In the conditions of the economic crisis and the launch of the land market, the authorities should support the domestic agricultural producer.

SigmaBleyzer is a long-time member of the U.S.-Ukraine Business Council​.

We got accustomed to the fact that the agricultural business is one of the most profitable in our country (although the farmers know that the sector’s profitability dropped substantially in the last few years), but should look more broadly and understand how the agricultural market of Ukraine influences our economy’s development in general.

Agriculture’s share in gross value added is almost 15%, the share of agricultural products in Ukraine’s exports increased to 46%, the value of fixed assets is above 100 billion UAH: the agro-industrial complex is the main source of foreign currency to Ukraine.

Active interconnection between the state and the agrarian business is important under normal conditions, and in the current conditions in Ukraine and the entire world found themselves, such a connection is essential!

The Verkhovna Rada voted in favor of creating a market for agricultural land. The law comes into force in July 2021. It restricts sales to 100 hectares to Ukrainian buyers. In 2024, the limit is raised to 10,000 hectares. Foreigners and companies with foreign capital are prohibited from entering the land market.

Analysts predict that the IMF will acquiesce to this version, assessing its symbolic value - ending the 19-year ban on agricultural land sales. The opportunity to freely buy and sell agricultural land is, of course, a progressive and justifiable step that, in addition to its obvious positive impact on the country’s economy, has important political and social implications.

My personal position, as well as the position of the Committee of Agri-Food Business of the Union of Ukrainian Entrepreneurs, was in favor of a much more liberal version of the land market, but even the adopted version is definitely a step forward for the country’s agricultural market development. Given the restrictions on the quantity of land that can be purchased by a single individual of no more than 100 hectares, and considering that the reform will actually be launched from July 1, 2021, no economic effect is expected in the near future.

Of course, the direct consequence of the adoption of draft law 2178-10 for our country’s economy is to receive the IMF tranche. One can only hope that by 2024, the recession will be over and companies will be able to become full-fledged owners of the land they cultivate. However, one should note that the downside is the restriction of the rights of millions of landowners and the definition of a limited number of buyers.

Such an approach will lead to an artificial and unjustified land market price decrease, that is, to the deterioration of the status of all landowners. I also consider that it is important, in order to avoid unhealthy speculation on the land plot purchase-sale, to introduce a limited period during which, after the purchase of the land plot, this land plot may be resold, gifted, contributed to statutory capital or otherwise disposed of except for repossession of collateral by financial institutions. I am waiting for the following draft laws to codify this.

I also do not see a reason for agrarians’ upgrading or installing land reclamation systems, which would, in fact, increase the price per hectare and enable higher yields.That is why, in the context of the approaching global economic crisis, the authorities should turn attention to the implementation of measures to assist the agricultural sector and to take all possible steps to support the domestic agriculturalists.

Land sales must occur through transparent, competitive mechanisms; effective financial support programs for small and medium-sized enterprises should be introduced to reduce the cost of land acquisition loans and reduce the risk of such loans to banks. If a comfortable environment and minimal restrictions are provided for small farmers, we can achieve additional GDP growth of more than 3%.

The sowing campaign is on now, and I get very negative signals: some farmers decide to reduce sown acreage. It is unacceptable to ignore such signals; the state has no right to leave farmers alone before the global crisis and the coronavirus, this may be the beginning of the end for our economy, given its dependence on the agrarian sector. The trends of recent weeks are not comforting, the markets are responding to what is happening in the world, and we are seeing a decrease in the value of a number of cereals.

For example, according to the Independent Public Expert Council on the Price Situation in the Agrarian Market, as of March 12, 2020, prices for food and fodder wheat decreased by US$5/t for FOB delivery (Black Sea ports), corn prices were down by US$2/t, prices in the sunflower market changed only in the export market, where there was a decrease of US$8/t. In the market of sunflower oil the price decrease has resumed, the prices have lost US$15-20/t for FOB delivery (Black Sea ports).

At the same time, one can predict the demand for agricultural products in the world will grow this year and we will once again be able to show record export volumes, but this would require some urgent measures to be implemented in support of the agricultural sector.

There are many measures in various countries to support business, including agrarian. I deem it necessary to consider the following anti-crisis measures:

       1. Reduction of [Single Social Payment] to save jobs and reduce tax burden;
       2. Active introduction and implementation of anti-corruption and anti-raiding mechanisms, critical to the new market conditions;

       3. Offering interest-free loans to ensure continuous activity, job retention and competitiveness;
       4. Tax, customs and other investment preferences for producers (through the industrial park mechanism), as well as “tax holidays” for micro-enterprises;
       5. Large-scale support for export-oriented Ukrainian industries through insurance, guarantees and cheaper crediting of export contracts;
       6. Cancellation of fees for connection to utilities (electricity, gas, water, etc.) as is done in the U.S.A. and Israel to remove one of the largest investment barriers in Ukraine’s economy.

Unfortunately, today we have not only failed to undertake these anti-crisis measures, but also failed to ensure the effective operation of existing programs. I draw your attention to the fact that the program "Available Loans 5-7-9%" does not work for the agicultural sector, and at the same time not all farmers in our country can get a loan even under normal conditions.

The positive side of the adopted land law, which allows to change the situation, is lending secured by land. Yes, it is proposed that banks are only allowed to obtain ownership of land in case of collateral for non-performing loans. This option enables companies, and especially small farmers, to obtain the necessary loans and manage their resources and assets.

Banks are also waiting for more opportunities to lend to the production sector economy. This is a win-win situation for both the farmers and the financial sector. Of course, this is not the complete list of what the government needs to do in the near future, but even the above measures will bring a much needed breath of fresh air to the country, which in today’s conditions of fighting against COVID-19 and the global economic crisis will actually be a lifeline for the country.

Conversely, delaying the adoption of the urgent economic rescue measures can have dire consequences for our country’s future. It is very important that the government discusses in detail both the anti-crisis package and the mechanisms for its implementation not only with international financial organizations, but above all with the associations of agrarians – employers, producers, entrepreneurs and trade unions.

Only by synchronizing the efforts of the government, the business and society we can achieve our goals! And we are waiting for the referendum.

LINK: https://www.epravda.com.ua/columns/2020/04/3/658931/

USUBC FOOTNOTE: SigmaBleyzer is a long-time member of the U.S.-Ukraine Business Council (USUBC), Wash, D.C., www.USUBC.org

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