Moratorium on agricultural land and not only…

Without exaggeration, the moratorium is perhaps the loudest and the most problematic issue that is accompanying the land reform in Ukraine. For 15 years of its history, the moratorium has become a subject of many political manipulations that have generated persistent myths, but pushed aside the very subject of the debate. As a result, such simple questions as what is the subject of the moratorium, what amount of land and categories of citizens it concerns, what transactions with agricultural land are done under moratorium – bring ambiguous answers even from experts. In this article we give a comprehensive overview of the current situation: who and what the moratorium applies to and what formal land transactions are conducted under the moratorium.

What is the moratorium?

The Law of Ukraine No.2242-III “On the Transactions to Alienate Land Allotments (Shares)”, adopted on 18 January 2011, stated that until the procedure of exercising the rights of citizens and legal entities to land allotments (shares) is regulated by the Land Code of Ukraine, the owners of land allotments (shares) were temporarily disabled to conclude agreements to buy/sell, gift, or alienate such land allotments (shares) in other ways except for inheritance and purchase of land for state and public needs. However, the Land Code (No. 2768-III), adopted on October 25 in the same 2001 year, not only prolonged the term of such prohibition to alienate till January 1, 2005, but also extended the prohibition both onto land allotments (shares) and land parcels for farming and other commercial agriculture regardless of ownership type. That is what became known as the “moratorium on purchase and sale of agricultural land”.

Introduced as a temporary measure in 2001, the moratorium has been continued 7 times (in 2004, 2006, 2008, 2010, 2011, 2012, and 2015), and it is currently in action until the enactment of the Law on agricultural land turnover, which should regulate the procedure, announced as early as on January 18, 2001, “for exercising the rights of citizens and legal entities to land allotments (shares)”, but even under these conditions – it will not take place earlier than January 1, 2017. Thus, the legislation does not stipulate lifting the
moratorium, as it is usually said, but it provides for taking a decision on whether to extend it or not, as well as adopting a special Law of Ukraine on the turnover of agricultural land. At present, the draft law is published on the website of the State Service of Ukraine for Geodesy, Cartography, and Cadastre.

Moratorium is a suspension (until the 1^st of January 2017 and the enactment of the Law on the turnover of agricultural land) of the right to purchase or sale or other types of alienation of agricultural land parcels, change of their designated use, and vesting in the authorized capital of enterprises.

How much land is covered by the moratorium

In order to estimate the scale of the moratorium, let us find out how much land it covers and what number of citizens it concerns. According to the law, the following categories of land are subject to the moratorium:

• agricultural land in state and communal property: 10.5 mln ha in total;
• non-agricultural land in state and communal property – 1.3 mln ha;
• unclaimed shares (inheritance) – 16,000 ha;
• land allotments (shares): 27.7 mln ha;
• agricultural land for commercial farming: about 1 mln hectares in legal entities’ property and about 500,000 ha in individuals’ property.

Figure 1 shows the distribution of agricultural land across Ukraine. The diagram on the left explains that the total of about 41 mln hectares is under moratorium which makes 96% of all agricultural land in Ukraine. The diagram on the right disaggregates the land under moratorium by category. As we can see, 68% of the moratorium land consists of privately owned land shares. As for the number of landowners subject to the moratorium, there are 6.9 million of share owners only, who make 16.2% of the resident population of Ukraine. The vast majority of such owners live in rural areas.

Figure 1 – Distribution of agricultural land across Ukraine

Data source: the State Service of Ukraine for Geodesy, Cartography, and Cadastre; the State Statistics Service of Ukraine

It should be noted that the moratorium does not cover all the agricultural land; Figure 1 demonstrates that 1.7 million hectares of agricultural land is not covered by the moratorium. These are privately owned land that is in free turnover. For example, the moratorium does not extend to such categories of agricultural land as land for personal farming (except land “shares”), for subsidiary farming, for individual gardening, and others.

What is allowed and not allowed to do with the moratorium land

The legislation allows shareholders to lease shares, exchange for another land parcel, and leave as inheritance to descendants. At the same time, they are forbidden to sell their land parcels, change their designated use, to vest rights to a land allotment (share) in authorized capitals of business associations, and use them as a collateral.

Such restrictions violate the constitutional rights of landowners (namely, Articles 14, 21, 22, and 41 of the Constitution of Ukraine) and do not allow them to manage their property at their own discretion. Figure 2 presents the dynamics of agricultural land transactions in 2013–2015. We can see that rental transactions prevailed; during this period, 829.7 thousand rental transactions were conducted for the total land area of 3.5 million hectares.

Over the years, the dynamics is changing. For example, 565.9 thousand rental transactions for the area of ​​2.9 million hectares were conducted in 2014d. It should also be noted that some land is rented unofficially. One can also observe that after the 7-year minimum tenancy period was established and the land tax was raised, the number of registrations of rental rights fell sharply – according to the Ministry of Justice, it fell by 80% in Quarter 2 of 2015 compared to Quarter 1 of the same year (from 179.5 thousand down to 36.3 thousand transactions); more detailed information can be found in the report “Land Governance Monitoring in Ukraine: 2014-2015.” It should be added that in 2013 and 2014 the number of rental transactions in Quarter 2 was bigger than in Quarter 1, so it is not a matter of seasonality.

According to the State GeoCadastre, 4.7 million rental agreements on private agricultural land (shares) were concluded in Ukraine as of July 1, 2015, to the total area of 16.6 million hectares (the average land parcel size was 3.6 hectares), i.e. about 54% of all agricultural land in private property. In addition, 56 thousand rental agreements were concluded for land in state property. The area of such land is estimated at 2.5 million hectares.

In the period from Quarter 1 of 2013 till Quarter 3 of 2015, 17.4 thousand agricultural land parcels to the total area of 69.3 thousand ha (0.2% of private agricultural land) were inherited. The owners of 1041 agricultural land parcels (1069 hectares) changed via transactions of exchange and gift during this period.

As for sale, the total number of purchase/sale transactions made 0.03% of all the transactions in 2014. During the period analyzed in Figure 1, 494 sale/purchase transactions with agricultural land to the total area of 139.6 hectares were registered, which is less than 0.01% of all the non-moratorium agricultural land in private property.

Agricultural land was almost never used as a collateral, except for some individual cases in Quarter 3 of 2014 and Quarter 2 of 2015.

Figure 2 – Number of agricultural land transactions resulting in change of owner in the period of 2013 – Q1-Q3 2015

Data source: Ministry of Justice of Ukraine

Summary

In Ukraine, more than 96% of agricultural land is under the moratorium; this situation directly affects at least 16% of citizens. The largest amount of the moratorium land – about 68% – is owned by shareholders. People cannot manage these lands at their own discretion.

The moratorium hinders the development of rural areas and agriculture, as it prevents the redistribution of land resources among more effective owners and producers, understates the rental prices and owners’ incomes (for more detail see the article “The Economic Returns of Agricultural Land in Ukraine and its Distribution”), and restricts access to credit resources, and therefore it should be lifted as soon as possible.

To this end, various experts are proposing several strategies: including full lifting of the moratorium throughout the territory of Ukraine and alternatives of phased market opening (at first, lifting the moratorium on state-owned land – about 10.5 million ha), or lifting it on all agricultural land, but in pilot areas only – to identify potential problems and features). Another alternative is to entitle the local (rayon) authorities to open land market and impose restrictions on land market, as proposed in the article “Restrictions on Agricultural Land Sale Market: International Experience”.

In order to make a full stop in the moratorium history, the Government of Ukraine was supposed to submit a draft law on the turnover of agricultural land to the Verkhovna Rada of Ukraine, in accordance with the Law No. 767-VIII as of November 10, 2015. Let us hope that the new government will be on time with the decision on the strategy and submit a relevant bill within a timeframe which will allow the deputies to vote by January 1, 2017.

http://voxukraine.org/2016/06/03/moratoriy-na-zemli-ua/