On the Rada agenda: sorely needed land reform bill
by Roman Woronowycz
Kyiv Press Bureau
KYIV - Although the failure of Ukraine's Verkhovna Rada to pass the land reform act in May does signify a halt to agricultural sector reform - national deputies will get a second look at another version of the bill, probably in the fall - the setback will cause needless and potentially damaging delays in the implementation of programs sorely needed to stimulate private and corporate farming in Ukraine.
The Ukrainian farmer has watched helplessly as crop yields have fallen drastically in the 10 years since the Soviet Union collapsed and as agricultural reforms have languished or moved at a snail's pace. Even while the agricultural sector saw its first year in the black in 2000 - after the presidential edict of December 3, 1999, abolished collective farms and set the stage for real changes - it still remains in a crisis with key industry indicators continuing to hover at pre-1990 levels.
Domestic production in the agricultural sector as a whole has fallen some 36 percent in the last decade, from $44.1 billion in 1990 to $16.0 billion in 1999. Last year the industry saw a rise in output, with the numbers inching upward by nearly 9 percent to $16.9 billion, according to the Razumkov Center for Economic and Political Studies. The first quarter of this year has seen continued success, with production up another 6.1 percent over the same period in 2000.
The May 24 defeat of the land reform bill, which was supported by most centrist and right-center political forces, would have completely freed the market and finally allowed the widespread purchase and sale of land, and the establishment of a system of mortgages and credit operations. The result for small and medium-size farms would have been a much-needed influx of money to replace and purchase equipment, seed, herbicides and pesticides. Some experts have said it could have been the beginning of an agricultural boom in the country.
However, the failure of the Verkhovna Rada to pass the land reform bill, opposed chiefly by the Communist and Socialist caucuses during a stormy session that came close to fisticuffs, will leave the agricultural sector in a state of limbo.
Land reform bill needed ASAP
While the bill is expected to eventually be approved in some form, the land reform expert for the USAID-sponsored Market Reforms Project said it is needed now.
"Without a new land code, reforms in the village cannot move forward," said Liudmila Shvetsova. "We need to secure land rights for the people who have received their parcels."
Ms. Shvetsova said she believes the bill, which had reached the Parliament floor for a second reading after about 4,000 proposals were heard and hundreds of changes were made to the more than 100-page original document, was the best possible compromise one could expect.
"Of course, it could have been better, but the process had to stop somewhere. We could have made improvements later," explained Ms. Shvetsova.
She said that without the land code farmers still do not have the instruments needed to have a fair chance at success.
While Ukrainian farms, which include investment associations, limited partnerships, corporations and family entities, generated approximately $150 million in earnings in 2000 as a result of the upward shift in output, most saw very little of that money, if anything at all. Much of the profit was taken by a few large companies, with others barely breaking even and a substantial portion of farms remaining heavily underfunded and debt-ridden.
The opportunities available to the newly landed remain tenuous until their rights are better secured and credit flows are opened, explained Ms. Shvetsova, referring to the development of laws on the purchase and sale of land, as well as the establishment of a land bank and mortgage procedures.
She explained that, while the Constitution of Ukraine guarantees farmers the right to buy and sell the land they own even without the new code, the market mechanisms needed to determine its value are not in place, making sales and purchases tricky and often usurious affairs. Also, until the land code is passed, land is not considered real estate; therefore it cannot be utilized as collateral against a loan.
The Association of Farmers and Landowners has identified five additional ways in which the lack of new legislation will hinder the development of the agricultural sector. It will make potential domestic and foreign investors leery of entering the market spur the development of illegal shadow enterprises and investors to fill the void left by the insufficiency of legal capital and the lack of an agricultural land bank that could provide necessary credits, leave the juridical status of many agricultural enterprises unclear and continue to give former collective farm directors who head many of them indiscriminate power, stall the development of a system of mortgage lending and delay the establishment of a legal land market, and stimulate illegal barter operations because it will not allow for the development of a system of financial transactions.
To neutralize any sense of a leftist victory in the political struggle and to reinforce the intention of the executive branch of government to continue to push for land reform, President Leonid Kuchma on May 30 signed an executive order that reasserted the goals and outlined the legal framework by which they were to be pursued.
The order underscores the unbreachable right to private ownership of land, the inclusion of land as a commodity in the real estate market, the need for joining economic efficiency with environmental safety in the utilization of land, and the need to align the basic direction and rate of land reform with the dynamics within the agricultural sector.
Mr. Kuchma's stated principles are the basis for an 11-point program of land reform he outlined in his decree for the period 2001-2005, including securing the further development of the right to private property as guaranteed in the Constitution, developing a land market, establishing a credit system with land as collateral and perfecting payment mechanisms for the purchase of land.
Lack of resources is No 1 problem
The lack of financing for modern and efficient equipment, cultures and chemicals continues to be the number one problem for the Ukrainian farmer. Thus he is strapped with many of the same problems of inefficiency and costliness that dogged the collective farms of the Soviet Union.
Even with the moderate upswing in production, Ukrainian agriculture still remains among the most inefficient in Europe. Whereas in Western Europe nearly 5 percent of the workforce produces its agricultural output and in the United States about 3 percent does so, in Ukraine the figure is a whopping 25 percent. This means that an agricultural worker annually produces merely $2,500 of the country's gross domestic product, eight to 16 times less than in any other developed country, according to the Razumkov Center.
As a result, Ukraine not only lags behind Western Europe in the production of basic foodstuffs like wheat and meat, but also neighboring countries such as Poland, Bulgaria, Romania and Hungary. The irony is that these countries have much less fallow land available for agriculture than does Ukraine, and they began the transformation away from collective farming at approximately the same time and same point of technological development.
Today, while the Ukrainian farmer waits for complete domain over his land, he must resolve several problems that burden his ability to secure the property for himself.
Although 23 percent of agricultural workers have registered their land shares, according to the Razumkov Center, the process is wrought with obstacles. Today most farmers continue to lease the plots of land belonging to the collective farm on which they worked at the time of independence to the entity that now works the land.
One of the reasons for this is that while the overwhelming majority of villagers in Ukraine qualified in the first years after independence to receive certificates for their plots of land, transforming that land right into acreage (or in this case hectareage) requires more than simple farming skills.
The initial problem is one of money. Ukrainian farmers have subsisted on small personal land plots and on meager salaries irregularly paid for the last 10 years. Therefore, the approximately $20 required to prepare the documents needed to begin the process of obtaining a parcel of land is a substantial initial barrier.
A second problem is obtaining a decent plot. While several methods have been identified by local government officials to make sure that land is distributed fairly and uniformly, too often it still is done subjectively and at the whim of the village council or head of the organization that has majority control of the land in the area.
The third problem the farmer faces as he or his group breaks out of the collective is in receiving his fair share of the farming equipment and implements that also belong to that organization.
Then there is the psychological issue. As Ms. Shvetsova explained, too often the farmers do not realize the extent of the freedom they have obtained.
"They do not fully realize what ownership means and all the possibilities associated with it; they do not understand that they can join lands, work together to obtain credit, form credit unions and purchase tractors together for common usage," said Ms. Shvetsova.
In the end, the lack of money remains at the center of the current problems in the agricultural sector. It is also the key to the future.
The key to resolving that issue is the development of a land bank. Ms. Shvetsova explained that once land reform legislation is in place, a land bank could be developed and established within five years because a good portion of the legwork and some of the associated legislation has been done.
She added that she thinks the general trend for Ukrainian agriculture is skyward and that the long-suffering Ukrainian village could soon begin to see tangible changes.
"I hope it happens in a couple of years," said Ms. Shvetsova. "Ukraine may be going slowly, but it is moving on reform. I remain an optimist."
| All of Ukraine | Rural Population | |
| Yes | 47.0% | 46.9% |
| Yes, but only for small parcels | 30.6% | 30.1% |
| No | 15.8% | 15.5% |
| Difficult to answer | 6.6% | 7.5% |
| All of Ukraine | Rural Population | |
| has improved | 9.2% | 7.9% |
| no change | 39.7% | 45.0% |
| has worsened | 39.0% | 39.8% |
| difficult to answer | 12.1% | 7.3% |
| All of Ukraine | Rural Population | |
| yes, without restrictions | 15.7% | 14.9% |
| yes, but only land assigned for agricultural use | 10.2% | 8.3% |
| yes, but only non-agricultural land | 3.7% | 4.7% |
| yes, but only small land parcels | 24.8% | 20.1% |
| is not needed | 37.0% | 43.2% |
| difficult to answer | 8.6% | 8.8% |
| 1999 | 2000 | |
| frozen beef | 156.8 | 179.3 |
| seed products | 506.9 | 122.8 |
| wheat and wheat/rye mix | 379.5 | 19.0 |
| barley | 80.2 | 82.5 |
| sunflower seed | 100.0 | 136.1 |
| sunflower oil | 105.3 | 232.9 |
| sugar | 21.9 | 6.0 |
| milk | 39.9 | 74.6 |
| processed foods | 1418 | 1377 |
Copyright © The Ukrainian Weekly, August 12, 2001, No. 32, Vol. LXIX
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