Land Market in Ukraine. Call for Changes? April 2 2019 Kyiv, U , - - PowerPoint PPT Presentation

April 2 2019 Kyiv, U , Ukraine

Land Market in Ukraine. Call for Changes?

Agricultural sector plays a crucial role in the Ukraine’s economy and, especially, export

Sources: EasyBusiness, World Bank, ITC, USDA, FAOSTAT, MEDT

AGRICULTURAL SECTOR IN UKRAINE

10.3 2012 2006 2009 2007 2008 2010 13.4 2011 2013 2014 2015 13.3 2016 2017 9.5 9.0 10.5 10.1 12.1 11.6 13.1 12.8 13.6 7% 7% 7% 7% 7% 7% 7% 7% 10% 10% 10% 10%

Value added [constant 2010 USD bn] and industry share of GDP [%]

Value added

Industry share of GDP

Total Ukrainian export [USD bn] and agricultural share in total export [%]

Total export

Share of agriculture 38.4 2012 2011 2006 36.4 2016 2007 2013 2008 2009 2010 2014 38.1 2015 2017 49.3 67.0 39.7 51.4 68.4 68.7 63.3 53.9 43.4 9% 9% 12% 25% 32% 35% 34% 1% 2% 6% 2% 10% 7% 10% 3% Barley Corn Soybeans Wheat Sunflower oil 32% 55% Share in global exports Share in global production

Ukrainian share in global production and exports in 2017 [%]

19% 14% 15% 21% 21%

THE ROLE OF AGRICULTURAL SECTOR IN UKRAINE UKRAINE’S RANK IN GLOBAL EXPORTS

SUNFLOWER OIL

#1

GRAINS

#2

CORN

#4

BARLEY

#4

WHEAT

#6

SOYBEAN

#7

POULTRY

#8

Ukraine has a number of advantages that contribute a lot to the development of agricultural sector…

Sources: EasyBusiness, Ministry of Economic Development and Trade of Ukraine, USDA, FAO Stat

AGRICULTURAL SECTOR IN UKRAINE

0.8 5.7 6.2 6.7 8.8 11.9 18.3 Germany Italy Belarus Romania Belgium UK France Ukraine 32.5

Ukraine possesses the biggest arable area in Europe [mn ha]… …has 40% of its territory covered with the black soil [%

• f agricultural land]…

10.1 – 20.0% 20.1 – 30.0% 30.1 – 45.0% 45.1 – 50.0%

…and several other competitive advantages: Moderate climate and rainfalls (500-1,000 mm a year) allow production of crops without irrigation on 60-70%

• f arable lands

Absence of medium- to large-scale natural disasters such as ocean-borne hurricanes, tornadoes, earthquakes, landsides Favorable geographic location and presence of the Azov and Black seas allow extensive exports of Ukrainian agricultural products to other countries 3 wide rivers (Dnieper, Danube and Southern Bug) provide further cargo transport modes to European countries (Austria, Germany, Romania, Hungary, etc.)

Sources: EasyBusiness

…but its potential is limited because of continuous moratorium on farmland sales

AGRICULTURAL SECTOR IN UKRAINE

§ Existence of shadow farmland market § Expropriation of ownership rights in arbitration court (mortgage) § Statutory documents manipulation SALES § Disordered property registration § Absence of an effective practice of land price evaluation § Ineffective legislation that regulates farmland relations STATE REGULATION § Large areas of farmland concentration § Absence of consolidation procedure § Pressure from tenants on landowners LEASE

11.0 10.3 8.0 7.0 6.2 100 200 300 400 500 600 700 800 900 1,000 65 55 45 50 40 5 10 60 Lithuania Ireland Austria Greece Finland 2.2 USA Poland Netherlands France Croatia Romania Ukraine 63.7 Czech 39.3 7.5 1.2 11.0 10.3 42.0 Farmland value, USD thou Farmland rent price, USD

The moratorium on farmland sales causes a number of problems… …that lead to a low farmland value and farmland price in the country

In 2018, the farmland market issue was boosted as ECHR decided that the moratorium is a violation of the private property rights

CURRENT STATE

Sources: EasyBusiness

The ECHR judged that the moratorium on farmland sales violates the private property rights

• f landowners. The judgment came

into force in Ukraine in August MAY 2018 The Coalition against moratorium was created. Currently, 42

• rganizations signed the agreement,

including agricultural producers, banks, NGOs and associations JUNE 2018 69 deputies of Verkhovna Rada used the decision of ECHR to sue to Constitutional Court. The Court denied their appeal SEPTEMBER 2018 Farmland.in.ua platform was established in order to help Ukrainian landowners to submit claim to ECHR SEPTEMBER 2018 231 deputies of Verkhovna Rada voted for the prolongation of the

• moratorium. Only 28 deputies voted

against DECEMBER 2018

Both candidates for the Presidential post support the launching of free farmland market

CURRENT STATE PETRO POROSHENKO VOLODYMYR ZELENSKYI VERKHOVNA RADA OF UKRAINE GENERAL POPULATION AGRARIAN COMPANIES INTERNATIONAL ORGANIZATIONS

§ Declares that he considers farmland as a commodity that can be traded § Signed a law on the moratorium prolongation several times § Promises to open the farmland market in his pre-election program § Going to create a necessary legislative base firstly § 69 deputies sued to Constitutional Court on farmland market issue in 2018 § 231 deputies voted for prolongation of moratorium until 2020 § 2/3 of Ukrainian population do not support the abolishment of moratorium § At the same time, public perception of the reform has a tendency to improve § The largest union of agrarian companies in Ukraine ‘Ukrainian agribusiness club’ supported the launch of farmland market In 2018 § IMF demanded to abolish the moratorium in 2017, but later the requirement was cancelled § World Bank consider the farmland market reform as crucial for Ukranie

Sources: EasyBusiness, candidates’ programs, Verkhovna Rada, Rating Group Ukraine, UCAB, IMF, World Bank Level of support of farmland market reform

§ Absence of consensus on optimal farmland market functioning model § Lack of awareness among local authorities and landowners regarding § Absence of one-stop- shop solution for landowners in terms

• f legal support

§ Developed a comprehensive policy paper with 4 market scenarios and their economic effect § Ran communication campaign (80,000+ views of the developed video, 30+ media publications, 20+ TV and radio broadcasts) § Provided advocacy (increased number of MPs that support the reform from 3 in 2015 to 55 in 2017) § Abolished the moratorium on free farmland sales § Established fully liberalized farmland market § Maintained sustainable results of the project (online platform for legal consultations, association of free farmland owners) Overton Window of the Farmland Market Possibility

SHIFT OF FARMLAND MARKET MODEL IN UKRAINE

Closed farmland market Advocacy and communication campaigns Policy paper, roadmaps, video, public presentations, publications

EASYBUSINESS RESULTS STATUS QUO POTENTIAL EFFECT

Fully liberalized farmland market

EasyBusiness activities facilitated the shift of perception of the importance of the land reform in Ukraine

Sources: EasyBusiness

EASYBUSINESS’ ROLE

In order to examine the international experience, 60 countries were chosen using two-stage filter system

Sources: EasyBusiness

INTERNATIONAL EXPERIENCE ANALYSIS

Doing Business Rank Average value added in agriculture per employee (>USD 550) Index of Economic Freedom Arable area (>325,000 ha) Global Competitiveness Index Arable area as a % of total area (>5.6%) REGIONAL PROFILES COMPARATIVE TABLE 8 separate regions Mechanism of market functioning Objective and preconditions of the reform Quantitative restrictions Mechanism of implementation: methods and actions Price restriction Main qualitative and quantitative results Tax burden SHORT SUMMARIES

FIRST LEVEL SECOND LEVEL

Methodology of market type identification is based on three-stage filter system

Sources: EasyBusiness

1 FULLY RESTRICTED MARKET 2 RESTRICTED FOR FOREIGNERS 3 OPEN WITH RESTRICTIONS 4 FULLY LIBERALIZAED MARKET DO DO FORE REIGN GNERS RS HAVE A RI RIGH GHT TO BUY FA FARMLAND IS IS T THE P PRIV IVATE P PROPERTY Y FO FORMED

NO

AR ARE THERE AN ANY OT OTHER RE RESTRI RICT CTIONS? AR ARE THERE PR PRICE RE RESTRI RICT CTIONS? AR ARE THERE QU QUANTITATIVE RE RESTRI RICT CTIONS?

YE YES NO NO YE YES YE YES

Tajikistan Croatia Albania Bosnia and Herzegovina Macedonia Serbia Azerbaijan Armenia Kazakhstan Kyrgyzstan Moldova Russia Iran Korea Morocco Nigeria South Africa Tunisia Greece Denmark Finland France Sweden Switzerland Bulgaria Latvia Lithuania Poland Romania Slovakia Hungary Turkey Georgia Argentina Brazil Guatemala Honduras Mexico Nicaragua Panama Paraguay El Salvador Uruguay Canada Japan Cameroon Australia Austria Belgium Ireland Netherlands Germany Portugal UK Dominican Republic Estonia Spain Italy Czech Republic USA Croatia Albania Bosnia and Herzegovina Macedonia Serbia Azerbaijan Armenia Kazakhstan Kyrgyzstan

INTERNATIONAL EXPERIENCE ANALYSIS

The correlation analysis demonstrates a dependence between the type of farmland market and level of farmland price

Sources: EasyBusiness 55,000 35,000 20,000 30,000 5,000 60,000 15,000 15,000 40,000 60,000 20,000 10,000 45,000 25,000 70,000 50,000 5,000 65,000 50,000 40,000 35,000 55,000 25,000 30,000 10,000 45,000

Average price of 1 ha of farmland (USD) GDP per capita (USD) Type of the market – 3 (Fully liberalized market) Type of the market – 3 (Open with restrictions) Type of the market – 2 (Restricted for foreigners) 50 tnou+ 25-50 thou 10-24 thou 1-10 thou

Average value added of agricultural production per employee (USD)

The analysis demonstrates the significant correlation between the type of the market and the level of economic development Countries with restrictions of foreign or any other ownership are characterized with lower farmland price and GDP per capita

INTERNATIONAL EXPERIENCE ANALYSIS

The level of farmland prices correlates significantly with a type of market and overcomes Ukrainian NLA for 3-19 times

Sources: EasyBusiness

5

15

10 Ukraine Kazakhstan 0.4 Azerbaijan 1.0 Russia 1.2 Moldova 1.7 Armenia 2.8 3.0 Macedonia 3.5 Korea 3.6 Kyrgyzstan Ø 4 Iran 6.7 Croatia 7.0 4.5 8.5 Serbia 13.0 х3.5 Albania 30 20 10 11.0 Greece 11.0 Argentina 15.5 Dania 26.7 Ø 8 х6.5 Ukraine Georgia 1.5 Slovakia 1.8 Lithuania 2.2 Bulgaria 4.5 Uruguay 5.1 Romania 6.2 8.5 6.5 Brazil 6.9 France 7.5 Japan Sweden 9.8 Poland 10.3 Finland Mexico 80 40 х19 Ø 23 7.4 6.9 Ukraine Estonia 5.0 Tunis Portugal Czech Republic 8.0 USA 10.3 Spain 16.1 Italy 25.7 UK 31.4 Germany 32.3 Belgium 33.6 Ireland 39.3 Austria 42.0 Netherlands 63.7

Open with restrictions, USD thou Restricted for foreigners, USD thou

Bosnia and Herzegovina

Fully liberalized market, USD thou

INTERNATIONAL EXPERIENCE ANALYSIS

The economic effect from the moratorium abolishment highly depends on the type of market

Sources: EasyBusiness

ECONOMIC MODEL

SCENARIO PROBABILITY DESCRIPTION GDP GROWTH* FDI INFLOWS* PRICE DIFFERENCE Fully liberalized market Full liberalization of the farmland

• market. Minimum of regulations

and government interventions, no limits on maximum area owned and farmland prices

x19 67.4 25.8

Open market with restrictions Liberalization of the farmland market, opened for residents and non-residents, legal and private

• entities. The market is regulated

by introduction of qualitative or quantitative restrictions

x6.5 41.4 12.4

Restricted to foreigners Only residents of the country have the right to sell, buy or transfer ownership rights on

• farmland. Other restrictions and

limitations may also be issued

x3.5 28.7 8.7

Fully restricted market Fully restricted any transfer of land rights (extension of the moratorium on farmland sale)

• 9.1

*GDP growth and FDI inflows in USD bn

EasyBusiness is going to calculate the future farmland price considering comprehensive approach

Sources: EasyBusiness

FURTHER STEPS BENCHMARKING PRICE GAP KEY PRICE FACTORS

§ In order to identify the future Ukrainian land price that may exist in the case of land market opening a number of countries as benchmarks can be used § Having analyzed international experience the Ukrainian land price was compared to the European average land price § Factors that define the price can be divided into three groups: risk existence, amount of income, macroeconomic indicators

PRICE GAP

European average land price Ukrainian average land price Benchmark Risk Income Macro

14

EB

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