Agribusiness is one of the most promising businesses in Ukraine. By the beginning of 2012 in the world there have been left only 9% of the land that may be used for agriculture. According to the forecast of the Organization of Economic Cooperation and Development, prices for food will increase by 20-50% over the next ten years. As land is a limited resource, agriculture sector represents a huge potential for Ukraine. What awaits Ukrainian agribusiness?
Global population growth and thus increased demand for food, increased consumption of meat, dairy products, vegetables and fruits in Ukraine predicts the agricultural sector a bright future for Ukrainian agricultural sector. However, there are both pros and cons.
One of the factors that determine the level of attractiveness of the sector is the ability of the free sale of land. The absence of private ownership of land hinders the development of the industry caused by three major reasons:
1) The investment potential of the sector for foreign investors is lower than it could be in the case of free sale of land. While investing an investor wants to be sure in the future and wants his capital to be protected.
2) Inefficient use of land. Countrymen rent their land out for a short term, the tenants grow the same culture for several years in order to obtain higher profit, but it depletes the earth.
3) The inability to take out loans at affordable rates. Land can not be a guarantee for funding because of the lack of institutionalized ownership of land.
A great step towards creating a land market in Ukraine was the adoption of the Law of Ukraine “On Land Registry”, which came into force on January 1, 2012. The purpose of the Act is a land registration and ordering information about land. Thus, it will be possible to prevent fraud with the issuance of more than one state certificate to several owners for one land plot.
At the moment, the idea of a free sale of land and in particular the adoption of the draft law “On Land Market” is a subject of intense debate. With the cancellation of the moratorium on the free sale of land, the agricultural sector of Ukraine will become many times more attractive to investors, and investment is one of the main factors which is necessary for the development of the domestic agricultural sector. With the adoption of the law “On Land Market” not only entrepreneurs interested in investing in this area will benefit, but Ukraine as a whole, and thus all of its citizens. No one promises that the economic effect of adoption of the law will be seen tomorrow, it will take time. However, without the government’s manifestation of determination and rigidity and implementation of unpopular measures, it is impossible to achieve results.
According to the most realistic forecast, the draft law “On Land Market” will be adopted by the end of this year and will come into force in 2013. The draft creates measures to prevent monopolization of the sector and speculation with resale of land.
At present time the government is also working at two more legislative acts for implementation of the land market in Ukraine.
Agrarian reform requires careful preparation and study of regulations and legislation, and therefore time. Nevertheless, first steps have already been made, suggesting that the government is resolute and shows the political will to carry out an agrarian reform.
Ukrainian agribusiness has a good chance for development. In order to make the business more efficient, the investments allowing implementation of new technologies and attraction of qualified staff are required. Foreign investors are interested in the Ukrainian market and in conditions of presence of guarantees they are ready to invest in the Ukrainian agricultural sector. The far-sighted global investors, understanding that the tenants will have a priority right to purchase the land, keep on purchasing farms, which have a lease agreement with the shareholders (owners of the land). Due to the government, which is actively working on creation of the land market, there are all bases to hope for the creation of favorable conditions in the agricultural sector investments attraction, and hence the development of the industry.