Ukrainian Agrarian Confederation.
“Most likely, the lifting of the moratorium on the purchase and sale of land will be accompanied by restrictions on the purchase of land by legal entities, restrictions on the area in ownership and use, as well as restrictions on the possibility of buying land by foreigners and legal entities established by foreigners.”
As things stand, overseas investors can only cultivate the land through leasing; they are not allowed to buy it. The current political debate around concentrated ownership in the hands of a wealthy clan make it unlikely foreigners will be exempt from restrictions any time soon. It is also likely that land will be made available for purchase in tranches, so institutional investors hoping to buy large tracts shouldn’t get too excited.
If and when they are allowed to, there’s little chance they will give the opportunity a miss. But benefits could accrue before then. The sheer uncertainty regarding the restrictions means many investors hesitate to even lease land; those already present can’t expand further without making significant investment, which they are reluctant to do. Lifting the moratorium would send a signal that they can plant seeds for long-term growth without putting the harvest at risk.
Write to the editor at matthieu.f@peimedia.com
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