The great current Ukrainian political drama, apart from Privatbank, is land reform, or the ending of the moratorium on sale of private agricultural land imposed after the land reform in 2000.
This is vital to further stimulate the development of agriculture in Ukraine. The harvest can double but that requires that land can be used as collateral for bank loans. Agriculture, elated services & banking would boom & could add 2 percentage points to GDP each year.
But there are serious dangers:
1. Big foreign funds could buy millions of hectares & fail to manage them.
2. The current big agroholdings with leased lands that account for 1/3 of all land could be broken up & land fragmented as in most postcommunist countries.
1. Big foreign funds could buy millions of hectares & fail to manage them.
2. The current big agroholdings with leased lands that account for 1/3 of all land could be broken up & land fragmented as in most postcommunist countries.
3. There could be serious transition crises, when the big farms downsize & invest in buying land rather than in equipment, leaving lard areas unattended to.
What should the Ukrainian government do?
1. A good start is to auction of remaining state land - about 7 million hectares - to get a market price for land properly established.
2. Some limitation of the sale to foreigners is necessary at least for a multi-year transition period.
1. A good start is to auction of remaining state land - about 7 million hectares - to get a market price for land properly established.
2. Some limitation of the sale to foreigners is necessary at least for a multi-year transition period.
3. An overall limitation on the size of a farming company seems necessary. A maximum for one ultimate beneficiary owner of 200,000 hectares seems reasonable. The biggest current agroholdings have about 500,000 hectares, which seems to big to manage.
4. Is there a need for government credits for land purchase? I doubt it. Subsidized credits usually go to the wealthiest & breed corruption & state banks hold 60% of Ukrainian bank assets. The land reform should breathe life into the decimated private banking industry.
5. My conclusion is: Start the land reform soon, but do so with many limitations on the sales, especially for foreigners. Avoid all unnecessary state subsidies that only breed corruption and privileges to the wealthy.
The likely outcome is a downsizing of farms.
The likely outcome is a downsizing of farms.
