Round table June 25: Abstracts and presentations

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On June 25th, 2015 a second round table organized by State Land Agency of Ukraine took place, which is a regular meeting in the framework of a series of planned discussions land reform in Ukraine. This week, the topic was Current status of the land market and development trends of the cadastral system in Ukraine.

The event was attended, as expected, by the most  proactive and concerned academics, civil servants and members of the public who shared their opinions as to what the land market in Ukraine looks right now and what direction it is necessary to choose in order to achieve the most effective development of this sector in the near future.

The first expert to present the report was Olha Khodakivska, Ph.D. in Economics, Head of Land Relations Department of the “Institute of Agrarian Economics” National Scientific Center (presentation). The topic of her speech was development of land relations in the agrarian sector of Ukraine. As of January 1st, 2014, 74.6% of agricultural land was in private ownership. If we assess the distribution of agricultural land by categories of farms in Ukraine, the situation will be as follows: land area of households had increased by six times, and the area of farm lands, in its turn, had decreased by 2.4 times. The structure of agricultural lands allocated by means of their use is this: 20.6% of the land is not used or used without land clearance, about 62% is leased by contract, and about 17% of the lands had been added to private farms.

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According to State Land Agency, during the reorganization Ukraine has created and has been running nearly 38,000 new agricultural enterprises, which manage 18.5 million hectares of agricultural land (this is 44.6% of their total area). The largest share of land is in use of limited liability companies (LLC) – 48.8%. This constitutes 9056 thousand hectares), the smallest share is used by joint stock companies (JSC) – 4.5% (832 thousand hectares).

A common form of land use in the European Union is farm land lease. EU countries differ among themselves enough by the number of transactions on the rental market. In particular, agricultural enterprises in Slovakia and the Czech Republic do business mainly on leased land, the share of which in the total amount of land is more than 90%. Farms in France, Belgium, Germany and Estonia work with 60% leased land; UK farms have more than 40% of leased areas. The lowest share of leased land is found in Ireland, Denmark, Finland and Austria – it is 30% in each of these countries. In most EU countries, the share of rented farm land in the total area of agricultural land use had a tendency to increase.

Today, farms are economically active mainly on leased lands, while their share in total land use is over 92%. In previous years, leases were mainly concluded with the households that received land shares. But now the trend has changed: as of January 1st, 2014, around 50% of lease agreements in Ukraine were signed with other entities, which had been formed as a result of market transformation.

On April 7th, 2015 the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on simplification of business conditions (deregulation)» № 191 came into effect. It set the minimum term of the lease of agricultural land for agricultural production, farming and subsidiary farming on the level of 7 years.

According to Olha Khodakivska, this innovation will bring no significant change to the situation in the rental market, especially concerning the terms of the lease.

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An equally important aspect for improving the form and terms of payment of the rent is competition in the rental market and establishing mutually beneficial relations between the tenant and the landlord. As a result, in recent years, the prices of major agricultural products, issued in respect of the rent do not exceed the price of products sold to processing companies.

When we analyze the problem of land lease relations, we should take into account the interests of land units’ owners. The share of rent for land shares in the cost structure in crop production in agricultural enterprises is permanently increasing, reaching 12.3% in 2013.

Ms. Khodakivska ended her report by emphasizing the basic idea of her speech, namely: economic, financial and political stability are integral parts of attracting investment, not the existence of a land market or its absence.

The real increase in budget revenue on all levels can be achieved by improving the efficiency of land use and profitability of agriculture in general. An important role in this matter could belong to development of agricultural raw materials processing and the exports of final consumption products with high added value. This will help stabilize employment in agriculture, increase revenue and develop rural areas, etc.

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One of the main objectives of land reform should be the preservation of existing agricultural enterprises and farms, creation of favorable conditions for the development of family farms, which have become the crucial point of rural employment and rural development.

Maksym Martyniuk, Chairman of the State Land Agency, mentioned the depth of analysis performed by Olha Khodakivska and noted that the statistics and facts she presented merely confirmed the trends that have already been felt “intuitively”.

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Immediately thereafter, Ihor Dolynskyy, Director of the State Land Cadastre State Service of Ukraine for Land Survey, Mapping and Cadastre (presentation) took the floor and provided a heavy load of statistical material from recent State Land Agency database. The topic of his report sounded as follows: “The current situation with the state land cadastre and its development priorities”.

In the first part of his speech, Mr. Dolinskiy offered an overview assessment of the land record system. In 2015, the amount of agricultural lands (compared to the previous year) decreased by 13 thousand hectares, while the forest area increased by 5.9 thousand hectares. Also,  the built-up land area increased by 7.8 thousand hectares, compared to 2014. Open wetlands increased by 1 thousand hectares, and dry open lands with special vegetation remained the same this year as they were in 2014.

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In the course of the last two decades, the distribution of land resources of Ukraine between the main land users and land owners saw the following changes: the area of land owned or used by agricultural enterprises decreased by 23903.9 thousand hectares (39.6%); however, the area of land actually used by the citizens, actually increased by 14,881.6 thousand hectares (24.7%);

The areas of land owned or used by schools, institutions, official organizations, industrial and other companies, enterprises and organizations of transport, communications, businesses entities, educational or defence institutions have not changed and as of January 1st, 2015 they comprise 2309,8 hectares, which is 28 thousand hectares less than it used to be in 1995;

– The area of land that belong to forestry enterprises increased by 1666 thousand hectares (2.8%);

– The area of land reserve increased by 7421.8 thousand hectares (12.3%) and now constitute almost 10,775.7 thousand hectares;

The remaining land (863.7 thousand hectares) is either owned or used by other land users, and this area has remained virtually unaltered compared to 1994.

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Mr. Dolinskiy also listed the priorities that he considers crucial for the State Land Cadastre: first, it is filling the State Land Cadastre with really relevant information. The second is to provide access to information within the State Land Cadastre to local governments and public authorities. Among other important tasks is providing free access to information on holders of land rights through the Internet, creating Web services for request for information of the State Land Cadastre and improving the State Land Cadastre software. In the long-term perspective, we have to pay attention to the provision of information interaction with other inventories and information systems, such as implementation of the EU directives (INSPIRE).

The third speaker, professor, Doctor of Economics Yosyp Dorosh, Director of “Kyiv Research and Design Institute of Land Management” State Enterprise (presentation) began his speech by emphasizing the importance of land registry system, which began in 2013. Most of the report was dedicated to the problems and possible changes to the state land cadastre and land management.

Mr. Dorosh outlined the following principles of agricultural land usage: defining land pieces for sustainable land use, establishing ecological and economic constraints, developing certain measures to protect land parcels from degradation processes, preservation and restoration of soil fertility, creation of land associations (shares) included to massive land amounts.

Equally important is the involvement of local governments to the establishment of associations of land shares owners, giving them the right of a party to the contractual process for unregistered land (untitled inheritance, for example).

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Mr. Dorosh also briefly described delegating the lease agreements management to local government. These agreements would be made with landlords and would ensure the conclusion of leases for large land amounts by selecting an authorized person from the owners of land shares. Registering of lease agreements would be performed by local government, followed by filing these contracts at the registration service.

Finally, the tenant has the right to use land areas after registering them at local government, and should be done with simultaneous development of laws and regulations concerning the procedure of forming large land pieces and leasing those.

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As a result of proposals on large land pieces, we have an opportunity to introduce a land lease market (because the object of the lease will be not a separate land piece but a significant individual land piece, and it can be offered to different tenants). Rural communities, in their turn, are able to participate directly in shaping the market of leased land and defend the interests of local communities. The tenant gets a stable large land piece, which is the basis for sustainable land use. The state will develop mechanisms to implement measures for protecting the land and forming land areas with distinct borders, which will create conditions to exchange land both within and between the large land pieces.

The discussion that began after delivering of the reports turned out to be no less interesting. It began immediately after the primary part of the event came to the end.

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Mr. Dolinskiy immediately commented on the last statement and said that, as of today, we have the Law on Land Registry which provides four types of objects of the State Land Cadastre: a piece of land within the state border of Ukraine, the land within the administrative-territorial units, pieces for limited use and items such as land parcels. All these objects are subject to mandatory registration. As for the mistakes that were made during the automated transfer of state land cadastre, frankly speaking, much of the data was transferred from land survey with errors of those who performed evaluation. There are errors in the topology, there are errors with the status of land – soon we will be able to fix these annoying inconsistencies with the new improved software.

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Among the questions that the experts asked after Mr. Dorosh finished his report, there was one question on the ideology of establishing land masses that the expert proposed. Mr. Anatoliy Yurchenko (State Environmental Academy) wondered how local people reacted to this concept  and which further organizational procedure would be – given the “potential difficulties” of the situation. There is an experimental agricultural entity in the Kiev region (Belotserkovsky district) that a share holders’ union working closely with the village head in this context. Admittedly, the number of outstanding legislative issues is really high in that district – and, in addition, currently unification of territorial communities is taking place, and it definitely slows down the process. But this concept is remarkably well accepted by rural communities – this, of course, provides inspiration and enthusiasm. The formula is the following: “I believe that our task is to give people a choice: if you want you can give your land for lease, or you can join the unions and do the same thing in a community”. The key here is the availability of alternatives, and such availability must be legally supported. Unfortunately, there are still obstacles such as lack of knowledge of the issue – no specialized studies are known to serve as the foundation for more or less plausible forecasts.

Representatives of public organizations – Mr. Stanislav Horbatovych (“Union of Land Evaluators”) and Mr. Alexander Bredikhin (“Foundation for contribution to land protection”) shared their opinions on the concept of land market, the development of cadastral systems and the main problems of this sector.

Alexander Bredikhin drew attention to the following situation: we return to the times when it was enough to give us a land share certificate, secure it in land masses, and register it according to the effective laws – and the issue was resolved. The most difficult technical part of the problem, according to experts, is the guarantee of property rights; decision of region-specific decisions related to land use and protection is still a weak point. We actually lost the land records – even the one that was conducted during the transitional period of 1980s until the year 2000. Now it is just the time for moderate solutions that will enable us to create, or at least approach the creation of the concept for land reform development. Otherwise, problems will follow us until we finally outline the conceptual basis of land reform. Rational use of land and land protection receives dangerously little attention. We do not give the landowner the possibility to influence the use of his land.

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Stanislav Horbatovych, referring to the report by Ms. Khodakivska, immediately reminded of Ukraine’s lack of legislation that would give the right to cancel the moratorium. The main purpose of the last decade has been creating proper land market relations: after all, Ukraine is aimed at European standards. In its turn, land market without evaluation is just a meaningless concept. By equating land to real estate, we have significantly complicated the assessment.

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When the moderator of the meeting asked about possible changes in land evaluation, Mr Horbatovych clearly said that the methodology of the process can be left unaltered, in its present form. As the expert said, quite straightforwardly and accurately, “land assessment is performed by every other person involved”. If we establish and open the land market, the regulatory monetary evaluation will become unnecessary, and we will need to develop a new algorithm for evaluation.

Permanent Advisor for the Twinning Project, Stefan Verbunt gave his expert commentary on the situation with the assessment of land market in Ukraine. He clearly said whatever development model is chosen by our country, a thorough and reliable land register is absolutely necessary; it is the very first priority. Removal of the moratorium, he said – is not the end of the way. The second issue is ownership, legality thereof: in order to create the land market, it is not enough to simply establish the markets; one must first create the preliminary conditions for their successful operation. The existing cadastral system in Ukraine is praiseworthy, according to Mr. Verbunt, but it still needs filling with accurate data. In addition, the land register should be transparent and as accessible as possible.

Head of the Department of Land Management at National University of Life and Environmental Sciences of Ukraine, Doctor of Economics Andriy Martyn presented his statement based on a specific position of a certain land owner (in Ukraine, there are nearly 7 million of those). The problem is that the land owners do not trust each other. Mr. Martyn clearly agreed that the land register should be simple and clear, and yet it is by no means the final line to draw.

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The land owner wants be convinced that the characteristics of his property are recorded correctly, and there is a simple procedure to fix the errors (if any). Regarding the government regulation, Mr. Martyn says: there is no such thing as so-called “public interest”; there are interests of certain government officials who are currently in office. Therefore, experts suggest that while opening the agricultural land market, we can safely drop the majority of restrictions. Also, the expert mentioned the problems associated with the presence of several owners of land, especially the legal side of the situation.

Mr. Martin and Mr. Dorosh briefly (so far as the schedule of the round table allowed) discussed the role and participation of the state in reforming the cadastre. They agreed on the danger of primitivist approach to this aspect and on possible minimizing of state interference.

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Pavlo Koval, Ph.D., independent consultant in economics of finance and management, Deputy Director of the Institute of Economics and Management of Kyiv National Economic University, noted that land consolidation is an absolutely sensible idea, and, by the way, also a global trend. The average share of farmers and the land use in the US and in Western Europe is increasing. However, these countries have the corresponding legal basis that Ukraine does not have at all. . If we analyze the most acute problems discussed at this meeting, it appears that it all comes down to transparency of the land market. The point is not to implement the market quickly and to establish the cadastre mechanism, but to shift from inefficient management to efficient one. According to Mr. Koval, we need to do two things simultaneously: prepare for to lift the moratorium, and attempt to make actual practical steps in this direction. All information about the land is contained in its market value, this data should be, so to speak, “decoded”, but it is difficult to do this without the land market.

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