Ukrainian land market and share prices of agriholdings
The question of abolishing the moratorium on land sale in Ukraine and withdrawal of agricultural land into market circulation came into the practical agenda of reforms in the country nearly two years ago.
IMF appeared to be the catalyst for this process. Under the IMF’s expanded financing program of Ukraine, which was signed in 2015, the land reform was specified, but the exact terms of its implementation were attributed by the parties to an "acceptable period". In 2015 this period, apparently, ended for the IMF, and the issue of moratorium abolishment began to sound more insistent during negotiations on allocation of the next tranches.
It is widely believed that it was the President Petro Poroshenko who encouraged politicians and the public to discuss the issue of lifting the moratorium on agricultural land sale at meeting of the National Reform Council on March 31, 2015.
After this appeal, firstly the former head of the presidential administration, Boris Lozhkin, and then the former minister of economic development and trade, Aivaras Abromavichus, said that the moratorium on agricultural land sale could be abolished, considering practices of European and market countries, and that it could be lifted already from January 01, 2016.
After this a discussion about the "pros and cons" of such step arose in the open press. It has gained enough turn to concern both local and foreign business structures. How will business respond, if the land market is introduced in such a global grain country as Ukraine in the near future? But the main thing is how the issue with the land cadaster will be solved.
The real business responded to this question in different ways. But, if we consider a period of active mass media discussion the possibility of land market opening in Ukraine (April-June 2015), we see that it triggered the reduction of aggregate share prices of Ukrainian agricultural holdings. Did the business believe in it?
At the same time, the official version of transformations in the agro-industrial complex, which was called the Unified Integrated Strategy for Development of Agriculture and Rural Territories for 2015-2020, was launched. It became clear from private sources that the discussion on formation of public opinion on economic efficiency of selling agricultural land – a series of public hearings devoted to land reform, etc was also initiated in mass media.
In 2015 the decision on agricultural land sale was not taken, due to more significant challenges in the economy. Considering that Ukraine failed to straighten the balance of payments and still needed tranches from IMF, in 2016 the issue of tranches was again fully raised, and one of their conditions was the lifting of moratorium on agricultural land sale in Ukraine.
Today, Ukraine's position in the international division of labor is associated with Ukraine's remaining global advantages in the international division of land and water resources.
2016 was marked by the second stage of intensive discussion in media and exploration of public opinion on cancellation/extension of the moratorium on land sale in connection with the IMF’s demand.
We define this period as August-September 2016. On October 06, the Verkhovna Rada passed the Law "On Amending Section X" Transitional Provisions "of the Land Code of Ukraine regarding extension of the ban on agricultural land conveyance". On October 28, 2016 the President Poroshenko signed this law. The law was intended to give time for a legislative settlement of the procedure for agricultural land circulation. As noted, the law suggested the development and submission for consideration by the Verkhovna Rada of Ukraine the draft Law of Ukraine on agricultural land circulation before July 01, 2017.
Realizing all seriousness of the situation in economy and the government's real willingness to let the land "go free", the international market responded positively, as indicated in the above diagram.
The pressure from the IMF on Ukrainian government regarding lifting of the moratorium becomes increasingly common and, according to the latest version of the memorandum on cooperation between Ukraine and the IMF, to receive the next USD 4.5 billion tranches from the IMF Ukrainian government must file a law on the agricultural land market before the end of May 2017.
Certainly, we do not say that abolition of the moratorium on agricultural land sale in Ukraine and share prices, and capitalization of Ukrainian agriholdings on European exchanges are closely related. The level of capitalization is influenced by many other factors.
However, the thesis that agriholdings are not interested in selling the land is indirectly confirmed.
Indeed, it is now more efficient to lease land than buy it. Nevertheless, when there is an alternative between retaining control over the land banks through a lease or purchase, both options will be profitably used by agricultural holdings – rent leads to minimization of costs, while purchases lead to an increase in capitalization. The combination between these two options is a matter of business decisions technology and specific arrangements in our conditions.