Ukraine land sales moratorium ‘should end next year’

Although Ukraine’s endowment of arable land is the largest in Europe, its agricultural productivity lags regional peers, the World Bank says.

Ukrainian lawmakers should work to ensure that the moratorium on agricultural land sales in place since 2001 is lifted next year, according to the World Bank.

In a note released this week, the institution said that the moratorium, combined with weak land rights and low levels of transparency, has brought about low levels of investment and restrained the living standards of Ukraine’s 44 million citizens.

“The inability to purchase land undermines incentives to undertake productivity-enhancing investments and manage the land in a sustainable manner, such as through irrigation investments, perennials and crop rotation,” the World Bank wrote. “Limited access to capital and infrastructure undermine family farms’ ability to grow and move into employment-intensive products with higher value-added.”

Low levels of investment have kept the country from capitalizing fully on its strategic location, which provides access to export markets in Europe, the Middle East, North Africa and Asia, according to the report. Although Ukraine’s endowment of arable land is the largest in Europe, at 33 million hectares, and made up of very high-quality black soil, the World Bank says its productivity lags regional peers.

Value-added per hectare in Ukraine is just $37, compared with $2,444 in France, $1,507 in Germany and $1,142 in Poland.

“Not only does agricultural production in Ukraine focus on lower-value-added products, but even in pure crops, yields in Ukraine are lower than in other European countries,” the report said. “For example, wheat yields were 4 tons/hectare in Ukraine in 2014, compared with 5 tons/hectare in Poland, 7.4 tons/hectare in France and 8.6 tons/hectare in Germany.”

While acknowledging that the government has taken some steps to improve transparency and farmers’ access to financing, the World Bank argued that the quality of land registry data is very low. The fact that only a quarter of the 10 million hectares of farmland owned by the government is registered, it reckons, deprives the government of $250 million in annual revenues.

Another key issue, according to the report, is the fact that informal farmland rentals currently constitute a “significant” portion of the overall market, creating what the World Bank labeled a “self-reinforcing cycle of informality, weak rights, lost budget revenues and low agricultural productivity.”

‘Shadow’ system

The role of informal markets in hindering growth was also noted in March by the chairman of Nibulon, Ukraine’s biggest grain trader, which received a $100 million financing package from the International Finance Corporation unit in June.

Oleksiy Vadaturskyy said in an interview posted on Nibulon’s website that the current “shadow” system of land and grain sales hurt the nation’s farmers and that he supported lifting the moratorium.

“Today we have a remarkable feature in Ukraine: everyone is talking about lifting or extension of the moratorium, but no one is talking constructively [about] what to do to lift the moratorium and run a real civilized land market,” he said. “It is necessary to create a land market, but if you set it up right now, it will be a disaster in a village – neither farmers nor companies will be able to protect their rights.”