The launch of Ukraine’s farmland market in summer 2021 is widely regarded as one of the most consequential reforms in recent years. It brings to an end a longstanding moratorium on farmland sales that had lasted for more than two decades and meant Ukraine was one of the few countries globally where farmland could not be sold.
The July 1 opening of Ukraine’s land market is a potentially game-changing development for the economically important agricultural sector. Supporters hope it will lead to greater transparency, better financing, and additional investment, helping a country which has long been known as “Europe’s breadbasket” to finally achieve its full potential as an agricultural superpower.
For the Ukrainian banking sector, the country’s farmland market reforms also represent a landmark moment that will shape the future evolution of financial services for the agricultural industry. As Deputy CEO at Credit Agricole Bank in Ukraine, Larysa Bondarieva is closely involved in the current debate over the implications for the banking sector of Ukraine’s farmland breakthrough. Credit Agricole Bank has long been at the forefront of banking services for the Ukrainian agricultural sector, and Bondarieva is confident that this summer’s land reforms represent a potential gateway to a new era in financing and banking services for Ukrainian farmers.
A New Page
Despite the dramatic nature of recent developments, Bondarieva cautions that we should not expect to witness change overnight. “This is a new page in our history, but there are currently more questions than answers,” she notes. “How will the market and the state registers work? How will the broader ecosystem react? With so many unanswered questions, the first year is likely to be a process of discovering exactly how the land market actually works.”
As Ukraine’s land market takes shape, Credit Agricole will continue ongoing work on the development of services tailored to the new environment. “It will be a case of engaging with our clients and listening to their feedback in order to learn and adapt our products in the months ahead,” says Bondarieva.
Initially, any additional banking products will be geared towards smaller farms and private individuals. The first wave of farmland reforms restricts sales and purchases to individual Ukrainian citizens, who can buy up to 100 hectares of land. It will be another three years before the market opens up for larger agribusinesses, which will be permitted to buy up to 10,000 hectares.
Bondarieva does not expect to see major investments in the initial stages of land reform, at least until agribusinesses enter the market in 2024. She says earlier forecasts predicting that up to 10% of eligible farmland would be available for sale during the first year have now been downgraded to 3-5%. “The market will try to find its own natural price balance. I do not expect large numbers of private landowners to sell their land during the initial three-year period. For now, many owners have rather high expectations and dream about the kind of prices typical in Poland or Hungary. Others may prefer to hold onto their lands for a rainy day. The process of finding an equilibrium in the market will necessarily take time.”
Smaller farms represent significant growth opportunities for the Ukrainian banking industry. Bondarieva notes that this sector is currently under-financed and often misunderstood by Ukrainian banks, but may now become more attractive. She argues that having land as collateral will change the nature of the relationship between small farmers and banks, helping the sector to visibly modernize and develop. With this in mind, Credit Agricole is currently developing a number of financing tools with long-term outlooks that aim to facilitate investment into farms and small-scale agribusinesses.
Leasing Services Launched
Despite the disruption caused by the Covid-19 pandemic, Credit Agricole was able to successfully launch new leasing services in August 2020. These services have already proved particularly popular among agricultural clients in the SME sector of the market. While not exclusively tailored for agribusinesses, Credit Agricole’s new financial leasing services create competitive conditions for the acquisition of agricultural machinery. “It is good that we are now able to offer this choice,” notes Bondarieva. “Until last summer’s launch, the leasing option was the only product missing from our portfolio in Ukraine.”
Investing in Irrigation
With land reform expected to create greater opportunities for farm financing, one of the top priorities is likely to be investment in irrigation. In recent years, the challenges of climate change have become increasingly apparent to Ukrainian farmers. Initially this was most immediately obvious in the sweeping steppe lands of southern Ukraine, but drought conditions and other unwelcome weather features are gradually making their way up into central and northern Ukraine, posing a mounting threat to the country’s agricultural economy.
“Changes to the climate are undoubtedly one of the biggest single problems that Ukrainian farmers face today. It is no longer only an issue for southern Ukrainian regions like Kherson. I now encounter the same concerns in places like Cherkasy and Poltava in central Ukraine,” says Bondarieva. “Ukraine needs irrigation, but this a costly a long-term project to undertake.”
She argues that the earlier prohibition on land sales created barriers to irrigation initiatives, as farmers renting the land they worked were typically less inclined to commit to such large-scale investments without the security of ownership. The advent of land sales may now create the impetus for farmers who currently rent land to purchase it and launch major irrigation projects.
In the past year alone, Credit Agricole in Ukraine has signed three partnership agreements with international producers and local distributors of irrigation equipment in order to offer more attractive financial conditions for Ukrainian customers in terms of interest rates, advance payment requirements, financing duration, and so forth. The focus on irrigation financing is expected to continue in the months and years ahead as climate change challenges grow and Ukrainian farmers gain the financial foundations to embrace a longer term approach to their businesses.
Looking ahead, Bondarieva is optimistic about the historic changes currently taking place in the agricultural sector, but stresses that the short-term priority for all market players will be adaption to the new environment created by the country’s long-awaited farmland reforms. “We are just starting to discover this new reality for ourselves,” she notes. “This is why it is not such a bad thing that the farmland market is likely to grow organically in a step-by-step manner.”
About the interviewee: Larysa Bondarieva is Deputy CEO at Credit Agricole Bank in Ukraine