Land Reform Strategy in Ukraine Until 2024
Land sale market law was approved in the first reading – and this is only the beginning of the land reform. What should the next steps be?
depositphotos / stockarch
Since 1991, Ukraine is implementing one of the longest land reforms in the modern history. It has transferred to private ownership about 31.5 mn ha of land, established about 7 mn new land parcels and an infrastructure for land market.
However, the reform remains unfinished as sales transactions for about 41 mn ha are restricted, which violates the constitutional rights of about 7 mn private land owners, limits access to finance, productivity growth and tax revenue in rural area. This and some other distortions are a source of corruption, which prevents sustainable development in Ukraine and are the target for the next stage of land reform.
Background and earlier reforms in the land sector (before 2014)
Ukraine has some of the best endowments of land resources in Europe. Out of the total territory of 60 mn ha, 42.7 mn ha (70.8%) are agricultural land (see Figure 1) with some of the most fertile soils. Another 17.6% of territory are forests and 4.2% are built-up areas. Land is one of the key resources for rural and urban development. If used effectively and sustainably, it could boost economic development and well-being of population, stimulate investments and productivity growth in agriculture and several other sectors. However, this growth is held back by multiple sources of inefficiency which are the targets of land reform.
The land reform started in 1991 with transfer of property rights and management of land from the state to collective farms (in case of agricultural land) or to local governments (in case of urban land) and then to private individuals. The goal was to establish lease and sales markets for land and a relevant market infrastructure. As a result, 6.9 mn rural residents (about 16% of total population) have received about 27 mn ha of agricultural land (about 45% of the total territory) in private ownership by parceling out the land of former collective farms. About 4.5 mn ha of land of other designated use types were privatized by decisions of local governments. By 2017, about 52.2% of land were transferred to private ownership while about 28.8 mn ha (47.8% of total) remain in state or communal ownership (of them, about 10.5 mn ha of agricultural land). However, starting 2001, the rights of individual owners to dispose of private land were constrained by the moratorium on sales of agricultural land. In 2018 the European Court for Human Rights has recognized the moratorium as a violation of property rights. The moratorium has also affected state and communal land.
A big step in the development of land market infrastructure was establishment in 2013 of a unified electronic State Land Cadaster linked to the Registry of Rights. By 2017, the State Registry of Rights recorded about 2 mn transactions per year with agricultural land, and more than 0.2 mn transactions with non-agricultural land. About 76% of transactions with agricultural land are leases, followed by bequests (18%) and sales  (3.1%). For non-agricultural land, 36.8% of transactions are sales, followed by bequests (26.8%) and leases (19.2%). Mortgage transactions are almost non-existent .
As the moratorium distorts the sales market for agricultural land, most of the private agricultural land is leased out. Currently, about 4.7 mn private owners (70% of the total number) lease their land to agricultural producers – total size of the formal lease market is about 17 mn ha. However, the lease market for agricultural land is distorted as well by imposition of 7-year minimum length of lease, which causes the short term leases to stay informal. These distortions result in the allocation inefficiency for agricultural sector, limit access to finance as land cannot be used as a collateral, reduce incentives for investments and sustainable use of land and reduce the lease and tax revenue and value of assets for the land owners. Moreover, a non-transparent use of state and communal land and multiple conflicts of interests in management of public land (28.8 mn ha including 10.5 mn ha of agricultural land are affected) result in corruption, lost budget revenue, inefficient and non-sustainable use of land resources. These issues should be the primary focus of land reform in 2019-2024.
Steps in land reform that were implemented during 2014-2019
The progress with land reform in Ukraine was assessed by the World Bank in 2012-2013 using inputs from leading Ukrainian and international experts. This analysis was followed by development of a “Single and Comprehensive Strategy and Action Plan for Agriculture and Rural Development in Ukraine for 2015-2020” (Strategy 2015-2020) by the Ministry of Agrarian Policy and Food. This strategy has identified land reform as one of the key priorities for strategic development of Ukrainian agricultural sector and rural areas. Despite the fact that the strategy was not formally adopted by the Government, six out of 15 proposed reforms were implemented partially or completely and progress was made along several other dimensions. Besides, on April 3rd 2017, the Cabinet of Ministers adopted a mid-term Priority Action Plan-2020, which has a significant overlap with the Strategy 2015-2020 and was used by Government as a formal reference point for development and adoption of annual plans.
As a result, the following steps were implemented by the Government and other stakeholders during 2014-2019:
- In 2018, the Government has registered and transferred to the ownership of amalgamated territorial communities close to 1.5 mn ha of state agricultural land. This process continues in 2019;
- Numerous e-services were introduced by the State Geocadastre and the Registry of Rights, which reduced time for service provision, improved transparency and lowered corruption;
- Data exchange between the Cadaster and Registry of Rights was established; and procedures for mandatory check of background information before the land transactions were introduced by the end of 2018;
- Starting March 2015, notaries and several other categories of legal service providers have received an authority to register the rights for land and real estate in the State Registry of Rights. Prior to that, the registration was performed only by the state registrars causing significant delays and being a source of corruption. This step was augmented by establishment of Anti-raider Commission and further improvements of registration infrastructure.
- In 2018, State Geocadaster has undertaken an effort to correct errors in the Land Cadaster which do not require re-surveying or court decisions. The information on several types of remaining errors is now publicly available in the online cadastral map. However, this process remains unfinished.
- Starting 2013, auctions for selling rental and ownership rights for state and communal land were introduced. In 2015, the auction became mandatory which led to a significant increase in the land prices and budget revenues. Since fall 2018, State Geocadastre experiments with introduction of e-auctions based on Setam and Prozorro.Sales platforms.
- The legal status of unclaimed inheritance and of land of former collective enterprises was recognized by law in 2017 and 2018 respectively.
- Transparency and access to information on land and related rights were improved by adopting the relevant normative base and infrastructure (including establishing public cadastral map). Regular monitoring of land governance based on administrative data of 6 central government authorities was established by the Cabinet of Ministers resolution #639. State Geocadastre started regular publication some of the key statistics on its activity (land.gov.ua).
- Public awareness campaigns on property rights protection and land market operation were implemented with the support of international donors. A coalition of stakeholders of land reform was established in 2018 to assure that land reform remains on the political agenda and to keep the Government accountable for progress.
- A concept and several versions of law proposals for opening the land market were developed by the Members of Parliament and Government and were discussed at various committees, workshops and round tables.
- A gradual process of land registration continued through 2014-2019. As of the end of 2017, State Land Cadastre had registered 86% of private and 22.3% of state land. For regional distribution see Figure 2.
Despite the above listed moves in the right direction, several steps that slowed down the land reform were made by the Parliament under the influence of populist and lobby groups. Among them were several extensions of the moratorium and introduction of 7-year minimum term for the lease agreements for agricultural land.
Figure 2. The percentage of land area registered in the SLC for private land (left) and state-owned (right) as of December 2017
Source: Land Governance Monitoring Report, 2016-2017
The ultimate goal of land reform
As it was mentioned earlier, the land reform remains unfinished. However, the set of next steps and priorities among them depend on the reform goals in general and at its current stage. Given the key issues mentioned above, the land reform 2019-2024 would target:
- Increasing productivity of land use, providing equal protection of rights and equal access to land market and necessary financial resources to all land owners and land users;
- Improving sustainability of land use and resilience to climate change;
- Increasing transparency of land use, access to information, and preventing corruption.
An alternative set of goals is also feasible, e.g. supporting the decentralization process and building capacity of local government; reducing poverty. However, the alternative goals would lead to different priorities among the reform activities.
Strategic priorities for 2019-24 and expected results
To target the above goals, the priority actions for land reform in Ukraine for 2020-2025 would include:
1. Opening market for agricultural land: Lifting the moratorium would restore the property rights of land owners, reduce risk to investments in agriculture and would provide for allocation efficiency, investment and productivity growth. Secure land market would also stimulate investment in climate change mitigation technologies such as irrigation. It will replace the current informal market and reduce corruption. However, in order to achieve these goals the design of land market should take into account the following issues: (i) potentially excess supply as for 18 years owners could not dispose of their property; (ii) inequality in access to finance and a risk of land ownership monopolization. Alternative models and market parameters are actively discussed by experts and Government.
2. Restructuring the State Geocadastre: Currently, the Law on Land Cadastre and the Resolution on State Geocadastre include multiple conflicts of interests which are a source of corruption (no matter what people would manage this organization) and reduce incentives to implement land reform. Some of the key problems are listed below along with their suggested solutions.
2.1. Problem: Monopoly in access and asymmetric information on the status and properties of registered land parcels and territories. Geocadastre provides paid access in a very restrictive format to a selected group of users. This limited access to information allows Geocadastre and affiliated businesses to collect rent on information and increases cost to the land owners. It also controls the market for land survey services and limits the competition, slows down development of cadastral system (e.g. error correction, registration). Restricted access to information allows to cover up potential illegal activities by land surveyors, registrars and other authorities regarding land allocation, tax collection, execution of court decisions, etc.
Solution: Provide an open access to cadastral information (including coordinates) in machine readable format for multiple parcels and territories subject to protection of personal and sensitive information for all categories of users. This step can be complemented with establishment of infrastructure for geo-spatial data accumulation, access and processing.
2.2. Problem: Geocadastre develops policies and procedures for land survey and valuation services, orders implementation of such work using budget funds, assesses quality of such work, but also implements land survey (inventory), valuation and related project using about 50 state land survey institutes and enterprises. Most of the work performed by such state enterprises can be performed by the private sector. This combination of functions restricts competition and crowds out private sector in the areas of land survey, cadastral work and valuation, leads to corruption and collecting rent, limits the use of competitive procurement procedures and abuse of budget funds.
Solution: Privatize state land survey institutes and state enterprises
2.3. Problem: The authority over management, registration and control over the use of state agricultural land (about 8 mn ha out of 10.5 mn.ha) belongs to the same authority – Geocadastre. This creates incentives for corruption in providing access to land, implementation of inventory of this land, in providing information about it. As a result, budget revenues from the use of state land falls and funds for inventory of such land could be abused. Corruption over management of state land can not be effectively eliminated.
Solution: Accelerate the process of transfer of the state agricultural land, which is not under state-owned enterprises, to the ownership of local communities (amalgamated communities). Auction out agricultural land in areas where the amalgamated communities are not established.
2.4. Problem: training, accreditation (licensing) of land surveyors, auctioneers and valuators (including approving the membership of professional qualification committees), distribution of work orders for state land, providing access to information and assessment of work is done by the same institution – Geocadastre. It creates incentives for gaining rent on accreditation process and limits competition in the sector.
Solution: Transfer the accreditation function to professional associations. Establish professional quality insurance.
2.5. Problem: The right to initiate inventory of land belongs to the owner of land (including owners and designated managers of state agricultural and non-agricultural land). This creates incentives to avoid inventory and registration with the purpose of tax evasion and non-transparent management of state land. The results are reduced budget revenues, informal use of state land and corruption.
Solution: Provide the right to initiate land inventory to local governments, which would increase tax revenue. Establish in the Land Cadastre a special status for land parcels which were registered by local governments in a process of inventory with a clear authority and procedures for local governments to become custodians for such land before the legitimate owners are identified and registered their rights.
2.6. Problem: Currently, only the state cadastral registrars can enter information into the Land Cadastre, which creates a bottle-neck in cadastral registration and error correction process.
Solution: Provide to certified land survey engineers rights to enter information to the Land Cadastre (which would be followed by the quality check by the Land Cadastre).
The proposed restructuring would leave Geocadastre with technical functions for maintenance of the Land Cadastre system and maintaining the unified standards for cadastral work.
3. Stop the practice of free land privatization: The Land Code-2001 (articles 116, 118, 121) and the Law on Private Farming (2003) provide the right for free privatization of land to all citizens of Ukraine. Such provision is not sustainable since land resources are limited and, jointly with restricted access to information, leads to corruption. This norm should be revised.
4. Restructure the Land tax and provide an open access to information on tax revenue for each registered parcel: the current system does not provide incentives for productive use of land as the normative value is not based on market prices, tax rates are too low and there are multiple ways to evade tax, which makes enforcement of tax collection not effective and distorts the market.
The following actions can augment the above strategic changes:
- Establishing a partial credit guarantee agency for small producers to facilitate the use of land as a collateral and to improve access to finance.
- Establishing a Land Ombudsman to coordinate efforts for protecting land related rights and respective legislative changes, which can be coordinated with the results of the Ant-Raider Committee activities.
- Upgrading capacity of State Free Legal Aid system to protect rights of land owners, land users and local governments.
- Establishing legal base and procedures for selling ownership and rental rights for land via e-auctions.
- Providing for mandatory recording in the Registry of Rights and publication of information on contract prices for land and real estate;
- Completing inventory and registration of rights for state and communal land;
- Improving procedures for systematic error correction and inventory of land and completing registration of land parcels with cadastral numbers but no technical documentation;
- Establishing legal base and responsibility for land governance monitoring (regular publication of key administrative data);
- Transferring state land which is in the permanent use of farmers since 1990s into their private ownership.
Implementation of the above activities should be complemented with an active communication campaign, which would increase public awareness and support of the land reform. The communication should be accompanied by regular public opinion surveys on the level of protection of land related rights. An example of such survey is Property Right Index (Prindex), conducted in Ukraine in 2019 (results will become publicly available by the end of 2019), which can be used to monitor the progress with further implementation of land reform.
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