Frequently Asked Questions (FAQs) about the benefits of an open market model with a broader stakeholder structure, including foreign investors.
Companies with foreign owners operate transparently and therefore are the best source for the state budget. All of their real turnover is open, wages and rents are officially paid and taxed on a regular basis. With the introduction of the restricted model, land cultivated by such companies will become a target for raider attacks, and the raiders are known to pay no taxes.
Due to unfair competition, foreign companies will be forced only to observe how the so-called “chessboard pattern” appears in their fields – it is very likely that the land cultivated by such foreign companies on the basis of lease agreements will be bought not by individuals for the purpose of continuing lease, but mostly by raiders. The raiders will block its further cultivation after the expiration of the initial lease term, or before the expiration disregarding the existing lease. The existing field configuration of many foreign companies will change and shrink, which will disable operation of large-scale machinery and equipment. This will significantly reduce business efficiency. We know of cases where the raiders in fact “steal” the land through black registrators, then block access roads, block farm equipment, steal the harvest, and more. And if yesterday such raiders needed to break the law, today the law will be on their side. Most foreign-owned companies will be targeted – Ukraine’s investment image and attractiveness will be undermined, new investors will not risk and look for possible alternatives, and those already operating will be reducing their presence or leaving for other markets. It should be understood that no one wants to make additional investments in land that is not owned, especially because of the weak rule of law in Ukraine, where raiding is quite common. In the case of leases, the main risks for investors are that the leased land is controlled solely on the basis of lease contract, and any contract is just as reliable as the legal system that ensures its contractual performance by the parties. Thus, in Ukrainian legal realities, only property rights will serve as a more or less reliable mechanism to protect the invested funds. And investors will not only “bring” more money for land acquisition, but also for better field care, soil technologies, construction of infrastructure, both industrial and social, livestock development, etc.
In case of limitation of the number of market entities, without the presence of real external investors, land owners – Ukrainian shareholders, will be limited in their choice, their land will not receive its true valuation and will not become a full-fledged asset, which is what everyone expects. This is an understandable process in the face of limited demand for an available supply. It will cause great harm to 7 million Ukrainian citizens – when privileged groups of feudal lords will buy their land for nothing and leave people with nothing! It should be understood that shareholders who lease their land to companies with foreign investment, if they express their desire, will not be able to sell the land to their most natural partner – their tenant. As such land plot will be in the middle of bigger land areas, such shareholders may have problems selling it for years, since no real farmer will buy individual land plot in the middle of bigger land units, understanding the logistics and limited use, because majority of the land will be controlled and cultivated by another agricultural company. The raiders are all set to play – they will force the shareholder to significantly reduce the price, and therefore, such a shareholder will be in a significantly worse position, compared to those who lease their land to a Ukrainian or Ukrainian company.
The citizens of Ukraine already own the land, since the land has already been distributed and will continue to be distributed by law exclusively among the citizens of Ukraine in the so-called “primary” market through the mechanism of privatization, i.e. free transfer of state lands to its citizens. And it is the citizens of Ukraine who should have the right and the ability to dispose of their own land to the full, because, after all, the decision is up to them – whether to continue to rent, cultivate on their own, or sell and to whom, and whatever decision will be made by the owners themselves, it will be a genuine will, without any speculation and manipulation in this respect. Everyone has the right to own, use and dispose of his property – the right of private property is inviolable, so says Article 41 of the Constitution of Ukraine. A referendum will actually “block” this rule in the event of a decision on restriction of rights. And since the referendum will be held by the majority on minority rights and not all respondents will have a direct connection with the subject of such a poll, its results can generally be considered doubtful.
It should be understood that existing companies with foreign owners are primarily Ukrainian companies, based on Ukrainian legislation, which is fully applicable to them. They pay taxes in Ukraine and in most cases have local Ukrainian management. First and foremost, it is these companies and their foreign investors, who are today the first and foremost lobbyists of Ukraine’s interests before its citizens and the governments of their countries, which provide tremendous support in the international arena and this connection should not be broken. Losing reliable external allies today means to leave Ukraine alone in the face of threats, both economic and geopolitical. Free and neighborly existence of foreign business alongside local will facilitate natural exchange of experience, technologies, etc. with local business, which will directly influence its further efficiency and competitiveness, since the free capital market, the free labor market are always the driving forces of progress.
The open market is beneficial for all fair players – for farmers, for landowners, for the state. The farmer will have the opportunity to purchase the land on which he works, the landowners will receive a decent and fair price, and the state will receive appropriate fair taxes.
The absence of any reforms, especially in such sensitive and important economic areas as agriculture, will lead to a significant backlash and Ukraine will finally lose competitiveness in the global food markets. Ukraine has already made the mistake of choosing one road with Russia, our eastern neighbor, making the standard of living and well-being of Ukrainians three times lower than that of citizens of other countries of the former Soviet bloc who chose the path to the EU. A notable example is the Czech Republic, which is now open to foreign investment, where everyone, including Ukrainian citizens, and there are such examples, can freely buy agricultural land. This clearly demonstrates that freedom, equality, the rule of law and a free market are the path to the welfare of the nation. Conversely, prohibitions and restrictions are the path to poverty, the domination of the oligarchy and narrow privileged groups. These groups will individually benefit instead of the entire nation.
Horror stories about the fact that “the land is being taken away” have no basis. Ukrainian land is located in Ukraine and will remain here, and the only professional question is whether it will be handled properly, whether its quality will be maintained and improved. And also, will all players, especially raiders, pay their taxes properly. And here we will dare to state that companies with foreign investments pay higher taxes and the reason for that is their transparency of doing business.
We, as AAU, are not against a temporary ban on “new” foreigners who are not yet present and have not operated agriculture in the Ukrainian market. We are not even against a ban on buying “new land”, that is the land that has not been leased by foreign companies historically. This balanced approach, which we promote, is more than sufficient safeguard against concentration of land in the hands of “foreigners”, and at the same time will allow foreign companies to continue their business without significant problems. Ukrainian farmers, whose business is related to foreign investment, are not trying to seize the land that is cultivated by their counterparts – Ukrainian farmers. They just want, like all other decent farmers, to be able to acquire the part of the land on which they farm themselves to develop and improve their own business. Of course, if the owners of the land offer them their land plots. If this will be disabled, then among the potential buyers of these landowners there will be only a limited group of raiders and speculators who will also “attack” to Ukrainian farmers. To date, even with a considerable financial resource, only 10% of Ukrainian land is under cultivation by Ukrainian companies related with foreign investments, while 80% of land is managed by small and medium-sized Ukrainian farmers, and this is clear evidence of how it has developed and where the concentration has come from over the last 20 years. And that it is the Ukrainian, local, farmer who is much more agile because he is at home and the local business life is natural for him, and therefore favorable.
For some reason we are pushed into some not so progressive examples of land market models – Lithuania, Poland, etc., forgetting more progressive ones, such as Spain, Italy, the Netherlands, Czech Republic, Germany, United Kingdom, Austria, USA, etc. where efficiency and margin from one hectare are many times higher than in examples given and even more so than the Ukrainian ones. The latter mentioned examples of states are more progressive due to their openness. And we should not forget that Lithuania and Poland started from scratch, where the composition of market participants had not yet been formed, except for the landowners. In our case, during the years of moratorium, wholly working and effective entities have developed, through which an entire branch of the economy has formed. To disturb this natural balance today is extremely dangerous and threatens to plunge the whole industry and related branches into uncertainty, which will have consequences for their further development, and sometimes even existence, when the market will be inevitably redistributed in such a scenario.