And only “lucky” owners of administrative resources will be able to get “preferential” access to the country’s last strategic resource – land. But you can use the right of the “first agrarian night” only while you are in power. Hence, apparently, such a rush: the amount of time, considering the desperate situation in the economy, can be scanty, and the “bonuses” – oh, how attractive! So the overlord is in a hurry.
In early April, President Poroshenko initiated a discussion on the creation of a land market, and the deputy head of his administration Shymkiv then he repeatedly emphasized that the guarantor “just wants to discuss the issue.” But the incredible speed with which events around the upcoming land reform began to develop indicates that the issue of lifting the moratorium on the sale of agricultural land was resolved long before modest invitations to discussion.
Public figures and experts from around the government actively joined the process. The Agro.ReformsUA organization, created “yesterday” and solely for the sake of promoting reform, has drawn up a “road map” of changes. Another public organization, Easy business, has already managed to conduct a study on this topic, clearly demonstrating all the advantages of lifting the moratorium and confirming the course chosen by Agro.ReformsUA. It turns out that practically many points of the changes proposed in the “road map” already have draft laws.
And on April 22 this year. “national discussions of the issue” began, not only in the capital, but also in other large cities. And now, just two weeks later, the head of the presidential administration, Boris Lozhkin, predicts the lifting of the moratorium on the sale of land from 2016, promising that the land market in Ukraine will appear “very quickly.” I willingly believe…
Quick start
In addition to lifting the moratorium itself, the reformers also propose eliminating all restrictions on access to the land market, simplifying land auctions and land leasing rules, simplifying and reducing the cost of state registration of land plots and real estate rights, and increasing the tax on agricultural land. In addition, review free privatization, transform the rights of a permanent user into the right of ownership of a legal entity, introduce the principle of a single legal destiny for a land plot and the buildings located on it, and also abandon the existing system of dividing land according to its intended purpose. The changes are radical, each is inherently ambiguous and requires in-depth analysis. But the phrase “start immediately” is used so often in reform proposals that reformers do not leave time for a detailed analysis.
The research accompanying the roadmap is also controversial. When asked where the expected 1.5 million new jobs and UAH 90 billion in tax revenue will come from, its authors answer evasively: look, they say, in the documents we used. We looked and found nothing confirming it. It is impossible to claim to collect 90 billion in taxes without having a tax base, a register of taxpayers, and an administration mechanism. The mentioned amount is twice the income tax collections in 2014, and I would like to understand who, how and in what way will pay this money. There are similar questions about the projected investment of $50 billion and the jobs that these investments are supposed to create. In their calculations, government researchers are guided by the cost of a hectare of land at $5,000, which is five times higher than its current price in Ukraine. However, they make a precautionary clause: “we will reach a price of $ 5,000 in the next five years.” How will we achieve it? Due to what? Why not open the market after reaching this price? What would greatly contribute to the stabilization of the economic situation in the country.
Undoubtedly, lifting the moratorium is urgent and necessary, but should it be hasty and accompanied by calculations and forecasts made “on the knee”? “Granting the right to freely alienate agricultural land without creating effective mechanisms for protecting small landowners can lead to a fairly rapid loss of property rights for a large number of citizens. In a situation where the level of legal knowledge among the population is low, and the level of income does not allow for proper support of transactions, dishonest players can “stimulate” the process of transfer of ownership. Ordinary people, with a fair degree of probability, will have to part with their property, including not always of their own free will,” lawyer Alexander Burtovoy from Antika Law Firm told ZN.UA. “Before the start of a new reform, it is necessary, at a minimum, to complete the previous one – to complete the process of processing documentation in relation to shares.” Reformers are appealing, they say, let’s start, and all issues with corruption, cadastre and land valuation will be resolved in the process. Excuse me, but where are we rushing?
Garage sale
Today, ideal conditions have been created in Ukraine for purchasing land for virtually nothing. And the economic course, apparently not chosen by chance by the authorities, plays a significant role in this process. ZN.UA has already tried to draw attention to the fact that excessive support for raw material exports and total disregard for the development of recycling in the agricultural sector lead to the impoverishment of rural residents and the devaluation of Ukrainian lands.
The legal insecurity of its owners does not add value to our land. By forcing the lifting of the moratorium, the state is helping corporations get rich at the expense of one of Ukraine’s few remaining resources—land. Arguing that the rights of owners are infringed, the area of agricultural land is shrinking, the infrastructure is undeveloped, the monthly rent is
100 UAH per hectare and 55% of rent payments are received by the owners in goods, they paint us a picture of complete hopelessness. And they offer the simplest, fastest and, perhaps, the most wrong way out of the situation.
Nowadays, most of the shares are leased to large agricultural enterprises, but rural residents are not getting richer because of this. Will the situation change if tenants become owners? No. What if these are foreign owners? Not either. On the world market, land is not bought in 4-hectare shares; no one will be interested in a piece of land without clear boundaries among arable land. Land is being bought up in fields, but in order for it to be sold in this form, it is necessary to create conditions for the association of owners and a legal system capable of protecting the rights of these owners. It is necessary to finally bring to fruition the cadastre, which still suffers from numerous flaws (do not forget that the issue of boundaries is of sacred importance for Ukrainians), and think about rent, which would allow share owners not to be left with nothing after the sale of the land. Today, none of the above exists, but there are all the conditions for “looters” to buy up shares, create plots suitable for sale, and then make money on them.
Of course, not everyone will be able to buy land cheaply on the primary market for its further resale on the secondary market (of course, at many times higher prices). Ordinary people (including yesterday’s middle class) will simply not be able to afford it. The vast majority of large and even major entrepreneurs are at risk of falling through the cracks. They may simply not be allowed to use the currency “nest eggs” stored in offshore cashboxes – here officials will come in very handy with the aforementioned fact that the formation of a civilized land market will still only be “in the process.” And only “lucky” owners of administrative resources will be able to get “preferential” access to the country’s last strategic resource – land. But you can use the right of the “first agrarian night” only while you are in power. Hence, apparently, such a rush: the amount of time, considering the desperate situation in the economy, can be scanty, and the “bonuses” – oh, how attractive! So the overlord is in a hurry.
Market experts draw attention to the fact that now, as in 2012 under Yanukovych, the process of building up land banks and consolidating agricultural businesses has already significantly intensified and is gaining momentum, including through the purchase of management companies and tenant enterprises of large and very land. Just like three years ago, this is still happening now in anticipation of the lifting of the moratorium on the sale of land. Only if Yanukovych was going to do this, writing out procedures and rules exclusively for himself and his “family” (while, of course, realizing that he would not be able to share with the Russians and Chinese, from whom he also hoped to borrow decently), then Poroshenko has to reckon with the opinions of American and European stakeholders. However, this doesn’t really stop him. According to ZN.UA sources, if not so long ago the presidential family had only the 12th largest land bank in the country (according to UCAB estimates, 112 thousand hectares through the Agroprodinvest LLC controlled by it), then over the last year it, after the change of owners of a considerable number of agricultural companies, it increased at least three times, already exceeding 300 thousand hectares. The current situation is conducive – land, as well as the enterprises leasing it, in conditions of a total economic crisis and high-profile bankruptcies, are often ceded for next to nothing.
“The value of land is determined by the increase in production and the redistribution of profits. But you need to start small – changing approaches to renting land, since the cost of rent affects the price. Our rental mechanism is turned upside down; the owner has virtually no rights over the tenant. By strengthening the rights of small owners and creating real mechanisms for their consolidation, the state would allow them to take an active part in the process and influence the terms of lease and use of land. The united owners could negotiate with the holdings on equal terms, hire lawyers and consultants. Thus, the value of their land, its rent, and its cost would increase,” Elena Borodina, head of the department of economic and agrarian transformations of the National Academy of Sciences of Ukraine, told ZN.UA. “On the other hand, it is necessary to fight poverty in rural areas, create new forms of employment, diversify sources of income, and develop non-agricultural activities. In fact, the question is not when to lift the moratorium, but what has been done so that we can lift it?”
The cost of land in Ukraine today is catastrophically low, as is the standard of living of rural residents. At the same time, the state froze social standards, and inflation, according to NBU estimates, will be 30% by the end of the year. The goal declared by the reform—the creation of a middle farming class—is unattainable precisely because of the low cost of land. The average price per hectare in the EU is 16 thousand dollars, in Spain – 15 thousand, in France – 7 thousand, in Poland – 8 thousand dollars (according to Savills Research, CFF – see figure). And in Ukraine – 1 thousand dollars (and it starts from 500 dollars/ha and below). This is despite the fact that the area of black soil in Ukraine is one of the largest in the world (28 million hectares), and out of the total amount of agricultural land (42 million hectares), 32 million are cultivated annually. For comparison, in Poland, for example, 14 million hectares are used for agricultural production (in Germany – 12 million hectares, in Romania – 9 million). That is, despite the enormous potential, we have a meager cost, and this in itself is a reason to think about how advisable it is, in principle, to open the land market right now. After all, the money received from the sale of land to the owners of shares is simply not enough to start their own business, or to obtain a loan secured by the land, or to purchase housing in the city.
The average share in Ukraine is 3.6 hectares. At the current price from its sale, it would be good if the owner got about 80 thousand UAH – a lot of money for people living with chronic lack of money, but meager both for starting their own business and in comparison with the real cost. If you receive a loan secured by a share with such a value, the proceeds will not be enough even to buy an old tractor, not to mention other equipment, seed, fertilizers, construction of warehouses, etc. As a result, the temptation to get a lot of money here and now is enormous, and the opportunity to invest this money in your own business is worthless. Reformers defend themselves: no one, they say, is forcing people to sell shares. Doesn’t poverty force you? Salaries of 2.5 thousand UAH, several times increased gas tariffs, social payments frozen until December? 35% of rural residents are pensioners, 44% are unemployed. People will be forced to take these 80 thousand just to survive. That seems to be the calculation.
Honestly, the more advocates for lifting the moratorium talk about the benefit of the “common peasant,” the more their activities resemble, firstly, the privatization of the mid-90s, when enterprise vouchers were sold for a penny for the sake of a bird in the hand. And secondly, a planned and paid PR campaign with presentations, publications and promotions on social networks. Who calls the music at this concert?
Comprador reformers
The Ministry of Agrarian and Industrial Complex, which patronizes the implementation of the reform, is represented by Deputy Minister Rutitskaya – the same one from the scandalous Mriya agricultural holding. The Easy Business group, which is directly involved in the process, is led by Daniil Pasko, who once worked at Horizon Capital of the current Minister of Finance Natalia Yaresko. At one time, Horizon Capital owned shares in the Agro-Soyuz holding, the Vitmark, AVK, and Inkerman companies. A significant role in the story of the opening of the land market is played by the Minister of Economic Development and Trade, Abromavicius, surrounded by advisers from the IFC, who does everything to support exporters of raw materials and practically nothing to develop secondary processing. As a result, we recall that Ukrainian land continues to depreciate in value, and the standard of living of shareholders continues to decline. The wife of the expatriate minister is the general director of the Agro-Region holding. But Abromavicius’s East Capital invested not only in Agro-Region (although this investment was the largest at that time – 4.5 billion euros), but also in the well-known Ukragroproduct and Astarta. At the same time, we all understand that President Poroshenko himself and the influence groups close to him are also interested in launching the land market to its fullest right now and in the current conditions.
It is no coincidence that control over land accounting under the new government, at the insistence of Petro Poroshenko, was transferred from the Ministry of Agrarian and Industrial Complex to the supervision of a member of his team – then Deputy Prime Minister for Regional Policy Vladimir Groysman. In October last year, as part of the administrative reform, the Cabinet of Ministers reorganized the State Land Agency (formerly Goskomzem) into the State Service of Ukraine for geodesy, cartography and cadastre, while at the same time reassigning it exclusively to the Ministry of Regional Development and Housing and Communal Services, then headed by the same Groysman. It is noteworthy that only the sign and departmental subordination were changed, and the reform of the State GeoCadastre came to a standstill. But immediately after this, land reform began, although at first it did not advance far, since already in November Mr. Groysman moved to the chair of the head of parliament. But, having changed his seat, Vladimir Borisovich did not at all lose interest in the land issue. Moreover, according to ZN.UA, he is advised on this issue by Artem Kadomsky, the former first deputy head of the State Land Agency during the Yanukovych era and his main think tank. So, as we see, the idea of opening a land market has not lost its relevance for the authorities.
And here we come to the main contradiction of the reformers, who refuse to admit that the moratorium is being lifted solely out of the selfish interests of those in power. On the one hand, Alexander Borovik, Abromavicius’s deputy, does not hesitate to say that the market needs to be opened in order to “at least sell something, since there is no money in the country” (level of the Ministry of Economic Development). On the other hand, Mr. Pasko categorically asserts that in Ukraine “there is not a single financial group with liquidity sufficient to purchase land.” Wait, who has sufficient liquidity?
George Soros, in an interview with Standard, said that he is ready to invest a billion dollars (the amount is actually quite modest) in Ukrainian agriculture and infrastructure. And the billionaire has a long-standing relationship with Mr. Abromavicius, who is directly involved in the development of land initiatives. Mr. Soros is always interested in crisis economies, moreover, he himself is involved in the creation of these crises. After all, there is nothing more profitable than buying up depreciated resources. It was Soros who took an active part in the economic life of Latin American countries in the late 90s of the last century. As a result, by 2009, the area of agricultural land in Brazil, Argentina and Uruguay owned by Adecoagro, in which Soros is a major shareholder, exceeded 283 thousand hectares. After some time, Adecoagro began to get rid of the areas exhausted by barbaric agriculture, but the sale price was ten times (!) higher than the purchase price. Of course, there were few local residents who wanted to reclaim their land. In 2011, the Argentine Senate, in order to stop Adecoagro’s speculation, limited the share of land ownership for foreign individuals or companies to 1 thousand hectares. But this decision did not compensate for the country’s economic losses. And Ukrainian officials should think about it when they hear about Mr. Soros’s desire to invest in our agricultural industry in the midst of an economic crisis… We cannot talk about banning the purchase of land by foreign investors, but it must be about clear, transparent, environmentally verified and economically beneficial for the Ukrainian village and state conditions when purchasing land. After all, the state does not end tomorrow with the rating of Poroshenko or Yatsenyuk; land is a strategic resource, including for future generations of Ukrainians.
The close attention of the Rothschild investment fund to Ukraine’s debt obligations is also noteworthy. According to Bloomberg, it was in their interests that the American investment fund Franklin Templton bought up a significant part of Ukraine’s sovereign debt. How will the state pay for these debts if its financial solvency is completely reduced to nothing? Six years ago, Giovanni Salvetti, managing director of Rothschild&Cie in the Russian Federation (*country sponsor of terrorism) and the CIS, bluntly said that his company’s interest in Ukraine goes beyond the financial sector, and that the Rothschilds are primarily interested in Ukrainian pharmaceuticals and agriculture. At the same time, Rothschild&Cie has been cooperating with Poroshenko for several years, and it is no coincidence that this company was chosen by the president to sell his assets and has not successfully sold them to this day.
Stepping on an African rake
This interest of foreign investors in Ukraine is alarming, because in the current conditions the sale of land is a very dubious (to put it mildly) idea. In the absence of both adequate valuation standards and a transparent sales procedure, this threatens to end in agro-colonialism of the African or Latin American type. Some will be offended, and others will be sincerely outraged by such analogies, but this will not make the prospect any more attractive. It was under this scheme that ten years ago land was bought in Cambodia, Ghana, Ethiopia, Mali, Kenya, Argentina, Uruguay and Paraguay. Each time, this process took place under the “close supervision” of local governments, who talked about mutually beneficial cooperation, the contribution of developed countries to the local economy, the introduction of advanced technologies, capital investments and the development of markets. Naturally, none of the above came true; for a producer, land is a resource and nothing more, and it was the use of this resource that the so-called investors limited themselves to.
The consequences of agrocolonialism are catastrophic. Due to the transfer of part of arable land, food production within countries decreased. The intensive methods of farming of the new owners according to the principle “not mine, don’t mind” caused enormous damage to the environment, spoiling the soil, depleting groundwater, and contaminating the soil with chemicals. Therefore, when Mr. Pasko says that land owners will treat it more carefully than tenants, it is difficult to believe his words.
But the main problem of agrocolonialism is that the population living below the poverty line gave their shares to corporations for virtually nothing and deprived their families of one of the main sources of survival. The authorities of these countries, just like the Ukrainian government now, neglected development for the sake of short-term gain and “quick” money. And isn’t this the scenario they are preparing for us by deliberately developing a raw materials economy, devaluing land and the labor of cultivators, and opening the land market so hastily?
A well-known maxim says that one should not attribute to evil intent something that can be fully explained by stupidity. However, even realizing the boundless stupidity of the Ukrainian government, one should not underestimate its resourcefulness. The authorities, like the Pied Piper of Hamelin, with songs about free trade and deregulation, are persistently leading the Ukrainian economy to complete degradation. When the government of Madagascar entered into a 99-year lease agreement with the multinational company Daewoo Logistics for 1.3 million hectares of land to grow corn and palm oil, local farmers overthrew the government. But this, alas, is the only example when the agrocolonization scenario did not work. In other cases, the scheme justified itself 100%, and this sad experience must be taken into account.
PS During the public discussion of land reform initiated by Agro.ReformsUA this week, the discussion very quickly descended to a completely obscene level. Like, if you are against an open land market, then you consider all rural residents to be fools and drunkards, unable to manage their property. And if you do not have a land share, then how can you speak out “for” or “against” the lifting of the moratorium? Like, come on, someone will decide for you whether you can sell your apartment, then we’ll see how you sing… Usually, rudeness and the desire to show your teeth hide insecurity. The people promoting the reform, not the public, but themselves, convince themselves that they are doing the right thing, because selling your homeland is scary. Especially when it’s cheap. To force a sale, it is not necessary to put a gun to your head. You can attach a payment for gas, a price tag in a store, or a pharmacy bill for a prescription written by a doctor.
The ideologists of the immediate sale of land in the current conditions actually defend the right of the natives to sell gold for glass beads.
And now we are talking, let us emphasize once again, not about banning the sale of property as such, but about preventing once again the use of a country suffocating in the economic crisis by characters who are trying to force citizens living on poverty-stricken pensions and salaries and their state to sell for next to nothing. your last real asset. Nobody is against a civilized market. But he must first become civilized.