Finally, Ukraine is leaving the bad club of countries with no land market. The first step has been taken – the law has been signed by the president and will take effect soon. Whether this step will be a step towards progress for our country, or, conversely, will lead us to another impasse, will largely depend on ourselves, on our actions and on the guidelines we will apply.
Given the ambition of the challenges facing Ukraine today, it will be very interesting to consider the experience of today’s most powerful and progressive economy – the experience of the United States, whose agriculture is very similar to Ukraine. Do they regulate land ownership and what useful experience can we learn?
In general, the US land market is quite liberal. In most states there is no regulation – foreigners can buy and own agricultural land without any restrictions in 28 states out of 50. Moderate restrictions are applied in 19 states, and in 3 states, there are strict regulations that effectively preclude the opportunity for foreign nationals to acquire and own land in their territory.
Thus, in 94% of US states, you can buy land freely, or with moderate regulation. The absolute majority of the population lives in these states – 97% of US citizens. But let’s look at the most common types of regulations if these are put in place:
- mandatory state business registration, obtaining a permit and certificate for certain activities, notification and reporting requirements are sometimes the case.
- in some states, a foreigner must invest a certain amount of money in an agricultural project.
- some states oblige the foreigner to create or “enter” a local company, thereby enabling state control over the direct owner of the land, as such an owner will actually be a local company.
- or the condition for the acquisition of land is a similar mirror opportunity for US citizens to purchase land in the mother country of the foreigner.
Such kinds of logical and economic approaches could inspire our country to promote closer relations with the EU and other friendly countries.
If we look closely, we will see in the last few decades a clear movement of many American states towards more liberal models. Most of the existing regulations on the land market have been abolished. Many states, such as Alaska, Georgia, Indiana, Missouri, Texas, Virginia, Wisconsin, and Wyoming, have undergone significant changes in their recent history and repealed restrictive laws. Consequently, their agricultural laws have become more accessible to foreigners and foreign investment.
Figure: freedom of foreigners to acquire and own land in the United States (dark green = free market, light green = moderate regulation, orange = strict regulation)
The “orange” states are distinguishable by their conservative views on foreigners and foreign business. Their legislative position is that non-US citizens cannot acquire or own land; otherwise, such land is subject to alienation. For violations, there are both fines and forced separation in favour of the state. This is the path Ukraine has chosen today.
Specifics in selected states
An interesting feature of the United States is the division of foreigners into non-residents and residents:
- It is clear that American citizens are always residents, even if they have not lived in the United States for many years.
- Holders of green cards (holders of permanent resident immigration status) are also always residents, even if they do not live in the United States. One very typical example is that a person comes to the United States, receives a green card and then leaves the United States, and comes to the United States only once every six months to maintain green card status. This person is required to declare their income worldwide. Except in some cases, as a general rule, he is required to annually show the full salary, bank interest, real estate income received in any other country.
- Foreigners without a green card can also be residents of the United States if they are present in the United States for a significant amount of time. This rule applies regardless of which visa a person holds (with some exceptions for students and researchers with F, M, Q or J visas, diplomats). Even illegal immigrants who live in the US illegally may be residents and required to pay taxes.
Thus, in the states of Oregon, Mississippi, Minnesota, Kentucky, Iowa, Idaho, Hawaii, and California foreign residents, in terms of land policy, are equated in rights to US citizens. Interestingly, in the state of North Dakota, the citizens of neighbouring Canada are given a special status, and they are absolutely free to buy agricultural land there.
There are states where the amount of land for foreigners is limited – in Wisconsin (640 acres); Pennsylvania (for resident foreigners there is a limit of 5,000 acres, for non-residents and foreign governments – no more than 100 hectares); Missouri limits foreigners to one percent of the state’s agricultural land area; Arizona (foreigners can purchase no more than 160 acres of public land or 640 acres of state pasture).
In Ohio, non-resident aliens that acquire more than 3 acres or a property with a value of more than $100,000 in real estate must file with the secretary of state.
In Kansas, the “entry” of foreigners is possible only through their participation in an agricultural company by analogy with Ukrainian LLC. This design allows the state to have sufficient control, as a local company will own the land.
In North Carolina, there is a “mirror principle” – non-resident foreigners are prohibited from buying and owning personal property unless their country of citizenship allows US citizens similar rights.
Even in states where ownership is limited, non-residents and foreign companies have the opportunity to buy agricultural land through wills and inheritance. Agricultural land can also be held to secure a debt or mortgage, as well as acquired to repay a debt or mortgage. In the case of land acquisition by such methods, in most states with restrictions on foreign ownership, such foreign companies and/or individuals usually have to sell the land within a certain period of time (usually between 3-5 years); otherwise such land is subject to forced alienation.
The vast majority of states, which is 97% of the US population and, last but not least, their dominant share in the formation of national GDP (97% or 17.3 trillion US dollars in 2019), are clear and open to investors. There are no special rules and restrictions at all, or if there are, they are all within standard business practice. This includes, for example, mandatory state business registration, obtaining a permit and certificate for certain activities, notification and reporting requirements.
The enclosed table details the information for each US state.
It should be noted that most laws were created to protect family farms or home farms.
Quite an interesting point, which is probably a consequence of the active participation of the US Government in world geopolitics – in a number of states a prerequisite for foreign nationals is to prove their home countries peace status in relation to the United States – foreigners and their countries of origin should not be “enemies” – this is evidenced by direct legislation.
In Wyoming, in the early 1940s, laws were introduced that severely restricted the land rights of people of Japanese and Chinese descent and all migrants from these and other Asian countries. This is due to their historical, usually forced, mass relocation of “Japanese Americans” to resettlement camps, where people were forced to be isolated in the company of armed guards and fences. All these measures were implemented in connection with the so-called regulation of the presence of the relevant sections of the population on the West Coast, in connection with hostilities in World War II. Accordingly, the state and its indigenous population were concerned about such a neighbourhood and in every way prevented the further possible rooting of Asians. Most of these archaic restrictions were lifted in the 1960s.
Most laws contain a distinction between foreign residents, non-resident residents and non-residents. Residents are given the same rights as US citizens. Although in some states, such as Arkansas, foreigners still have to report ownership of agricultural land. In Kentucky, foreigners must intend to become a citizen and complete the case within eight years.
Land laws, in general, can be divided into four general categories: where reporting requirements are established for foreign persons; reporting requirements for foreign corporations (and sometimes all corporations); restrictions on the acquisition and use of land for foreigners; and restrictions on the acquisition and use of land for foreign corporations (and sometimes all corporations).
Reporting requirements can range from the need to submit copies of the corporation’s charter to detailed annual reports that list the addresses and times the proxies resided in the state.
Following pictures confront the degree of regulation with the map of agricultural distribution by industry and cultivated products – it helps to understand the trends and their causes:
Interesting to note is that agricultural branches with the highest value-added are located in the so-called “liberal” states, where land ownership is limited minimally or not at all. Livestock areas also have special support and are usually included in the relevant exceptions, and land legislation for such cases has a number of concessions and additional incentives for foreigners and their land ownership in most US states.
Given that in our country, the factor of added value and the need to create it today is elevated to the rank of public policy, we should pay special attention to this indicative trend. Here we can clearly see that the more open or liberal model brings more investment, more added value and with them the growth of the economy. Here we must say that the share of the agricultural sector in total production in Ukraine is larger than in the US. Therefore, it is much more important for Ukraine to promote freedom of doing business, and its openness.
Concentration of land ownership is not an issue
We offer an additional look at how the concentration of land was distributed in the conditions of market openness.
The three largest landowners in the United States, are as follows:
1st place is occupied by John Malone, who is also the largest landowner in the world after Queen Elizabeth II. He owns about 2.2 million acres, which is about 8,900 square Km or 890 thousand hectares located mainly in the states of Maine, New Mexico and Kansas, which include arable land, forests and farms.
2nd place is held by American businessman and founder of the CNN news channel – Ted Turner. His land holdings are slightly less than our leader and amount to 810 thousand hectares.
In the 3rd place is the Emerson family with an area of 2 million acres (about 8 000 sq. Km) settled down. The Emerson family owns land and forests mainly in California.
The largest landowners among companies (excluding physical persons) in the United States today are non-American companies and here is their list:
|Red Mountain Timber Co III LLC||3 050,1||Netherlands|
|Red Mountain Timber Co I LLC||2 673,2||Netherlands|
|Red Mountain Timber Co IV LLC||2 072,1||Netherlands|
|John Hancock Life Insurance Company||1 403,7||Canada|
|John Hancock Variable Life Insurance Company||1 186,3||Canada|
|Murphy Brown LLC (Smithfield Foods)||415,3||China|
|ALTA FARMS WIND PROJECT I, LLC.||93,6||Western Europe|
|RED RIVER NACOGDOCHES TRS, L.P.||75,6||Canada|
Despite the rather extensive holdings of both the top three physical persons and large companies, even if all their land is added up, it will still not be larger than 0.5% of all US land.
The ban on foreign investments harmed especially border regions
Ukraine today desperately needs investment and an influx of controlled capital, but it must be understood that there is a serious struggle for these investments all around the world. We must not stop at a time when the whole world and modern technologies of tillage and agriculture are developing rapidly. Without a normal share of openness and an inflow of foreign investment, Ukraine could easily lose its role and position on the world food map.
That is why, according to the Association of Agrarians of Ukraine, we in Ukraine should allow some normal and controlled concentration of “understandable” foreigners and foreign companies on the land market. Proven companies that have been operating in Ukraine for a long time that are honest and responsible towards Ukraine should have a competitive opportunity to maintain their existing land bank, should be able to maintain their agricultural capacity and jobs for further development together with Ukraine.
In this regard, in the next stages of reform, it is necessary to revise and increase the norms of land concentration to the normal 20-30 thousand hectares, to the level of medium-sized systemic and multidisciplinary companies that already operate in Ukrainian realities.
It is also necessary to correct the harming restrictions of border regions. Absolute restrictions were imposed on borderlands, and any foreign investment was banned here on the principle of distance from the border by 50 kilometres. Excluding foreign investors forever is counterproductive. Such a restriction in border areas would further reduce investment and economic activity there. This would result in increasing poverty in border areas and widening disparities between inland and lagging border areas. This is the most common reason why border areas do not feel part of the country and may be prone to secession.
According to the AAU, such a restriction is also extremely problematic for control and, accordingly, implementation. For example, who will determine, at the time of the transaction, is this area at the 50th or 51st kilometre? How to determine it? And where did the figure of 50 kilometres come from? For clarity, if we walk along our border and take the known statistical density of the population in each of the Ukrainian regions, to separate the sea coast, as stated in the basic land law, we will see that the relevant restrictions affect at least 11.5 million people, almost 1/3 of all Ukrainians – that’s how many live today within the 50-kilometre zone from the borders of Ukraine. Regions such as Zakarpattia and Chernivtsi fall almost completely under the moratorium on economic and investment activity forever. The rest of the border regions will also “freeze” their significant potential – from 20 to 70%. Odessa, the driest region today, will “freeze” 60% of its territory and there will never be foreign investment in land. All this means that the implementation of long-term and extremely expensive irrigation projects in most of Ukraine will be impossible with all possible and unpleasant consequences for us.
Regulation on foreign ownership of agricultural land: A state-by-state breakdown, By Erin McKinstry/For the Midwest Center for Investigative Reporting June 22, 2017 https://investigatemidwest.org/2017/06/22/regulation-on-foreign-ownership-of-agricultural-land-a-state-by-state-breakdown/