Ukraine: How Land Moratorium Makes Ukrainian Poor

Last Updated: 25 April 2019
Article by Ihor Kravtsov and Yulia Shyshka

It has been written a lot about land moratorium in Ukraine. Our colleagues published professional articles as recently as last year, arguing that the moratorium was an unjustified obstacle in exercising property right to land. It stimulates the development of the black market and has been actually recognized to be illegal by the European Court of Human Rights.

However, despite numerous arguments proving that the land moratorium is harmful, a significant part of citizens express the position that its cancellation is premature. This was our inspiration for comparing the negative scenarios of opponents of the free land market with the actual consequences of the moratorium.

When writing this article, we tried to answer the question why Ukrainians had believed that the restrictions on the free market could meet their interests. To find out the grounds for the beliefs and fears of our compatriots, let's deepen into the history of the introduction of the land moratorium in Ukraine.

18-year long sabotage

For a clear understanding of what the moratorium is, we should find out how exactly and why it was introduced. To answer this question, let's cast our thoughts back to 2001. Land sharing has just been completed in Ukraine, which lasted from 1992 to 2000. Millions of former workers of collective farms received land shares, i.e. the right to a land plot, the size of which was determined in conditional cadastral hectares.

Peasants received documents, so-called- "share certificates", which actually were the basis for the execution of the property right to land. As a great part of real property had been transferred into private ownership, the preconditions for launching the agricultural land market emerged in Ukraine. Of course, there were those wishing to sell and purchase land. However, the transfer of title to real property should be recorded in a register. But there was not even a land cadaster, not to mention a register of shares. The launch of the land market could result in collapse when one land plot would be sold to several buyers.

Deputies of then Verkhovna Rada of Ukraine of the 3rd convocation understood that they did not have a qualitative decision on how to regulate the land market. There was neither procedure for alienation of shares, nor money in the budget to launch the land cadaster. The brains of the peoples servants were boiling, as they were afraid of the real chaos occurring under the conditions of the legal vacuum. It was decided to take a pause.

On January 18, 2001, the Ukrainian Parliament adopted the Law "On Agreements for Alienation of Land Shares". This Law established that owners of land shares were temporary prohibited of selling, donating or otherwise alienating their land shares until the procedure for exercising the rights on land shares was regulated by the Land Code of Ukraine. That is, the issue of the sale of land and land shares was to be regulated by law. But has never happened.

Deputies failed to develop any adequate and viable mechanism for alienation of agricultural land. Therefore, the Land Code of Ukraine adopted in October 2001 not only failed to abolish the prohibition on sale of land shares, but also extended it to farming land and land for other commodity agricultural production until 2005. This phenomenon was called the "moratorium on the sale of agricultural land".

The paradox of the situation is that the parliamentarians not only managed to avoid public condemnation. A great part of Ukrainians decided that this "moratorium on purchase and sale of agricultural land" would ensure the preservation of land in the ownership of the Ukrainian people. It was so convenient for politicians that the moratorium was extended 9 more times.

Politicians went on speculating on this topic even after the introduction of land cadaster by the relevant law. The prohibition of sales of land became a popular promotion slogan. The promise "to do everything to prevent the land from becoming a commodity" has been sounding in election campaigns for many years and, unfortunately, it is fulfilled.

In fact, the land moratorium is not an attempt to take care of the future of the next generations. This is simply sabotage of their professional duties by the parliamentarians.

This is a violation of property rights, which is ignored by the Constitutional Court, but not by the ECHR.

Ukrainians have always believed that the land has a special spiritual value. This can be confirmed not only by national folklore but also by the Constitution. Article 13 of the Constitution of Ukraine establishes that the land is the object of property rights of the Ukrainian people; and Article 14 establishes that the land is the main national wealth subject to special protection by the state. If we were supporters of the land moratorium, we would protect this idea by the above provisions of the Constitution: if the owner of the land is the Ukrainian people, it has a special legal regime, which includes restrictions on the disposal of land by individual land users.

However, the provisions of Articles 13 and 14 of the Constitution do not exclude private ownership of land and the possibility of free disposal of it. Moreover, Article 14 of the Constitution provides that the property right to land is guaranteed. This right is acquired and exercised by citizens, legal entities and the state. And according to Article 41 of the Constitution of Ukraine, everyone has the right to own, use and dispose of their property; the right to private property is inviolable.

The transitional provisions of the Land Code of Ukraine establishing the prohibition on alienation of agricultural land obviously are contrary to the provisions of Articles 14 and 41 of the Constitution of Ukraine. This fact has been repeatedly pointed at by lawyers; moreover, an appeal has been filed to the Constitutional Court of Ukraine twice in order the moratorium is declared unconstitutional. But the sole body of constitutional jurisdiction did not even open the proceedings, referring to improper completion of appeals. Thus, the Constitutional Court of Ukraine withdrew from the assessment of compliance of the land moratorium with the Constitution.

Having failed to defend their rights in Ukraine, landowners began to appeal to the European Court of Human Rights. On May 22, 2018, the European Court of Human Rights decided on "Zelenchuk and Tsytsyura versus Ukraine" case stating that the land moratorium in Ukraine violates the landowners rights to peaceful possession of their property.

A strange situation has arisen: on the one hand, a statutory ban on the alienation of agricultural land is in force, on the other hand, the practice of the European Court of Human Rights, being the source of law in Ukraine, declares that the land moratorium violates Article 1 of Protocol 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms.

It would seem that the described situation should accelerate cancellation of the land moratorium, but in December 2018, deputies of the Verkhovna Rada of Ukraine (the Parliament of Ukraine) voted on the law which prohibits the alienation of agricultural land until January 1, 2020, effectively prolonging the moratorium for another year.

However, it is early to draw the line under the history of the land moratorium so far. After the judgment of the European Court of Human Rights came into force, Ukrainians began to appeal to national courts left and right. Several "schemes" of transfer of agricultural land into ownership of another person have already appeared. The first of them is an exchange of land plots. Thus, the court considered a situation in the matter 227/1505/18 where persons entered into a land exchange agreement, whereunder the Agricultural Firm exchanged a land plot of 0.1 hectares for a land plot of 9.49 hectares. Although the prosecutor's office demanded the agreement to be declared invalid, it was refused. A cassation appeal has been filed in this case.

Another representative case is the matter 237/3292/18, the resolution on which has already come into force. Allegedly, one party borrowed USD 1,000 from the other party, then appealed to the court to recover the funds. The parties entered into the settlement agreement, under which the debtor transferred an agricultural land plot to the plaintiff instead of money. Approving the settlement agreement, the court referred to the resolution in Zelenchuk and Tsytsiura v. Ukraine.

Further court practice regarding alienation of agricultural lands depends on the Supreme Court.

The reason for land degradation and decline in agriculture

Advocates of the free land market are sure that agriculture will revive and GDP will increase after the moratorium is canceled in Ukraine. Advocates of the moratorium assure that the land will be bought by foreigners or oligarchs for peanuts in case the moratorium is canceled.

Negative scenarios might be minimized through setting clear rules for the launch and functioning of the market, specific requirements for potential buyers of agricultural land, etc. For example, the Land Code of Ukraine stipulates that agricultural land may not be transferred into ownership to foreigners, stateless persons, foreign legal entities and foreign states (Part 5 of Article 22). In addition, according to Part 4 of Article 81 of the Land Code of Ukraine, agricultural land inherited by foreigners and stateless persons must be alienated within a year. Thus, the fears that agricultural land will be owned by foreigners after the cancellation of the moratorium are groundless.

When trying to predict the future, we should take into account the lost opportunities due to the land moratorium.

The Constitution of Ukraine stipulates that the land is the core national wealth and property of the Ukrainian people. That is, the use of land should enrich the Ukrainians.

It is not a withdrawal that reveals the economic potential of the land. It is the means to create a product – agricultural commodities – and these are the products that have a monetary value. On the one hand, the advantage of land resources is their non-disposable nature. For comparison, oil, gold, and wood are exhaustive resources. Economic benefits from the sale of minerals are limited in terms of time, depending on the reserves of natural resources in the country. However, high-quality cultivation is needed to reveal the economic potential of land, which, in turn, requires financial and labor costs.

As a result of the land sharing following the land reform, small areas of land were provided to people who had previously worked in agriculture. However, the new owners did not have the necessary knowledge, resources, and experience for effective self-cultivation of land plots. The practice has shown that this economic model is dead. Almost 20 years have passed after the sharing. A significant part of shareowners cannot or do not want to cultivate land. The only way they can get something from their property is to sell or rent out their land.

In addition, modern agriculture requires the use of machinery. Sales organization requires logistics. However, if a person owns three hectares of land, there is no point to take a loan to purchase machinery. They also can not offer their products to major chain supermarkets. The only option left is to try to sell their surplus in the closest district center, since it is often unprofitable to carry goods at least to the regional center. Because of multiple small sellers in agrarian district centers, high competition contributes to dumping the prices. According to the famous story, agriculture becomes a good way to lose money, but not to earn it. Under these circumstances, agriculture becomes unprofitable to landowners. While peasants have no money to carry their goods to a solvent buyer, the residents of Kyiv have to buy Polish apples in supermarkets.

Ability to sell land will promote bank loans secured by land. This will make the agribusiness more predictable and profitable. When the moratorium on the purchase of agricultural land in force, the potential of Ukrainian famous black soils is not realized in full.

Enormous damage and potential opportunities

Experts from the World Bank have calculated that annual loss of Ukrainian landowners from too low rentals is UAH 86 billion. Taking into account the fact that this amount should be multiplied by 18 years of duration of the moratorium, the losses for the living standards of Ukrainians are enormous.

For comparison, the cost for construction of 1 kilometer of road starts from UAH 5 million in Ukraine. For UAH 86 billion 17,200 kilometers of roads could be constructed. The length of the Kyiv-Chop highway is 801 kilometers. During past 18 years we could have constructed roads like German highways in the most remote villages.

The average salary of a teacher is UAH 6,500 in Ukraine. We could have maintain 36 000 teachers for over 30 years for UAH 86 billion!

The world community paid USD 7.8 billion for The Large Hadron Collider. We could have built 8 hadron colliders in Ukraine during 18 years and become not only a developed agrarian country but also the scientific core of Europe.

The 18-year moratorium on the alienation of agricultural land means not only losses for particular families. Those are unpaid taxes, not created jobs, not used opportunities for leisure, training, medical treatment, and business. This loss is not only of agrarians and peasants but a loss of the entire people of Ukraine.

Originally published by Yurydychna Gazeta.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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