The sale of agricultural land in Ukraine

ZOiS Spotlight 1/2019 by Sabine von Löwis (9 January 2019)

Typical rural landscape with small farms in Western Ukraine © Sabine von Löwis

It is illegal to sell farmland in Ukraine. A moratorium imposed in 2002 was extended for the tenth time in December 2018 and will now remain in place until 1 January 2020. The legislation adopted in 2018 stipulates that the Cabinet of Ministers must bring forward a draft law on the trade in farmland by 1 March 2019. The moratorium had previously sparked public debate in May 2018 when the European Court of Human Rights (ECHR) upheld a complaint by two Ukrainian citizens, ruling that the moratorium violated Article 1 of Protocol No. 1 to the European Convention on Human Rights and calling on Ukraine to introduce appropriate legislative measures.

The sale of land is an ongoing theme in Ukrainian politics and invariably arouses particular controversy whenever the moratorium is due to end. Ukraine has around 43 million hectares of fertile arable land, which is eyed covetously from a variety of quarters. Some see the moratorium as an obstacle to the development of a liberalised agricultural market, but surveys show that large sections of the population would vote against any lifting of the ban.

Background

The moratorium was first introduced during the decollectivisation of agriculture which followed the collapse of the Soviet Union. Private ownership of land has been recognised in Ukraine since 1992. In order to protect landowners from signing up to ill-considered land sales which they might later regret, but also to prevent the concentration of land ownership and the associated risk of rural poverty, a ban on the sale of farmland was introduced in 2001, initially until 2004. Another often-heard argument is that land should remain Ukrainian-owned: this reflects concerns that market liberalisation would open the way for land grabs by foreign purchasers and hence a loss of control over this domestic resource. Initially, the moratorium was to remain in force only until appropriate legislation could be brought forward to regulate a domestic agricultural land market free from these anticipated risks. However, no agreement on appropriate rules has yet been reached, and so the moratorium has been extended regularly since 2001.

However, the moratorium has failed to prevent the developments that are causing these concerns. The rural populace is poor, and more and more people are moving to the cities or migrating abroad. Farming is dominated by a small number of large Ukrainian agroholdings backed by international shareholders. Alongside the traditional oligarchs with a background in industry, an agro-oligarchy has now formed, which includes the country’s current President, Petro Poroshenko. The concentration of land in large enterprises with foreign backing – typically described as land grabbing – can thus be observed in Ukraine as well, although this results not from the sale of land but from the awarding and trading of tenancies.

Agroholdings and small farms

The farm reforms which followed Ukrainian independence led to the emergence of large-scale agricultural enterprises, often as successors to the kolkhozes and sovkhozes that existed in Soviet times, as well as to the formation of smaller farms. The latter provided a subsistence livelihood for many families during the post-1990 transition and still play an important role today. From the 2000s, agroholdings then evolved out of the large enterprises. In 2018, according to figures from the Ukrainian Agribusiness Club, large enterprises were utilising around 29 per cent of Ukraine’s agricultural land. The largest agroholdings in Ukraine currently include Kernel and UkrLandFarming, with around 570,000 hectares apiece. They export to the world market and are highly profitable.

Contrasting with these large enterprises, there are also around 5.5 million small farms, each farming around 2.5 hectares for the local market and to meet their own needs. Although they are often portrayed as inefficient and do not conform to the image of modern, well-capitalised agriculture, they generate around 45 per cent of agricultural GDP and provide livelihood security for the rest of the rural populace, helping to maintain local communities and economies. They generally occupy land which directly serves the home economy and was farmed on this basis during the Soviet era. In addition, they hold an average of four hectares of land from decollectivisation, which they lease to agroholdings or larger agricultural enterprises in return for a profit share. This is often paid in kind and helps to maintain these smaller farms.

The ban on the sale of farmland: the pros and cons

The moratorium perpetuates the status quo. The agroholdings can rent land at very reasonable prices, sell their products on the world market, generate substantial profits and continue to expand. Liberalisation of the arable land market would undoubtedly destabilise this system.

Among landowners themselves, however, opinions diverge. Some owners who run their own farms earn a share of the profits from renting out their land, which they can then reinvest in their own businesses. If the moratorium were lifted, it is very likely that these farms would increasingly vanish from the agricultural landscape and that there would be further out-migration from rural areas as a result of competition from the agroholdings. Those keen to expand the smaller agricultural enterprises are already finding themselves in competition with the agroholdings over access to land, and this would intensify if the moratorium were lifted, squeezing these smaller farm enterprises out of the market. Owners who have already migrated to the towns and are keen to divest themselves of their land would benefit from the lifting of the moratorium as they would then be able to sell at a profit.

The Ukrainian government is under pressure to lift the moratorium and introduce appropriate legislation that would permit land sales. This is partly because the ECHR ruling puts it in a difficult position: if it fails to take the requisite measures, it faces compensation claims from plaintiffs and landowners keen to sell. The European Union, the World Bank and the International Monetary Fund are also calling for the moratorium to be lifted, partly because they represent international investors who are poised to enter the market. These investors prioritise a high standard of agricultural efficiency which – as experience has shown – small farms and the associated rural communities and economies are unable to achieve.

The decision to extend the moratorium can therefore be easily explained in terms of the current concerns and agricultural structures of the small farms and agroholdings. At the same time, it is clear that it is global market pressure, rather than Ukraine’s domestic problems, that is behind the calls for reforms of the current regime. The likely outcome is a radical transformation of Ukrainian agriculture that will please almost no one. Finding an appropriate solution that meets the needs of globalised land use and the local farming economy will be a difficult task.


Sabine von Löwis is a Social and Cultural Geographer holding a PhD in Political Science. Since December 2017, she has been engaged as a researcher at the Centre for East European and International Studies (ZOiS), where she is currently leading a project on microgeographies of conflict constellations in the southwestern post-Soviet space.