Abstract
Creating a land market is one of the most debated and politicised issues of Ukraine’s environmental and agricultural policy. There is an urgent need to examine the following issues (among others): a) identifying priority measures for establishing the land market; b) studying the experience of public land management so as to further adapt the land legislation of Ukraine to the requirements of the European Union; and c) maintaining the domestic agrarian sector in the context of effective conservation of the State’s land resources. The purpose of this paper is to conduct a comprehensive analysis of the preconditions and realities of opening up the agricultural land market in Ukraine, including to formulate sound conclusions on the practical consequences of such reforms for domestic landowners. It was researched applying two basic approaches to scientific cognition – general scientific methods and special legal methods. It elaborates the conditions for the introduction of a land market in Ukraine; analyses the historical prerequisites for the implementation of land reform; identifies the main risks for landowners that come into play with the opening of the land market; and formulates further directions of improvement of relevant legal regulations and mechanisms. Noting that currently Ukrainians have the least amount of investment capital and extremely limited access to loans, it concludes that, under current legislation, without a clear definition of the right to purchase their own land, the holders of private farms and other small farmers will struggle to gain access to the Ukrainian land market.
Modern market relations cover all spheres of social life, but among them the formation of effective mechanisms for the efficient use of land resources is particularly important. In modern conditions, the level of centralisation and decentralisation of land resource management varies among countries with different socio-political systems. Representative bodies of territorial communities too have different powers for regulation of land use. The range of legal forms of land use and forms of ownership of land resources differ (Dankevich, 2017). That is why land market reform is a very pressing issue in many countries around the world, which are actively trying to develop an effective mechanism for it.
The formation of the land market is one of the most debated and politicised issues of Ukraine’s environmental and agrarian policy (Nepochatenko et al., 2017; Stativka, 2019). The relevance of research into this topic arises out of several factors, including the following needs: to identify priority measures for establishing the land market; to undertake a thorough study of the experience of public land management so as to further adapt the land legislation of Ukraine to the requirements of the European Union; and to maintain the domestic agrarian sector in the context of effective conservation of the State’s land resources.
Undoubtedly, as the most valuable asset of any State, land and its preservation are a national priority.
In 2001, with the adoption of amendments to the transitional provisions of the Land Code, Ukraine introduced a moratorium on the sale of agricultural land, which has since been extended and is still on-going (Land Code of Ukraine, 2001). Since then, discussions have been underway on these measures in the context of both the international and constitutional instruments regarding respect for human rights. Initially introduced as a temporary measure (to continue until the legal framework for land transfer and its transformation into a marketable asset were sufficiently balanced), the longevity of the moratorium has given rise to a number of questions. Other countries that had previously had a similar economic model (based on collectivisation or State farms) introduced land reform in the early 1990s based on full or partial restitution of land and sometimes also the auctioning of land, normally to those with access to foreign funds. This has been the primary model, and there is no alternative available among the countries of Central and Eastern Europe, the Baltic States and the Balkans. No other country except Ukraine has burdened its rural residents with a 28-year moratorium depriving them of any market for their assets.
The absence of market mechanisms in the area of agricultural land circulation enhances the shadow sector of non-market land circulation; complicates the establishment of mutually beneficial relations between the subjects of the specified market; impedes the development of agricultural entrepreneurship; and exacerbates the problems of socio-economic development of villages. A country can achieve a socio-oriented market economy only where its commodity, capital and labour markets are complemented by its land market. The circulation of land, and its concentration in the hands of efficient business entities, is an inevitable process. With that, society has already recognised the need to introduce a civilised land market in Ukraine and State control over this process. The international community’s official recognition of Ukraine as a market economy State took place before some significant specific markets, including the land market, were formed. The multifunctional orientation of the country’s land resource potential and the ambiguity of views regarding the possibility of its involvement in the economic turnover significantly slowed this process down.
The intensification of legislative processes has led to the decision to lift the moratorium. Based on the experience of other European countries and with a view to ensuring efficient agricultural activity, this move would allow commodity producers to acquire agricultural land on a competitive basis and cultivate it, factoring in a more rational use of land resources. Thus, in 2019, the Ukraine’s unicameral parliament, the Verkhovna Rada, adopted the draft Law No. 2178-10 “On Amendments to Some Legislative Acts of Ukraine on the Circulation of Agricultural Land” on its first reading. This law outlines the specifics of the legal regulation of agricultural land circulation on the basis of market mechanisms for transition of rights to them. In particular, it is proposed that from 1 October 2020 the ban on the alienation of agricultural land of all forms of ownership be lifted. The legislators, however, have not provided any specific positions on the efficiency and gradual completion of land reform in the current economic situation. The risks involved in opening the land market to Ukrainian landowners remain unaddressed.
The purpose of the paper is to carry out a comprehensive analysis of the preconditions and realities of opening up the agricultural land market in Ukraine, as well as to formulate sound conclusions about the practical consequences of such reforms for domestic landowners. It seeks on that basis to achieve the following research objectives: to reveal the conditions of land market introduction in Ukraine; to identify further directions of improvement of legal regulation and mechanisms of land market implementation; to formulate the main risks for landowners that come into play with the opening of the land market.
Materials and Methods
The authors tested a comprehensive approach to the analysis of the problems and risks for landowners related to the opening of the land market in Ukraine. Two basic groups of methods of scientific cognition were used – general scientific (dialectical, method of systemic, logical analysis and synthesis, Aristotelian, structural-functional and complex analysis), and special legal methods of research (comparative law, concretisation, and interpretation of legal provisions, formal law, history and law).
The dialectical method of cognition revealed the methodological foundations of land market introduction in Ukraine, enabling analysis of the relevant legal provisions, and the means of balancing public and private interests on the basis of sustainable socio-economic development in the context of opening the land market. The method of systemic, logical analysis and synthesis in combination with the Aristotelian method was used to reveal the legal nature and substantiate the concepts of “land reform”, “moratorium on the sale of agricultural land” and “land market”, enabling the authors to clarify the features and content of these legal measures, as well as to conduct a critical analysis of the system of modern land legislation in Ukraine.
The structural and functional method, in combination with the interpretation and specification of legal provisions, formed the basis for formulation of a list of risks that will arise in the practice of law enforcement after the lifting of the moratorium in our country. The history and law method enabled the analysis of the genesis of the transformations of approaches of both doctrines and legislators to the essence of agricultural land rights, which, in turn, enabled the authors to identify historical perspectives that reveal the inconsistency of reforms and the negative consequences of delaying the moratorium, depriving citizens of the right to acquire, and exercise their rights to, land.
Formal law methods were applied to assist in revealing the critical shortcomings of regulatory support for the introduction of a land market in Ukraine and in formulating priority measures to overcome the adverse effects of such legal regulation. Comparative law was applied in the study of legal bases for the opening of a land market in Ukraine and other countries that have undergone a similar path of domestic reform. The combination of analyses has enabled the authors to formulate a number of scientific definitions and provisions that may form the basis for further scientific development of a roadmap for ordinary citizens.
Results
Past Attempts to Legalise Land Sales
The process of transforming Ukrainian society, initiated by Ukraine’s declaration of independence, has been accompanied by qualitative changes in all spheres of life of our society and especially in the economic field. Yermolenko (2004) emphasised that globalisation of the processes of social development points to the primary problem for Ukraine – integration into the world community.
The cardinal geopolitical vector of our State, aimed at building up modernised market relations, has led to a qualitative transformation of approaches in the field of land ownership and its legal regulation. Currently, private land ownership is officially recognised in Ukraine first by the Constitution (1996) and Land Code. The current conditions of dynamic development of market relations in Ukraine reveal a vivid and dynamic process of redistribution of land ownership, which makes land plots an integral object of the civil circulation of real estate. This, in turn, leads to the emergence/transformation of specific legal relationships, including relevant legal phenomena that were not inherent in the Soviet Union.
The new government in 2019–2020 did not introduce the agricultural land market. The genesis of the current transformations of the relevant legal relations is found in the nature of land reform within the framework of which such land turnover was initiated.
Land market creation in Ukraine is one of the main components of land reform. Unfortunately, the current legislation of Ukraine has not yet consolidated the legal definition of “land reform” as a legal category. The most pertinent, in view of the comparative analysis of doctrinal approaches, is the generalised opinion, according to which land reform constitutes temporary social relations of a substantive and procedural nature, mediating the transformation of the rules of land law and relevant legal relations in which the bodies and organisations, bound by the State, interact with stakeholders (citizens and their organisations) in economic, environmental, institutional, functional and legislative directions to restore efficient use of land resources of Ukraine. Ukraine holds the world record for the prolongation of land reform, which has been underway for many years.
Attempts were made to introduce an efficient and effective agricultural land market back in December 2011, when the Verkhovna Rada adopted the draft Law on the Land Market as a basis, which was, however, subsequently rejected in September 2012 and excluded from the agenda of the Verkhovna Rada. Like its foreign analogues, that Bill was hardly a model of innovative reform in land relations; however, it could have initiated gradual transformations in social relations and domestic legal regulation.
Also in 2011, the adoption of the Law “On the State Land Cadastre” created part of a stable basis for improving the system of land management, taxation and mortgage lending, which, in turn, contributed to the sustainable development of regions, environmental safety of the environment, protection of land and their rational use, optimisation of land management and determination of legal relations concerning land (Karpova, 2017; Nosik, 2018). Article 79-1 of the Land Code of Ukraine legalised the definition of land as an object of civil rights. Acting as an object of property rights, the land received special legal characteristics, becoming “property”. “Agricultural land” is identified as a special category of land to which the State has applied a moratorium restriction. Up to now, there is a lively debate about the feasibility and validity of such measures. The currently prevailing opinion is that the State has unjustifiably restrained citizens from exercising their rights over the long term.
In almost all States, the right of private ownership of land is an organic part of property rights and all existing social and economic relations. Article 13 of the Constitution of Ukraine states that land is the property of the Ukrainian people, but does not exclude the possibility of individual acquisition of a separate plot, which may be the object of civil rights exclusively from that moment (except in cases of sublease, easement regarding parts of land) and State registration of that private ownership.
The leading destructive factors underlying the formation of unstable land use in Ukraine include the following: insolvency of landowners and land users, leading to non-compliance with environmental management standards and measures for the conservation and reproduction of land resources; low investment attractiveness of the agricultural sector; and fragmentation (“parcelisation”) of land.
The need to introduce a free land market in Ukraine is increasingly discussed in the context of foreign experiences involving the liberalisation of certain markets. With the ratification of the Association agreement between the EU and the Ukraine (from 21.03.2014 and 27.06.2014), our State’s preference for modern European values was legalised and the list of new international legal obligations of Ukraine, including in the field of land circulation, was consolidated (Panfilova, 2017). Thus, the Parties to the Agreement have agreed on productive cooperation in the field of agriculture and rural development.
The leading principles of EU land ownership policy are ensuring the right to unhindered movement of capital, enabling the opening and conduct of private business, and prohibiting discrimination. Therefore, in most EU countries, there are no clearly regulated legal restrictions on the ownership of agricultural land: any individual and/or legal entity can legally acquire agricultural land and own it (Dudich, 2011). The leitmotif of land reform in Europe is the responsible and efficient use of agricultural land. The State puts forward a number of qualifying requirements for the owners of land plots, since only in this way can food security be achieved in the country. The election of the European integration vector of State development by Ukraine contributes to the intensification of work on the convergence of legal systems and the reconfiguration of national legislation to conform to EU standards and requirements in the field of land turnover. The international community has repeatedly confirmed its readiness to continue cooperation and support of Ukraine in the process of improving domestic legal regulation; however, most issues related to the improvement of land legislation in the context of European integration are, as yet, unresolved.
Foreign Experience of the Land Market
Regarding EU land policy, it is necessary to clearly identify the tasks that the member countries set for themselves in the process of regulating land relations, and to study the conceptual apparatus and legal mechanisms that they use to solve the tasks. The most appropriate is the study of legal acts, namely: about 30 decisions of the European Commission relating to the regulation of land use, about 20 other regulatory documents, including over 140 separate “official responses” to citizens’ questions and the results of debates in the European Parliament. Of primary interest is the “EU Land Policy Guide”, which was developed by an EU Task Force in 2004. The main focus of this document is agricultural land use, but some of its provisions also apply to land use in urban areas. The following comprehensive approaches epitomise the decisions of EU Member States as regards the land market: Complete liberalisation of the land market without any restrictions on land acquisition and circulation (as in Bulgaria, Germany, Ireland, Netherlands, Spain and UK). Liberalisation but with certain conditions expressly outlined in the legislation. For example, in Poland, one person cannot own more than 500 hectares of land. In Romania, this is significantly reduced and the limit is 100 hectares. In Estonia, there is a liberal market for agricultural land, provided the land use is not changed. Liberalisation, which at the same time applies certain restrictions on foreigners. In particular, the sale of land to foreigners is legally prohibited in Croatia and Serbia; and in Switzerland, only Swiss nationals or those of EU Member States are allowed to acquire agricultural land.
Ukraine is not alone in banning the sale of agricultural land; similar measures have been undertaken in the Congo, Venezuela, Cuba, Tajikistan and North Korea. These countries, given the domestic and foreign policies of the State, are currently not ready to waive the “moratorium” and to enable the realisation of land of the relevant category without any restrictions. According to experts, the main factor holding back such a long-awaited innovation is the inability of the State to ensure the launch of a transparent and legal land market in its territories (Yurchenko, 2019).
Similarly, Ukraine’s closest neighbours – Kazakhstan and Belarus – have legalised their respective land markets, although foreign citizens and legal entities in the Republic of Kazakhstan do not have access to them. The Republic of Belarus has also established a land market, although currently 98 percent of the land is owned by the State (Martin and Lekh, 2011). Even in the many countries with a legalised liberal market for agricultural land, land acquisition is still difficult, given the high cost of one hectare of land, which, in turn, minimises the economic expedience of large-scale land acquisition by large-scale business activities. In this context, it should be emphasised that the projected prices per hectare of land after the opening of the land market in Ukraine will not be able to provide this level of protection for domestic land assets. This is a top risk for landowners during land repurchases.
In general, it is not entirely certain that opening up the agricultural land market will lead to rapid investment and improvements in the economic welfare of the agricultural sector and domestic producers. In fact, during the implementation of land acquisition procedures, domestic agrarians will be unable to offer a price higher than foreign investors, which, in turn, will lead to difficulties in the exercise of land ownership by Ukrainian citizens. This, despite the fact that the Law “On the State Budget of Ukraine for 2020” (2019) provides funds to compensate interest rates for domestic agricultural producers for the acquisition of agricultural land, which will, in turn, reduce the financial burden. These funds are insufficient in modern terms and are incapable of providing real competitive advantages over foreign investors. Therefore, there is a risk that the citizens of Ukraine will cease to be owners of their own land.
The preferential regime announced by the State for the sale of a certain amount of agricultural land exclusively to domestic producers for their direct support looks rather attractive; however, there is no regulation for the implementation of such preferential treatment procedures, nor any list of population categories for which it will be implemented. Moreover, despite the desire of our State to open up the land market, the completion of a comprehensive inventory of all lands is long overdue.
As mentioned above, informal mechanisms for landholders seeking to obtain value from their holdings already exist, suggesting a need for specialised law enforcement units, whose competence would be to verify the legality of the sale and purchase of agricultural land, and to protect landowners from fraud. Currently, the government-initiated draft laws have no such proposals and recourse mechanisms, which becomes an additional and critical risk for landowners, asserting their defencelessness against the unfair actions of competitors (Zubritsky, 2018).
Currently 1.1–1.2 million hectares of agricultural land have been transferred to landowners for use under long-term lease or fee farm contracts, which mostly contain the pre-emptive right to purchase such land (Tretyak, 2011). If the land market opens, landowners will be trapped into giving their land at a reduced price to permanent tenants and large agricultural holdings. Experts stress the need to consolidate the right of the landowner to unilaterally terminate the land-use agreement at the legislative level; however, this position remains a subject for debate.
One of the leading risks is the imperfection of the legal text of the draft law “On Amending Certain Legislative Acts of Ukraine Concerning the Circulation of Agricultural Land” (2019). In particular, some provisions do not comply with the constitutional principles of the rule of law and the principle of legal certainty. The main problem is its inconsistent terminology, unlocking potential gaps in legal regulation and the formation of extra-legal informal schemes for circumventing the regulated procedures. This view was supported by the Main Legal Directorate of the Verkhovna Rada which, on 11 January 2020, prepared comments on the draft law. That said, the so-called “turbo-regime” of the legislative activity of the new government actually has both positive and negative consequences. While draft laws that have been lying on the side-lines of the Verkhovna Rada for years are gradually being adopted and implemented, there is, on the other hand, no terminological unity in regulations, which makes it difficult to test the proposed doctrinal and practical approaches to the introduction of the land market.
The emergence of land turnover in Ukraine at the current stage of its development, and the emergence of a corresponding institution and terminology, can be seen as a result of reforming land ownership relations, which allows the government to gradually and consistently shape the land market to improve land circulation efficiency in general. Having defined land plots as objects of civil circulation, modern legal theory and practice (including in the rule-making process) have encountered a number of issues associated with the formation of the conceptual and categorical framework by which the system of legal norms is formalised and the specified sphere of social relations is regulated. First of all, there is the problem of the universality and unity of this framework. It can be argued that the condition for normal development in the field of land relations is the formation and definition of an adequate and sufficiently clear conceptual and categorical framework, to be used in the processes of regulation and law enforcement (Martin and Wind, 2016). Unfortunately, this condition is not currently fulfilled in Ukraine, which lacks a common and complete understanding regarding the terminological framework underlying agricultural land turnover.
A full launch of the land market in Ukraine should be preceded by a huge amount of organisational and legislative work. Despite its multifaceted nature and complexity, the task of improving the draft law on agricultural land turnover would give rise to the most powerful domestic reform, and is a top priority. It is essential to simultaneously prepare an effective draft law on financial instruments for the acquisition of agricultural land that will be distributed directly to small-scale agricultural producers and farmers. Such mechanisms should be comprehensible, express and simple.
The success of the planned reform, the preservation of national wealth, the support of domestic commodity producers and agrarians, the promotion of economic growth of our country and the observance of citizens’ rights rely heavily on the domestic legislative body; however, there are still too many legal and semi-legal aspects which need to be addressed in order to create an efficient and completely transparent land market.
Discussion
The issues of lifting and extending the moratorium on agricultural land sales continue to be debated and politicised. In particular, the desire to prevent negative phenomena in the field of land policy is associated with the introduction of a moratorium on the alienation of agricultural land. However, its further prolongation acts as a mechanism for restraining the creation of a transparent land market in the territory of our country and deprives it of the opportunity to meet European standards and requirements.
With that said, however, as noted by supporters of the extension of the moratorium on the sale of agricultural land (Martin and Wind), its cancellation could lead to the following negative consequences: purchase of significant agricultural land by financial and industrial groups will lead to the actual “landlessness” of the villagers; alienation of agricultural land by the villagers at pre-set prices that will not have an economic justification in the new market; transfer of ownership of a significant amount of agricultural land to financial institutions (banks) in the process of transferring mortgaged land to the pledge-holder; higher land prices resulting in increased costs of agricultural products, which may lead to general economic inflation; uncontrolled change of purpose and urbanisation of agricultural land.
At present, however, positions on the expediency and urgency of lifting the moratorium are gradually receiving support and dissemination (Kulinich, 2018). Thus, Miroshnichenko (2012) emphasises that limiting or depriving landowners of the opportunity to dispose of their land plots actually means depriving them of the right to exercise their property rights. Experts suggest that further extension of the moratorium will have the following negative consequences: impossibility of introduction of optimisation of land tenures and land uses, which are formed as a result of agricultural land share; inability to complete the procedures of inheritance of land plots and shares in accordance with the requirements of the current legislation; prevention of the formation of large and competitive agricultural enterprises; challenges relating to mortgage lending.
It is argued that the ban on the alienation of agricultural land produces a detrimental effect on the economy of the country at large. In particular, it is alleged that due to the lack of a harmonised land market, no more than two million hectares of arable land are used annually (Nastina, 2011).
Lfting the moratorium may also have positive features. As noted above, a shadow land market has been operating successfully in Ukraine for quite some time. According to Leonid Kozachenko, President of the Ukrainian Agrarian Confederation, “approximately 8 million hectares of state land is cultivated by unknown persons outside the legal framework” (Kolyubakin, 2017). Thus, most specialists continue to promote a phased opening of the market, due to the fact that Ukraine lacks the necessary audits of land and related infrastructure, and, importantly, that most of the land has not even been inventoried.
Thus, to date, the issue of a moratorium on the sale of agricultural land remains highly relevant and is controversial not only in academic circles, but also among law-makers and legal practitioners. There is reason to believe that the moratorium on the sale of agricultural land actually minimises the essential characteristics of land ownership, depriving owners not only of the right to dispose of their property, but also to profit from their land plot or land share (equity unit).
Conclusions
In the formation and development of a market economy, it is urgent that the country improve land relations and sustainable land use, both of which are impossible without understanding the real state of land reform and of the legal support of the land law policy implemented in the State, which, above all, is aimed at bringing the land legislation of Ukraine into conformity with international standards, in particular, of the EU Member States. The idea of gradually lifting the moratorium on the sale of agricultural land in our country was accompanied by multivariate approaches to the actual implementation of the planned reforms. As the study demonstrates, however, the definition of land reform is not currently contained in the existing legislation, which leads to a multidimensionality and lack of proper regulation of this legal phenomenon. The definition of land plots as objects of civil circulation (de facto “property”) has long been an impetus toward further reform of public relations and introduction of a transparent market of agricultural land.
The government has now taken global steps to lift the agricultural land turnover moratorium and launch a land market. In this effort, the modern “turbo-regime” approach to developing and adopting regulations could lead to difficulties in law enforcement and in fact presents a large number of risks for landowners, in particular, the following: Projected prices per hectare of land after the opening of the land market in Ukraine will not be able to provide the same level of protection for domestic land assets that is currently provided to the citizens of EU Member States. It is worth agreeing that blind copying of foreign land market models is not possible in the realities of today; Monetary funds on interest rate compensation to domestic agricultural producers for the purchase of agricultural land will not be able to reduce the financial burden, and will not be able to provide real competitive advantages over foreign investors; The preferential regime for the sale of a certain amount of agricultural land exclusively to domestic producers for their direct support looks rather attractive. However, this immediately shows up the lack of regulation in application of the procedures for such a preferential regime and the absence of a list of categories of the population for whom it will be introduced; The need for specialised law enforcement units, which would be responsible for checking the legality of the purchase and sale of agricultural land and ensure protection of landowners from fraud and raiding; The imperfection of the legal text of the draft laws will lead to a multivariate interpretation. In particular, some provisions do not conform to the constitutional principles of the rule of law, the principle of legal certainty and others.
Under current legislation, without clearly defining the priority right of Ukrainians to buy their own land, private farms and small farmers will find themselves relegated to the fringes of the land market due to their limited equity capital and extremely limited access to loans. These factors will minimise their land acquisition opportunities.
The establishment and proper legal regulation of the land market is sufficiently researched and covered in the environmental, land, agrarian, civil and other branches of law; however, the complexity of the investigated issues requires further study in the context of contemporary realities in the country. It is urgent to identify the riskiest factors of such governmental actions for landowners in our country.