THE LAND QUAKE: AT WHAT PRICE AND WHEN UKRAINIAN BLACK SOIL (CHERNOZEM) IS TO BE SOLD

Land reform has started up in Ukraine. In the course it provides the creation of special public institution for land management, the ban on land sales to foreigners and legal entities, limitation of the areas one buyer can get. How much will the land cost? What a farmer needs to know to avoid a bad bargain, and when will the sale of land start? Guests of “IZVESTIA” in Ukraine” Press Club were searching for the answers to these questions.

LEONID KOZACHENKO, the Head of the Council of Entrepreneurs under the Cabinet of Ministers of Ukraine:

THE LAND WILL COST 8000 USD PER HECTARE

The matter we discuss is very essential. It is proved by the numerous conferences, round tables and a future meeting of experts on this matter with the President of Ukraine. The problem of land sale is very sensitive for Ukrainians. In agricultural sense the land market is certainly important. To attract investment and develop this sector of the economy will be very difficult without that.

But starting up the land market, one must remember that about 7 million citizens of Ukraine are owners of the land, for most of them a rent of a unit is the main source of income, the only way to survive. Thus a person who sells the share, should get the appropriate fee, otherwise the opportunity of living at the expense of renting a unit in future will be lost.

How to ensure a fair price to a land owner? How to make the owner avoid creating social tensions, complaining he was not satisfied with the price and feels cheated? The answers to these questions rest in obligatory transparency of the land market for the parties. They should in no case allow secrecy of process for buyers and sellers as well. Second. It is important that the new owner use the land as an asset to attract resources and farm it for its intended purpose. And finally, it is important that this asset - land - bring maximum benefit to our state, so that land market secured financial condition of both people and the economy.

- Last year, our experts modeled the price situation in case the local land market is up. By the way, prices now available have nothing to do with market. We took into account the cost of land in Russia, Moldova and Eastern European countries, where the land sale is allowed.

We have come to a conclusion that value of the land is affected by the state of doing business on it, its capitalization and profitability. We also took into account that at first stage there will be many proposals. Thus, the starting price would be 500 USD per hectare. By the way, now in Russia the starting price is 410 USD per hectare. We also modeled situation of the price variation if agricultural business develops dynamically, and there will be a modern Agricultural Policy. We have come to a conclusion that in 7-8 years, the cost of land per hectare in Ukraine could reach 8000 USD.

WHO WILL NOT GET THE LAND

- I would like to pay attention to the matter of selling land only to citizens of Ukraine. I often hear: why restrict the right to buy land by citizenship, for foreigners have more opportunities to cultivate the land, more finance? This is position of one granny, shown recently on TV report. She also says she does not care who buys her stock, the main thing is to get more money and to have the land used for intended purposes. In this context I would like to cite the example of Brazil, the strongest agrarian country in the world, excelling Argentina, Australia and New Zealand. Three years ago Brazil adopted a law that allowed foreigners to purchase 49% of the land. I think Ukraine should not be afraid to sell the land to foreigners, but 49% is too big a number for us.

As a patriot, I would like Ukrainians to invest in our land after all. For we have a rich experience in farming, management of large enterprises. Now Singaporeans and the Chinese and Arabs want to buy our land. But they have no idea of modern management in a large agricultural industry! In this economy it is not just about the cultivation of raw materials, but the creation of vertically integrated companies.

Agricultural plants were established back in soviet times. They were based on a fact that a household, having more than 10 thousand hectares of land, produces not only raw materials but also milk, meat, can build own refineries, has its own distribution system. They were well aware of this type of management yet in soviet era, it is we who worked up these methods.

As for the ban on the purchase of land by legal entities. We have an example of excellent agricultural holdings. But to give all to a large business – means to create social tension. After all, statutory rate of big companies - seven employees per 1000 ha, whereas in small enterprises - 20. It turns out that small business creates more jobs, lacking in rural area. Thus, the state should regulate distribution of territories, so that medium and small enterprises as well could get the land. Financial assistance should also be provided for the “second-rates”.

NO NEED TO BE AFRAID OF THE LAND MARKET, IF THE RENT IS FAIR

- I think it is relevant to dispel another myth. Allegedly, new owners of the land will exhaust the soil, sow only profitable crops: rapeseed, sunflower.

I want to reassure everyone. The owner won’t exhaust his land, for it is not what he paid big money for. It is tenant who takes the land for a year or two (such exist as well) sows whatever he likes, without any rotation. And no law can punish him. You can buy any petty official for a penny.

Thus, avoiding panic about destruction of black soil and annoying control, two forms of land work should be designed: either purchase or long-term lease.

CAPITAL WON’T FLOW HERE

Here we regarded investment flows in the country. It is not the ban on land sale that interferes the flow, but the conditions for investors in our country - investors do not want to come here. Let's speak the language of numbers. In 2010 Brazil invested 22 billion USD in its agriculture. 50 million hectares are cultivated in the country. We process 34 million hectares, but last year investment in this field made 41 million USD - whereas our farmland area should have received 16 billion USD. No one gave money.

Certainly, nobody talks on prospects of development without investment. One should take money from investor, but not at all costs. There must be many willing for competition. To this end there should be normal investment climate in the country. There is a lot of money in the world- every year 140 billion USD are invested in agriculture. If our agricultural sector gets investment at a last year pace, it will take us 310 years to catch up with Europe.

There is another factor which influences the cost of rent - government subsidies. Last week I was searching for information, how much land is processed in France. I found a site for land sale in this country, where farms exhibited for sale with information - how much land in the farm, what sort of technique it provides and how much is all that. There is indication of annual fixed subsidy at the end of the page. I reckoned and it turned out they allocate 600-1100 Euros per one hectare. This affects the value of the land and its rent.

If our country gave such subsidies, no one would work, everyone would live off that money.
I agree that a yield of our agricultural production is small - respectively, the rent is the same. That happens, because we always have some obstacles. Quotas on grain exports are again extended. Manufacturers can not easily sell their goods - banks stop lending them - manufacturers do not return the loans, which leads to a greater loss.

Summarizing all said during the round table, I want to add that the land market should certainly exist. But no need to rush. If one considers all rules, announced by Sergei Salienko, and informs the landowner for his better understanding of what is happening (but it will take at least two years), it will only benefit the country and the farmers.

Adapted from “IZVESTIA” in Ukraine” edition