Round table on July 23rd: abstracts and presentations

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On July 23rd at the premises of the State Service of Ukraine on Geodesy, Cartography and Cadastre was held a regular meeting of the Roundtable on land market. It was the final one in a series of discussion events this summer and was devoted to two topics: “The experience of agrarian reforms in Western Europe” and “Discussion of the new techniques of normative monetary value of agricultural land”.

Organizational support group meeting is carried out by the Independent Macroeconomic Analysis and Forecast Group (IMF Group) under the aegis of State Service of Ukraine on Geodesy, cartography and Cadaster.

The first set of questions was opened with the report of Mrs. Katja Dells (Germany), junior project manager of Twinning, Head of the International Department on consulting at BVVG (German Agri-Forest Privatization Agency), who presented to the expert community her report on “Agricultural land in state ownership – the transformation of property relations on the example of Germany “(presentation).

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The expert conditionally divided path to privatization in Germany into three large stages:

  • short- or long-term lease
  • land acquisition program under the Indemnification and Compensation Act
  • sale at market value

Thus, during 1992-1996, Germany has gone through a phase of stabilization of the newly established farms,  and securing the forest port folio and created a foundation for future sales. Over the next four years (until the year 2000) the consolidation of the newly created agrarian structure took place and the so called land purchase program was launched . Then began the sale of agricultural land on the fully developed land market; also, there appeared an opportunity for long-term lease.As a result of these stages, a hetorogenic ownership and farm structure was created.

Main land policy aims in Germany were aiming at social equity, remediation, and compensation; creating a heterogenic farm- and ownership structure, generating fiscal revenues, supporting the functioning of municipalities and supporting environmental objectives.

BVVG also engages in providing state-owned landfor wind energy stations. This, according to the expert, is a win-win situation: the state budget has increased revenues and the national energy policy receives the necessary support.

The situation in Ukraine, according to the expert, is characterized primarily by the fact that agricultural land is owned by the state and managed at the district and provincial levels. Due to the current moratorium, selling agricultural land state property is not possible, but the main question is now the transfer of the right to dispose of public lands (the alternative is the transfer of ownership) to local authorities, i.e., to municipalities.

After lifting the moratorium, according to the adopted decision at the political level, the lands, which are now owned by the state or municipal property, will be transferred (and thus will not be public lands), or remain in state ownership. However, the prerequisite is to have clear political goals.

Ms. Katja Dells:

To be truly ready for the lifting of the moratorium, Ukraine needs to have a proper, transparent, market-oriented mode of rent and clear ownership of the land. If the state-owned land should be transferred to the municipal property, in fact it means the transmission of information on land contracts, and the like. This will take time and will require financial means. Selling the land, we must guarantee the buyer the right to the property, and a prerequisite is a functioning registration system and cadastre. By the beginning of the sale of agricultural land, we need to develop policies and strategies, and land management of state property. Methods of disposal (rentals and sales), and the timeframe should be developed in accordance with the specific policies for management of state and municipal lands. To facilitate the reporting, we should introduce clear procedures for internal and external monitoring and audit of rent and sale.

Ms. Vilma Daugaliene (Lithuania), Junior Project Manager at Twinning, Director of the Department of Rural Development, Ministry of Agriculture of Lithuania, presented the audience her experience in this area, combining it under the heading “Sale of agricultural land in Lithuania” (presentation).

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The expert started with a brief review of economic conditions in which the economy operates in Lithuania, based on the area of the state, population and characteristics of the administrative-territorial division of the country.

The form of ownership the land fund of Lithuania is as follows: almost 57% of the land belongs to individuals, about 40% goes to the state, not more than 3% to legal entities and the remaining 0.01% are owned by municipalities. Moreover, the state owned lands are dominated by forests and the private property mainly owns agricultural land.

The expert drew her attention to the specific historical features of a path that Lithuania went through. After joining the EU in 2004 and until 2014, nearly a decade the so-called transition period lasted, during which the agricultural land state property could not be sold to foreigners. Under EU legislation, the sale of state owned lands without auction is considered to be state aid. In 2004, Lithuania asked the European Commission for permission to grant state aid in the purchase of agricultural land, and in 2006, this agreement was obtained. This government assistance was used in 2008-2013, with the purchase of agricultural land state property. After 2013, the agricultural land is no longer sold (except for 2-3 hectares of subsistence farming and individuals who are eligible for building and agricultural equipment, agricultural areas which are necessary for the mentioned buildings and equipment). According to statistics, up to July 1, 2014 were sold 337.9 thousand hectares of land.

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Agricultural land can be bought in Lithuania by citizens of the state, the Lithuanian legal entities, the state, municipalities, and certain entities of foreign law.

After 2014, the right to purchase land in Lithuania was received by individuals with the necessary skills and qualifications: persons who, during the last 10 years preceding the conclusion of a contract for the purchase of agricultural land, were engaged in agricultural activities for at least 3 years, and those who declare agricultural land and crops, and also have a registered farm or agricultural education with a diploma to confirm.

Among legal entities, the right to purchase land have those who for the past 10 years prior to the conclusion of a contract for the purchase of agricultural land, were engaged in agricultural activities for at least 3 years, or those who declare agricultural land and crop, if their income from the sale of marketable products is not less than 50% of total annual revenue, and their economic viability can be demonstrated according to the established procedure.

During the second half of 2014, there were issued 5452 permits for the purchase of private agricultural land, of which 4 permits went to foreign nationals.

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At the end of the report, Mrs. Dells received three questions fromMr. Martyniuk, chairman of SGC:

1) In the Eastern part of Germany, have there been restitutions, that is, the returns to the former owners of the land they owned before the country was divided into Eastern and Western parts?

2) Which the level of budgets in Germany receive the profit from the sale and lease of agricultural land – the budget of the municipality where the land is located, or the budget of the federal state, or it is directly to the central federal budget?

3) Was there a reverse purchase of lands by the state BVVG company from private ownership back towards the state one and, if so, in what circumstances did it take place?

Ms. Katja Dells:

Yes, in Germany, there was the restitution of land – for two groups of cases: first, for the lands expropriated between 1933-45  (mostly Jewish population). These people have been restituted in kind  or if not possible have received compensation. The second group, that was restituted under certain circumstances  were the landowners, which were expropriated in the GDR after 1949. Expropriations made between  1945-1949 was not given back to former owners. When the owners got their land back, of course, they also got the rights to it – inter alia, the right to lease out the land.

Revenues from the sale and lease of agricultural land go directly to the state budget, The revenues are not earmarked for agro-structural purposes. However, in other countries these revenues are earmarked and  perhaps it would make sense to budget  a certain share of the revenues directly for improving the rural areas. As for the last question – BVVG did  not re-buy lands but only disposed of land in its port folio. At an earlier stage this was discussed with the aim to consolidate land parcels, but this idea has not been implemented. However, on the federal states level special agencies exist that do also buy land, mainly for agro-structural purposes or for environmental reasons. .

Mr. Martyniuk also asked Ms. Daugaliene about the Lithuanian experience with land located outside settlements. Is it appropriate to transfer such land to be owned by the municipality?

Ms. Vilma Daugaliene:

The main body concerned with land affairs in Lithuania is the National Land Service under the Ministry of Agriculture. We appealed to the experience of Germany and came to the conclusion that the transfer of land to the ownership of municipalities is not necessary, since some of them have very different interpretations of national legislation, which greatly complicates the work. In 2010, we held an administrative reform, and the responsibility for these operations with the land was transferred to a central level.

After reviewing the features of the West European experience, moderator of the event Mykhaylo Kukhar invited participants and guests to move the discussion to the second block of topical issues – namely, new ideas and methodology for assessing the land.

Mr. Rostislav Shmanenko, Head of the Department of international cooperation and the land market of the State Service for Geodesy, Cartography and Cadaster of Ukraine, focused his presentation on “Methodology of normative monetary value of agricultural land” (presentation).

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He noted that the normative monetary value of agricultural land in Ukraine was held only once – on July 1, 1995, and annually thereafter normative value of the land increased, based on the level of inflation.

Methodological approaches of two decades ago, according to the expert, have lost their relevance, because they do not meet the requirements of the Law of Ukraine “On the estimation of land” not take into account natural and agricultural zoning, protected in Article 179 of the Land Code of Ukraine, and also have a rate of return (35%) and the period of capitalization of rental income (33%).

In 2011, there were attempts to update the performance evaluation within the existing techniques, but these changes did not include a corresponding increase in the cost of agricultural products. As a result, in 2012 the regulatory monetary value of usable land has increased to 8,600 hryvnia per hectare (75%) and amounted to 20 600 hryvnia per hectare.

The new technique of normative monetary value of agricultural land is in an active stage of development. The basis for this is the project of Cabinet of Ministers, developed in pursuance of paragraph 217 of the Action Plan for the implementation of the Program of the Cabinet of Ministers of Ukraine and the Sustainable Development Strategy “Ukraine – 2020″. By the end of 2015, the methodology must undergo a legal review of the Ministry of Justice agreed with the Ministry of Agrarian Policy and Food, as well as with the Ministry of Regional Development, before being approved by the Cabinet of Ministers.

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Mr. Shmanenko listed the following main advantages of the new methods of evaluation:

  • significant simplification of assessment the methodology
  • The method reinvention in accordance with the legislation of Ukraine
  • facilitating access of landowners and land managers to assess data
  • The use of standards in the assessment of differential rent income of 2013
  • differentiation of natural and agricultural areas.

Practical examples presented by the expert contained the algorithm that outlines the normative monetary value of a separate land for agricultural purposes, and again noted the effectiveness of such a model in today’s economic environment.

Mr. Vladimir Lapa, Deputy Minister of Agrarian Policy and Food of Ukraine took the floor and stressed the importance of the new techniques for regulatory monetary value for the Ukrainian agrarian market, because the current evaluation does not reflect the economic and natural conditions of farming.

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Volodymyr Lapa:

We will encourage that the normative monetary value is adopted as soon as possible, we are agreeing the relevant documents and we hope that in the near future, this technique will be presented for consideration to the Cabinet of Ministers.

The second important issue on the agenda is this ordering of lands, which is certainly a matter of national importance. The government plans to make an inventory of land, however, the financial component of today prevents implement it as fast as you would like. We are considering such an option as holding inventory of land by the owners.

Among the plans for the short term is also the reform of the Academy of Agricultural Sciences: it is assumed that land use issues will be examined more fundamentally, in the global context.

Of course, to solve such a wide range of tasks we need constant communication of the Ministry of Agrarian Policy and Food with the State Service of Ukraine for Geodesy, Cartography and Cadaster and the Ministry of Regional Development.

Next, the moderator gave the floor to Mr Andrii Martyn, Head of the Department of Land Use and Planning of the National University of Environmental Sciences of Ukraine, member of the association “Land Union of Ukraine”, the doctor of economic sciences. The expert noted that according to the Law of Ukraine “On the estimation of land”, the normative monetary value of land is capitalized rental income from the land, some of the established and approved standards.

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Regulatory assessment is used to determine the size of the land tax; state duty in the exchange, inheritance and gift of land plots according to the law; rent for land plots of state and municipal property, as well as losses of agricultural and forestry production.

The main problem of the current assessment, in addition to the already mentioned obsolescence, is the source data binding normative monetary value of agricultural land according to the economic valuation of land of collective farms and state farms of the Ukrainian SSR on the results of their management in the years 1981-87, as well as the efficiency of agricultural production data for 1986- 1990 .

In addition, the current system does not include the cost of evaluation: the establishment of indicators to measure directly dependent on the current grain prices excluding the real dynamics of the cost of agricultural products leads to a gradual curvature of the land evaluation indicators and makes it impossible to update their objective under the current methodology.

Under the new procedure, the regulatory monetary evaluation of agricultural land conducted separately for agricultural land (usable land, perennial plantations, hayfields, pastures, fallow) and non-agricultural land in the agricultural land. Mr. Martyn also mentioned the introduction of the approach, according to which the technical documentation for regulatory monetary value of agricultural land administrative-territorial unit should include the scale of the normative monetary value of agro-industrial groups of soils of agricultural lands of natural and agricultural areas, which are fully or partially included in the composition of the administrative-territorial units.

As part of his presentation, the expert briefly introduced a new formula for determining the valuation of the land, which can be viewed in more detail.

The question of the advantages and drawbacks of the current and planned systems, estimation of agricultural land caused a lively discussion with the exchange of views and a discussion of the details and consequences of the reforms.

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