Ukraine is the only democratic nation in the world where landowners are not legally able to part with their property. The country’s curious politics saw a comedian become president in May, and his new political party just won a majority in its parliament.
With 32 million hectares of arable land, the largest country in Europe by area now has an opportunity to undo one of the most poisonous legacies of communism.
The Landowner's Situation
I was born and raised in Illinois, surrounded by seemingly endless cornfields. In the time since I left home, I had not seen as much corn until my recent trip to Ukraine. And prior to that visit, I had never really thought about who owned the land on which the corn grew in my hometown.
I went to Ukraine to learn more about the country’s moratorium on the sale of agricultural land—in place now for nearly two decades—and the people fighting for its repeal. I spoke with villagers in Velyka Soltanivka who previously labored on a collective farm and who were given land after the fall of the Soviet system as a form of compensation for their years of toil. One such villager was Tatiana, whose father worked for 50 years on a collective farm and whose husband is in poor health. She rents out her five hectares for less than $1,000 a year, which is actually about double the average rate.
Other landowners lease out their property through informal arrangements without the protection or security of the law.
The villagers I spoke to were just a dozen of the nearly seven million people given such grants of land by the Ukrainian government and who are prohibited from selling that land. The policy was designed to “help” such farmers. If no one could sell, no one would be pressured by companies or foreign interests to part with their property. But there were unforeseen consequences: many of these people had no access to finance or lacked the tools to work the land effectively. As a result, much of it lay unutilized or is leased for next to nothing.
Those landowners have aged. Many are now retired. Nearly a million have already died. A majority of those remaining—and certainly the landowners I spoke with—simply want to be able to sell their land. Those who had worked in manufacturing and state-owned factories were given company shares that they could sell. So why, then, are the farmers precluded from that same opportunity and defense of their rights?
Some landowners could sell property such as tractors or livestock that happened to occupy the plots of land they were awarded, but not the land on which the machines and animals rested. The less fortunate landowners are paid paltry sums from small farmers and agricultural companies in rents, sometimes totaling only $50 a year. Payment does not always come in the form of money either, as some pay in “natural terms” with grain or sunflower seeds. Other landowners lease out their property through informal arrangements without the protection or security of the law.
This moratorium on selling agricultural land creates problems for those who actually use the land, as well. A renter is hard-pressed to find long-term leases to plant and harvest crops that have a longer maturity to yield returns, like apple trees that would need several years to bear their fruit. As support for ending the moratorium has risen from nothing to a chorus of think tanks and advocacy groups clamoring for reform, fewer landowners are willing to sign longer-term leases for fear of missing out on a potentially fully liberalized land market in the near future.
The European Court of Human Rights (ECHR) recently ruled that the ban on selling farmland in Ukraine is a violation of property rights.The exaggerated fear trafficked by populist narratives that foreigners would buy up all the Ukrainian land—believed by many non-landowners—was not shared by the folks I spoke with in Velyka Soltanivka either. They actually welcome the idea of foreign experts coming in and developing the land, thereby raising the value of the surrounding area. Interestingly, Ukrainian city dwellers are staunchly in favor of maintaining the ban on sales, in contrast to those who are actually impacted by the policy and simply want the right to sell their property.
The European Court of Human Rights (ECHR) recently ruled that the ban on selling farmland in Ukraine is a violation of property rights and that the Ukrainian government would need to take necessary measures to end the ban. Otherwise, the government would be forced to pay monetary reimbursement to each of the 7 million landowners affected. This total penalty is estimated to reach about $50 billion.
The free-market think tank EasyBusiness set up a website to help landowners file claims to the ECHR and acted as a third party in the suit. Over 500 such people registered on the site, and two claims were accepted by the ECHR. Now with the ECHR ruling in hand, several people have renewed their legal challenges to the moratorium through Ukraine’s judicial system. There is additional hope that the ban may be repealed via legislative action in the country’s parliament, where President Zelensky’s Servant of the People party recently won a majority.
Repealing the Moratorium
What is unique about the situation is that Ukraine stands alone among the democratic nations of the world by not allowing landowners to legally part with their property. What is not unique about it is that paternalistic policies such as the moratorium more often than not hurt the people they were designed to help the most.
The newly minted government of Ukraine has a golden opportunity to implement many necessary reforms to liberalize its economy. Repealing the moratorium would communicate to Europe and the world that the new administration will protect the rights of the Ukrainian people.Ending the moratorium would be to harvest a low-hanging policy reform fruit by delivering property rights back to millions of Ukrainians nearly 20 years after those rights were restricted.
The math is simple: repealing the ban would mean avoiding $50 billion in punitive damages and opening the country to tens of billions of dollars of investment.
We do not yet know what to expect from President Zelensky and his Servant of the People party, but here is a golden opportunity to brand itself as an actual servant of its people by delivering meaningful reform. Repealing the moratorium as a first priority would communicate to Europe and the world that the new administration will protect the rights of the Ukrainian people. It would signal that Ukraine is open for business.