0. Long term land financing requirements in Ukraine
ECA Agri-Financial Services
Leah Soroka
Program Manager

1. UKRAINE CURRENTLY HAS A MORATORIUM ON THE SALE OF AGRICULTURAL LAND
HISTORY OF PRIVATIZATION 1992 – the government started the privatization of land where the collective and state-owned farms were divided equally among former workers. The result has been the creation of 6.8 million parcels for a similar number of individuals, with an average size of 4.2 hectares per share. To date, around 75% of agricultural land has been privatized – the agricultural land market is restricted by a moratorium on agricultural land sales that was introduced in the Land Code (renewed in 2004). The moratorium was set to expire on January 1, 2013; however, recent amendments to the Land Code have extended it until January 1, 2018.
Please remove this slide as it repeats the information from earlier presenter
UKRAINE IS CONSIDERING TO REMOVE THE MORATORIUM ON AGRICULTURE LAND SALES ENABLING THE SECURITIZATION OF A LOAN WITH LAND, RESULTING IN LESS EXPENSIVE CREDIT FOR FARMERS

2. TRADING LAND FACILITATES ACCESS TO FINANCE
POTENTIAL VALUE OF LAND
Agricultural land under moratorium ownership
PHASE 1 – State Land 10 M ha x $1,000/ha = $10 BILLION PHASE 2 – Private Land 27 M ha x $1,000/ha = $27 BILLION
ENORMOUS ACCESS TO FINANCE FOR FARMERS
Lots of land in Ukraine…we need to lay out private land, government land….amount of land and potential value of this land….this is like the business rational.  We see ag improving.  Credit rates are high.  One of the cheapest ways to give credit is by securitized assets such as land. Putting land on the market will be an important way to efficiently increase access to finance and develop the ag sector in Ukraine.  It will enable the consolidation of land to profitable units for various value chains.  It will also provide a source of working capital.  Making land available for sale enables all of this….but there are concerns.
About 71% of Ukrainian territory (42.7 mln. ha) is classified as agricultural lands. State owns about 10 mln. ha of this land, which comprises 25% of Ukraine’s agricultural land base. There are about 23 mln private land owners and users (about 90% of them are natural persons) and about 4.9 mln users of state land. About 21.5 mln ha of agricultural land is cultivated by about 45,000 commercial producers (about 36,000 of which are below 200 ha). Thus, the quality of land governance affects wellbeing of a significant portion of country’s population and efficiency of several industries that use land as a factor of production and are vertically integrated with such industries
LAND SALES ENABLES ACCESS TO FINANCE TO FACILIATE DEVELOPMENT OF AGRICULTURE IN UKRAINE, BUT THERE ARE CONCERNS

3. LAND SALES ARE GOOD FOR GROWTH AND BUSINESS, BUT BANKERS AND FARMERS HAVE CONCERNS
Banks
Farmers
Liquidity of land – banks can lend more if they:
can possess land
can sell it quickly
have an idea of the price
Need to protect creditors’ rights:
to build confidence
to reduce transaction costs
Polarization of small and large farmers: small farmers feel that they will not have access to capital to compete with the big guys
2/3 of small farms
haven’t or don’t use banks for lending
have lower financial literacy
result in higher transaction costs for banks because of the size
Coercive power of oligarchs (power, connections, corruption) people feel out of the game
Low awareness about the land situation and process
Small farmers don’t have lawyers and accountants so people are afraid they will get taken advantage of
SOLUTIONS MUST CONSIDER ECONOMIC AND SOCIAL ISSUES

4. Institutional Capacity
A HOLISTIC APPROACH IS REQUIRED TO ADDRESS ECONOMIC AND SOCIAL CONCERNS INCLUDING:
Enabling Environment
Policies & Programs
Institutional Capacity
Financing & Banking
BANKS
FARMERS
Phased approach?
PUBLIC AWARNESS IS PART AND PARCEL IN ESTABLISHING A ROBUST LAND MARKET AND ADDRESSING SOCIAL EQUITY ISSUES

5. ENABLING ENVIRONMENT MEANS FOCUSING ON THE LEGISLATIVE AND REGULATORY FRAMEWORK OF A LAND MARKET
Amendments to Land Code
New Law on Land Turnover provides for lifting the Moratorium
Registration of land (completion of the cadastre and registry, correcting errors)
Harmonization of land used as collateral (centralized, electronic, free public access to check, registration system)
Rules to facilitate land consolidation
Repossession
Quick and easy land enforcement – extra-judicial enforcement, improved process to check, validate, act
Foreclosure
Price registration and Land valuation systems
Have made some edits. Not sure what do you mean by “Harmonization of land used as collateral (centralized, electronic, free public access to check, registration system)” and “Reposession”
ADDRESSING CONSTRAINTS TO SUSTAINABLE ENVIRONMENT OF A LAND MARKET WILL BOOST THE MARKET ITSELF

6. POLICY AND PROGRAMS ARE TOOLS TO ADDRESS EQUITY ISSUES
Credit guarantee schemes to back stop defaults of small farmers
Governmental programs/policies for young farmers (e.g. interest rate subsidies) making credit more affordable
A fund or credit available only for small farmers in a community only accessible to local residents
Farm financial literacy for farmers to understand banks and financial instruments (how to prepare their documents, ask for credit, manage credit, what happens if you don’t pay back credit)
The Interest rate subsidies are not supported by IMF and WB. I would not mention this option. Instead I would add a dierred payment option for young farmers for the purchase of state land to facilitate access to land and to address demographic disbalances.
COMPREHENSIVE POLICIES AND PROGRAMS ENSURE FINANCIAL INLUSION OF YOUNG, SMALL, OR MINORITY FARMERS

7. BUILDING INSTITUTIONAL CAPACITY INCLUDES:
Personal insolvency must be enabled
Building capacity and transparency of enforcement agencies for quick and efficient repossession
Real estate agent/system capacity building to facilitate markets
Build capacity of loan officers to understand the agriculture business and risks
Land market mechanism: auctions, auctioneers, real estate industry, fast and transparent land sales and effective price discovery
Effective land appraisal system for price discovery, sales, and local taxation
Facilitate establishment of a network of land appraisers
Insurance: insurance for land title errors, bonding insurance to compensate for errors of auctioneers and real estate services, insurance for property
Land sale ombudsman would create an independent office for complaints (hot line to address and investigate fraud, coercion)
Land zoning - Agriculture land use through community zoning and approval mechanisms to ensure land is appropriately used and preserved for agriculture
Too much as for one slide. It may be better to keep fewer but the most critical and clear options
BUILDING INSTITUTIONAL CAPACITY WILL CREATE OPEN, TRANSPARENT, AND WELL FUNCTIONING MARKETS AND RELATED SERVICES

8. FINANCING AND BANKING BARRIERS HAVE TO BE REMOVED TO REDUCE THE COST OF CAPITAL
Publicly available price discovery instrument (e.g., web- site, digital platform, etc.) of the current valuation of land in different regions….we need to believe in the price of land
Split mortgage – specialized financial instrument that get backing or support from the value chain to grow their business
Other financial instruments (crop receipts, warehouse receipts and value chain finance from processors, input suppliers, or other sources, leasing)
Underwriting support and training
Credit Bureaus for inexpensive credit checks
Secondary markets – long term deposits, pension funds, etc. need cultivation to extend tenor
Too much text and too small font
REDUCED COST OF CAPITAL INCREASES ACCESS TO FINANCE FOR FARMERS

9. Public awareness campaign – so that people know what is going on, appropriate responses to challenges and opportunities
Sector wide: need to know what will happen for planning
Need to know that others know the process so there is less or no cheating or corruption
Need to know what to do if there is some maleficence or wrong doing
Need to address opportunities and challenges that arise but were not anticipated
BY WORKING TOGETHER WITH COMMON INFORMATION WE INCREASE TRANSPARENCY, EFFICIENCY, REDUCE CORRUPTION, AND ARE PROACTIVE IN THE MARKET

10. ECA Agri-Finance Project
THANK YOU!
ECA Agri-Finance Project
Kyiv, 01010, Ukraine
1, Dniprovsky Uzviz, 3rd floor
Tel
Fax
Leah Soroka
Program Manager
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