Recently, VoxCheck came across a brochure entitled Stop Land Misappropriation! that was being distributed at AUA Batkivshchyna’s tents. The party has been actively campaigning for a referendum on maintaining the moratorium on land sales. “The authorities fear that the people will have their say. Therefore, they try to prohibit the referendum through decisions of courts under their control. Batkivshchyna has initiated a nationwide referendum and is bound to collect the necessary number of signatures,” the brochure says.
The brochure is divided into two parts. The first one criticizes the authorities for their intention to conduct a land reform. In reality, the Government’s ideas also involve market restrictions – in particular it has been proposed that no more than 200 hectares be allowed to be sold to one person. Anyway, the discussion of the bill is still underway. The second part of the brochure focuses on the consequences of lifting the moratorium.
About the authorities’ plans
At first, the brochure states that the TV and radio channels and newspapers under government control will aim to convince the Ukrainians that the selling of land will make them rich.
Step 1. Lift the moratorium on land sales
TV channels, newspapers and radio broadcasters under government control will aim to convince the Ukrainians that they will become well-off as soon as the land has been sold.
VoxCheck commits itself to checking facts rather than forecasts; therefore, we cannot say whether or not mass media will advance that idea. However, the authorities are in control of the First National Channel (which belongs to the State Committee for Television and Radio Broadcasting), the 5th channel (owned by Petro Poroshenko), the Ukrainian Radio (State Committee for Television and Radio Broadcasting) and a few other small-audience media. The leading TV channels belong to businessmen: Dmytro Firtash and Serhiy Lyovochkin (Inter), Ihor Kolomoyskyi (1+1), Viktor Pinchuk (STB, Novyi, ICTV), and Rinat Akhmetov (Ukraina). Maybe the authorities will really be pushing the reform through their “own” media, but their audiences are much smaller than those of the channels belonging to the oligarchs.
But will the Ukrainian landowners be willing to sell their land? According to the results of an opinion survey conducted by KIIS at the end of 2015 at the request of USAID, only 11% of the respondents would like to sell their land shares. This amounts to three million hectares, or 7% of Ukraine’s total agricultural land area of 42.8 million hectares. The lifting of the moratorium will allow the owners to freely dispose of their assets, but it will not force them to sell their land. And as the prices go up, affluence will come not only to those who sell their shares but also to the ones that retain their land, for higher land value will lead to higher rentals.
The next statement is about the goals pursued by the government in implementing the land reform.
Step 2. Artificially decrease the value of land and buy it for a low price
It will be a repetition of what has happened to the plants in the nineties. For the selling period, the land share price will be artificially reduced, enabling the oligarchs to acquire land for next to nothing. The real value of the Ukrainian black soils is about 70 thousand dollars per hectare. The post-moratorium price that the people hear from the authorities is 1,000 dollars per hectare.
Manipulation. There is an essential difference between the lifting of the moratorium and the privatization back in the 1990s: at that time, those were state assets and so the state, as the owner, took decisions on what to sell for what price. Because of officials’ corruptness, assets were privatized for low prices.
The present situation primarily concerns the right of owners to sell their private property. The land reform does not make them sell their shares; nor does it urge them to sell the shares for a low price. Therefore, in this case the state’s task is to help people realize that it is better to wait for the land prices to go up before selling their shares, should they wish to do so.
Moreover, the land prices are highest in Malta and the Netherlands (more than 60,000 dollars per hectare). In most Western European countries, the prices range between 15,000 and 30,000 dollars per hectare; and in Eastern Europe, between 1,000 and no more than 10,000 dollars per hectare. It should be noted though that in terms of fertility the Ukrainian land is similar to the black soils in the United States (Iowa) and Argentina (La Plata). In the latter case, the land price is, on the average, 12,800 dollars per hectare (2015 data). That is, it is quite possible that the land price in Ukraine will indeed be low at the initial stage, but at any rate, it is a priori clear that the price of Ukrainian land cannot be as high as 70,000 dollars per hectare.
According to the brochure, the government’s plan also provides for a devaluation of the hryvnia:
Step 3. Cause the national currency – hryvnia – to fall
One more price reduction mechanism consists in currency rate scams. The hryvnia can once again be caused to fall, so that they can buy the land shares for as cheap as possible.
Manipulation. The hryvnia’s exchange rate is a floating one; it is formed by the market rather than the government. It is based on a balance between demand for foreign currency and its offer. To send the currency into a tailspin, the National Bank will have to issue a lot of hryvnia bills or buy a lot of dollars from the market.
Since 2015, the NBU has been independent of the President as well as of the Cabinet of Ministers; therefore, it will be hard for them to make the National Bank send the hryvnia falling. Furthermore, similar to real estate prices, land prices in Ukraine are often set in US dollars (in fact that is the way they are specified in the brochure under review); so even assuming that there is indeed a plan “to cause the hryvnia to fall,” it does not follow that it will lead to a reduction of the land price in dollars.
Step 4. Make owners sell their land, so as to pay the high tariffs
The utility tariffs have been increased in the interests of the oligarchs. In October, the Ukrainians’ total debt for utility services has reached 16.7 billion UAH. The debtors’ names are entered in a special register and there is talk of establishing a late payment penalty before the end of the year. For many people, sale of land will be the last chance not to lose their homes.
Manipulation. As of October 2016, the population’s debt for utility services totaled 16,900 billion UAH; by the end of the year the total rose to 23 billion. Moreover, in winter the Ministry of Justice initiated a register of debtors against whom an enforcement proceeding has been commenced (that is, the creditor went to court and obtained a decision in his favor). As to penalty for debts the bill to that effect has not been enacted yet, pending a second reading.
However, the utility (primarily gas) tariffs were raised for the Ukrainian population because for many years those tariffs had been too low. This resulted in an enormous deficit for Naftogaz Ukraine, a company owned by the Government (not by the oligarchs), and led to subsidies for many utility services from the State Budget.
At present, following the increase in the tariffs, households that are unable to pay for utility services on account of low family income are entitled to subsidies – remarkably, regardless of their indebtedness (provided that the family has restructured its debts if it has any).
In any case, unlike peasants, urban residents are primarily landless and so they have no land to sell. Therefore, it is illogical to claim that the rise in tariffs is associated with the coercion of peasants, rather than any other group, to take a particular step.
Step 5. Resell land to foreign companies
The oligarchs that are close to the Government will make astronomical amounts of money on reselling land to foreigners. No bans will remedy the situation – even Russian businessmen have learned how to avoid them.
Manipulation. Sale of land to foreigners has long been prohibited by the Land Code of Ukraine (Chapter 2, Article 22, paragraph 5).
Even if this should become possible, resale of land to foreigners will have to be preceded by its purchase. Oligarchs or foreigners are unlikely to have enough resources to buy all Ukrainian land, its value being estimated at between 27.7 billion and 83.1 billion (in case the 27.7 million hectares belonging to the population will cost about 1,000–3,000 dollars per hectare). Moreover, mass entry of foreigners into the land market as well as into any other market in Ukraine is impeded by obstacles such as corruption, economic instability, war in the east, non-transparent taxation, and the country’s low attractiveness in terms of doing business.
If, however, we do assume that, in spite of everything, foreigners will rush in to buy Ukrainian land, in such case the Government intends to restrict the area of land that can be owned by an individual (see the bill). Therefore, if the Government really intended to capitalize on speculation, no one would have proposed such a restriction.
About the consequences of the land reform
The second part of the brochure on the consequences of the land market reform begins with a claim that the food prices in Ukraine will increase.
1. The food prices will increase
Agrarian giants are interested in cultivating crops that can be sold abroad. To them, this means profits in hard currency. No one cares about the interests of low-earning Ukrainians. We will be forced to buy low-quality foods from other countries.
Manipulation. At present, nearly all of the land is being used in the agricultural industry. Ukraine already is an important exporter of many agricultural products: wheat, maize, barley, sunflower seeds, etc. If such focus on exports was bound to radically change the internal market, we would already be observing the changes described in the text.
The land moratorium prevents Ukrainians from collecting resources to develop their farms. Lifting of the moratorium will be instrumental in broadening the planning horizon and in attracting long-term investment in crop production and processing. In view of the above, one can expect farmers to make larger investments not only in cereal crops but also for example in horticulture or berry growing, which requires long-term investment; that is, in reality the range of Ukrainian products can even be expanded.
2. Repartition of the agrarian market will provoke Russian aggression
Moscow is also interested in taking part in the repartition of the Ukrainian land. Russian companies will buy them through their subsidiaries registered in the West. To keep competitors off, Putin may step up hostilities and provoke terrorist attacks in cities unaffected by the war.
Manipulation. Foreign companies have no right to buy Ukrainian land because of the ban in the Land Code. If necessary, Ukraine can impose an extra moratorium on purchase of land by Russians.
It is quite likely that Russia, as Ukraine’s rival on external markets, is interested in slowing down the development of our agriculture. Therefore, to Russia extension of the moratorium will be better than its lifting. Advocacy for extending the moratorium looks more like playing for the benefit of Russia than in support of Ukrainian agricultural producers.
3. The number of jobs will decrease even further
The permission to sell land will be accompanied by a simplification of the rules for GMO production. Such crops require less attention and so the need for workers will decrease.
4. Crime will get out of control
The lack of jobs will make people resort to different means to survive, including illegal ones. This will exacerbate the already dangerous situation. Even according to official data, there has been a 17% increase in the occurrence of grievous and extremely grievous crimes compared to 2015. According to unofficial data, the share of unsolved crimes exceeds 75%.
5. Ukrainians will flee abroad
The deterioration of the economic situation will send Ukrainians looking for a better life abroad. Interest in the cheap labor force has already been shown by Poland and the Czech Republic, which have been launching programs for specialists. The population of Ukraine will go down to 15 million.
Paragraph 3. Manipulation. The Law “On Turnover of Agricultural Lands” is unrelated in any way to GMO growing; this sector is regulated by other legislative acts. It is expected that the lifting of the moratorium will, on the contrary, increase the number of jobs in the rural areas, primarily at small farms rather than in agribusiness, since the landowners’ purchasing power will increase.
Paragraph 4. Manipulation. The criminal statistics are correct; but, as mentioned above, the rising crime rate is more likely to be stopped by the creation of jobs and the population’s increased prosperity.
Paragraph 5. Manipulation. Labor migration is already a widespread phenomenon in Ukraine. According to survey data, about 1.5 million Ukrainians are working abroad at any given moment. Most of them go back to Ukraine several times a year. The estimate that only 15 million people will remain in Ukraine after the opening of the land market is not based on anything at all.
This brochure is a highly manipulative one. Instead of underpinning its arguments with cause-and-effect relationships based on economic theory and empirical data, the brochure presents all the main myths and stereotypes harbored by the Ukrainian population, artificially linking them to the opening of the land market. The authors of the brochure use the psychological tool of reflex conditioning which is also often used by advertising experts: classic conditioning. Without indicating a well-founded logical link, they relate the subject of land market (to which many of the readers may have a neutral attitude) to facts that a lot of people perceive in a clearly negative way, such as GMO, Russian Federation’s aggression, crime rate, etc. In case of intense communication, such facts are subconsciously linked to land market perception. As a result, the subject of market liberalization starts evoking a negative response from the people.
Thus, instead of a dialogue based on rational arguments regarding the pros and cons of land market opening, society gets a subconscious negative emotional link to the subject.
We believe in the power of words and that ideas have the main impact. VoxUkraine gatherers the best economists and help them to deliver their ideas to tens thousands of Ukrainians. Content VoxUkraine is free (and always will be free), we don’t sell ads and we don’t make lobbyism. For do more research, create new influenced projects and publish more quality articles we need clever people and money. We have people! Support VoxUkraine. Together we will do more!
The authors do not work for, consult to, own shares in or receive funding from any company or organization that would benefit from this article, and have no relevant affiliations