Economic Return to Farmland in Ukraine and its Incidence

There is widely shared opinion in Ukraine that farmers pay too low rental price to the farmland owners. This conclusion is largely drawn by comparing the rental prices in Ukraine and other (neighboring) countries (Figure 1). Moreover, this is precipitated by the fact of famous fertility of Ukrainian black soils, thus the perception is that the value of land should correspond to its quality. The comparison with other countries, however, does not take into account the current economic conditions in the sector and in the country. We show that indeed the current farmland rental prices are more than 10 times lower than they could be in case land and other factor markets in Ukraine are not distorted. Such distortions include farmland sales moratorium, fragmentation of land ownership and poor access to capital.