Prohibition to sell land to foreigners will diminish the cost of land, as it was proven by Canada. How is this issue regulated in different countries and who should fear to sell land to foreigners?

Sociological surveys indicate the existence of rather unexpected trends, the analysis of which helps better understand the origins and essence of the myths about the Ukrainians’ attitude towards agricultural land market. In particular, it turned out that Ukrainians, although supporting the moratorium, at the same time … want to have the right to sell their land shares; on the other hand, a portion of the well-known “menu” of the society’s fears around agricultural land market does not bother Ukrainians at all. Now it is time to look more carefully at one more “anti-moratorium axiom”: the fear of foreigners.

It is well-known that sociology identifies a possibility of massive buying-up of Ukrainian land by foreigners as one of the major dangers that Ukrainians associate with lifting the moratorium on purchase and sale of agricultural land – almost half of our citizens are afraid of such a consequence. However, with a closer look, this seemingly obvious issue reveals itself in an unexpected way: the details of the picture are not quite the same as everyone used to see¹.

What is the difference between a land share holder and an average Ukrainian

So, 50% of Ukrainians in general and the same number of land share holders percieve a massive purchase of Ukrainian lands by foreigners as one of the main dangers associated with lifting the moratorium on the purchase and sale of agricultural land, as evidenced by a sociological survey “The crucial issues of land reform in Ukraine”, conducted by the USAID AgroInvest project at the end of 2015². In order to explore the topic further, respondents were asked three additional related questions. One logically expected their answers to fit into a general pattern of perceptions of the main danger perceptions. Suddenly, the results were rather illogical.

The first question was “If the moratorium (ban) on the sale of agricultural land is lifted, which of the following categories of persons should have the right to buy agricultural land?” (Figure 1).

If taken as a whole, the majority (78.4%) of Ukrainians really believe that it is Ukrainian citizens or enterprises who should have the right to buy agricultural land; only 4.9% of the respondents are ready to entitle foreign citizens or foreign enterprises (including 0.4% of those who think that only foreigners should be enabled to buy land) and 15.6% were undecided. However, it is interesting that among the land share owners the picture is totally different: only 32.5% are ready to grant the right to buy their land shares to Ukrainians exclusively; 3.8% to foreigners; and 55.3% (!) were undecided.

Additional reading I support the moratorium, but want to be able to sell land: the paradoxes of Ukrainians’ attitudes to lifting the moratorium on sale of agricultural land, as revealed by sociology

One is prompted to suggest that the land share owners tend to perceive the land market issue through their own economic interests, while the rest of the population – as a general policy issue, with no direct relation to their lives and money wallets. If this is true, then the figure of 55.3% may indicate that at the moment the share owners are critically lacking information and thus not able to estimate the potential impact of the foreigners’ right to buy land on their own lives.

Figure 1. Who should have the right to buy land if the moratorium is lifted: the population’s and the land share holders’ opinions

* This option includes all or some of the following
categories: Ukrainian private farmers; Ukrainian agricultural enterprises; all
Ukrainian enterprises; Ukrainian citizens in rural areas; and all Ukrainian
citizens.

** This option
includes foreigners (foreign citizens and/or foreign enterprises) and all or
several categories of Ukrainians (the citizens and/or enterprises mentioned
above).

*** This option
includes the respondents who selected the answer “I do not know”, as
well as the respondents who selected none of the listed categories; it is based
on the assumption that a respondent with a position will express it by
selecting some answer option.

Do we fear foreigners or land market as such??

At the first glance, the second question virtually repeats the first one: “Should the right to buy agricultural land by foreigners be restricted during the first years after the land market opening?” But here came a surprise: 95-96% of the respondents (!) were undecided (Figure 2).

Figure 2. Should the right to buy agricultural land by foreigners be restricted during the first years after the land market opening: the population’s and land share holders’ opinions

Notes:

* This option includes the respondents who selected
the answer “I do not know” and the respondents who did not answer the question
(most of the respondents); it is based on the assumption that a respondent with
a position will express it by selecting some answer option.

Given that quite a significant part of respondents were undecided on the previous question (which categories of persons should be entitled to buy agricultural land), we can conclude, although strange may it seem, that a well-formed public opinion of a frightening coming of foreigners into the agricultural land market and whether they are frightening or not, is generally absent. It means that the fears of massive buying-up of land by foreigners shifts to the category of irrational risks: it does sound like a threat, but what exactly carries a threat (and what one needs to do to defend oneself) is hard to articulate. Such setup makes an excellent ground for political manipulation and myth-making around the issues related to the moratorium lifting.

Additional reading: Why are Ukrainians afraid of agricultural land market and are these fears justified?

The third question allows us to assess whether the ban on selling agricultural land to foreigners will help to reduce the risks associated with lifting the moratorium. According to 64% of Ukrainians and 60% of land share holders who see foreigners as a threat, it will (Figure 3). It is curious that even those who did not mention a massive buying-up of land by foreigners as a threat most welcomed the ban on selling land to foreigners (22% of citizens and 30% of land share owners) if compared with other proposed ways to reduce risks.

Figure 3. Will the ban on selling land to foreigners help reduce the risks associated with lifting the moratorium, according to the population’s and land share holders’ opinions

Who is to lose if foreigners are not allowed?

Just like any other market, the law of demand and supply acts on agricultural land market, too. It is obvious: the more buyers, the higher prices for goods. Therefore, any restrictions on the possession or turnover of land, including a ban on selling land to foreigners, reduce demand, which will inevitably result in a lower price³.

To illustrate, when the government of Saskatchewan province (Canada) limited the maximum area of farmland that may be owned by non-residents and non-agricultural corporations in the province in 1974, the prices for farmland in Saskatchewan fell by $10-85 per 1 ha on average⁴.

Therefore, the land share owners should understand: if the Ukrainian agricultural land market is isolated from foreigners, it is the land share owners to lose because they will be receiving less profit than possible. In the meantime, those who want to buy up land shares the cheapest will save significantly.

“Privileged” foreigners

When discussing the topic of fears, one should remember that according to current legislation, the foreigners’ possibilities to acquire agricultural land in Ukraine are very limited. The Land Code of Ukraine states that “agricultural land may not be transferred to ownership of foreigners, stateless persons, foreign legal entities, and foreign states” (Part 5, Article 22 of the Land Code). Enterprises with foreign capital shall be treated as foreign enterprises. It means that in order to allow foreigners to buy agricultural land, it is necessary not only to abolish the moratorium, but also to make amendments to the Land Code.

However, current legislation contains a curious paradox. Foreigners are the only ones who can quite legitimately sell moratorium-subject agricultural land in Ukraine today, whereas Ukrainian citizens have no such opportunity. Yet, it covers inheritance only: Ukrainian legislation allows foreign citizens and legal entities, as well as stateless persons, to inherit agricultural land, but within a year after acquiring ownership of land they are obliged to sell or gift it to Ukrainian citizens, Ukrainian resident legal entities, to the State or to a territorial community – otherwise, they should grant it  free of charge to the State or to a territorial community with subsequent renting.

What global experience says

However, all the stated above does not mean that free sale of land to foreigners can create no risks. According to the international experience, different countries really consider a possibility of buying-up land by foreigners as a certain risk, which is precisely why restrictions are introduced in this sphere. Such restrictions may be imposed either on a permanent basis or temporarily, for a specific period.

Indeed, although in some countries foreigners and the citizens have the same rights to buy land (e.g., Germany, France, Great Britain, Belgium, the Netherlands, and Luxembourg), more common are the practices of imposing restrictions on ownership and use of land by foreigners. For example, the new EU member states established a 7-year transitional period when the sale of agricultural land was prohibited for all foreigners, including foreigners from the EU; and Poland even had a 12-year transitional period.

Sometimes, restrictions for foreigners are introduced on relatively mature markets as well. For example, the fact that about 7% of the agricultural land was owned by foreigners in Brazil and about 6% (up to 14% in some provinces) in Argentina led to the political pressure to restrict their access to the land market in Latin America. As a result, Argentina adopted a law limiting the maximum area of land that foreign citizens or companies could own (up to 1000 hectares) and the maximum share (15%) of the total area of ​​the country, province, and district which could be in foreign ownership. A similar trend was observed in Brazil.

As Hodgson et al (1999) ⁵ note, restrictions for foreigners usually aim to achieve socio-political, rather than economic goals. Guaranteeing of food security and protection of the Ukrainian village are probable the most essential goals for Ukraine. Indeed, if no restrictions exist, Ukrainian farmers and individuals may be unable to compete with foreigners as buyers. But that is always the case in economy: someone wins – someone loses. The landowner will get a higher land price a foreigner can pay, and a Ukrainian farmer will not buy that land. Here it is important to identify specific potential threats if foreigners have the right to buy agricultural land in Ukraine and specific restrictions to effectively control such risks.

It is important that all the restrictions – who can buy land in general and who has the preemptive right to buy it; what maximum area of land may be owned and used by one person, etc. – should be considered in a holistic manner.

Necessary clarification

The importance of investments, including foreign investments, for the development of Ukraine’s economy is constantly emphasized both by politicians and experts, and by Ukrainian
public. Raising investment attractiveness is one of the priorities of the “Ukraine-2020” sustainable development strategy. Nobody is usually concerned if foreigners want to buy, for instance, a plant: automobilists would even be glad if a powerful German or Japanese automaker opened its plants in Ukraine. However, the reactions to foreigners’ investing into or buying Ukrainian agricultural land are different, although essentially it is not different from buying a plant.

Conclusion

Thus, the sociological survey results confirm that about half of the Ukrainians (regardless of whether they own agricultural land or not) view a possibility of buying-up land by foreigners as one of the greatest threats associated with the moratorium lifting. However, a more detailed analysis brings the conclusion that this belief is not monolithic.

A considerable part of respondents – 43% of citizens and 45% of land share holders – consider the ban on sale land to foreigners as an effective step among possible measures to reduce the risks from lifting the moratorium. Yet, when asked who should have the right to buy land, the majority of land share holders (55.3%) – whose wallets take responsibility for their words – are not ready to deprive foreigners of this right. The attitude of the Ukrainians as a whole is more rigid towards foreigners, which is not surprising as it is always easier to “count money in someone’s pocket.” Moreover, responding to a similar question, virtually nobody is ready to restrict the right of foreigners to buy land (95% were undecided). Such paradox of answers makes it possible to classify the fear of foreigners as an irrational one; that is, it sounds like threatening, but what exactly it threatens (and, therefore, what needs to be done to defend oneself) is difficult to articulate.

Thus, concerning the moratorium, foreigners are likely to be used as a convenient “strawman”, which affords to divert the public attention from the need to take determined anti-corruption steps in land governance and protect the constitutional rights of owners. The citizens are being imposed this fear as an insurmountable obstacle on the way to implementation of agricultural land market. However, as mentioned at the beginning, this and several other issues addressed by the sociological survey, should be classified as an “anti-moratorium myth.” The very issue does not demand additional legislative regulation at present, but its exaggeration is a sign of outright political manipulation.

Vitaliia Yaremko, Oleg Nivievskyi, Maryna Zarytska

^{1 Delimitation. The article does not evaluate the
feasibility of admission of foreigners to the purchase / sale market of
agricultural land, but it assesses the rationality and objectivity levels of
public fears against foreigners through the results of a sociological survey,
in order to reduce the risk of political speculations over this highly
sensitive issue.}

^{2 The survey reflects the opinion of all the citizens,
regardless of whether they own a land parcel, and of the land share owners
specifically. The population survey was conducted in September 2015 by the
method of via personal interviews with 2,041 respondents in 108 settlements in
all oblasts of Ukraine in a
stochastic sample representative of Ukraine’s population aged 18 years
and older. The survey of land share owners was conducted in November-December
2015 via personal interviews in rural areas and via telephone interviews in
cities with a population of up to 20 thousand inhabitants – in total, 3,823
respondents were interviewed. The sample was oblast-stratified, three-level,
random, and representative of all the owners of land shares in Ukraine. The
survey was conducted by Kyiv International Institute of Sociology at the
request of the USAID AgroInvest project.}

^{3 Нів’євський О., Нізалов Д., Кубах С. 2016.  Обмеження на ринку продажу земель
сільськогосподарського призначення: огляд міжнародного досвіду та уроки для
України. Проект «Підтримка реформ у сільському господарстві та земельних
відносинах в Україні».  http://www.kse.org.ua/uk/research-policy/land/analytical/?newsid=1378}

^{4 Ferguson,
S., Furtan, H., & Carlberg, J. 2006. The political economy of farmland
ownership regulations and land prices. Agricultural Economics, 35, 59–65.
/doi/10.1111/j.1574-0862.2006.00139.x/full}

^{5 Hodgson, S., Cullinan, C., & Campbell, K.
(1999). Land Ownership and Foreigners: a Comparative Analysis of Regulatory
Approaches to the Aquisition and Use of Land by Foreigners. FAO Legal Papers.}