Investing in land in Ukraine
Any investor would agree that buying fertile land is always a good investment since land is no longer produced on the planet. Ukrainian land is leased now under long term contracts. Some of the biggest private farms boast 49-years lease contracts of state-owned of “pai” agricultural lands. Privatization of land in Ukraine is a matter of the next few years….
Agricultural lands in Ukraine has always been among most wanted in the world. Ukraine boasts to have more than 30% of the world’s most fertile black soil. Nevertheless, the post-Soviet uncertainty of the Ukrainian farmers has resulted in an immense outflow of young labor force from the Ukrainian villages. The Ukrainian government has rooted deeply the seeds of undervaluation of the biggest Ukrainian asset in the minds of the new generation that was raised in villages but now have flown away to look for better fate throughout cities.
At the same time, quite a few Western farmers have come to Ukraine to take advantage of the undervalued land market and close land lease contracts for many thousands of hectares. Most of them plant rapes — the product in a high demand in the current conditions of overvalued oil.
Not all Western farmers in Ukraine follow this mainstream of rapes production. There are examples of organic agricultural production in Ukraine by foreign investors as well which tremendously differ from “modern”, chemical methods of agricultural cultivation.
Demand for organic products grow at a similar pace next to the rapes while the premium pricing for organic wheat and barley are even more commercially interesting. Yet, not very many banks in Ukraine and around the world understand the concept and often refuse in crediting organic farms. The major reason for that is the banks’ combined interest in the farming sector which is distributed between direct crediting to farmers and trade financing to agricultural vendors of chemical supplies and Genetically Modified seed materials.
In the conditions when land can only be leased in Ukraine, many Western farmers tend to concentrate on making quick returns while being backed up by the banks and continue harvesting rapes which exhaust the fertile soils quickly. The lack of the political will and strategic insight of the Ukrainian government in the national agricultural policy only stimulates the foreign farmers to get the high returns without thinking of the future condition of the lands which they do not own.
Ukraine has joined WTO this year - a serious move towards wider international markets which has also opened the doors to even more genetically modified crops to be planted throughout Ukrainian farms at lower rates but much more serious long-term risks to the health of the Ukrainian fertile lands.
Investing in land in Ukraine is extremely interesting in the conditions of a growing demand for primary food products. But any land can only be productive if long-term sustainability plan is in place which is only possible when land can be owned and easily traded.
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