Land pricing mechanisms for sustainable agricultural land use planning in Ukraine

Yarovyy V, Fischer G, & Ermolieva T (2008). Land pricing mechanisms for sustainable agricultural land use planning in Ukraine. EUROPA XXI: New Functions of Rural and Industrial Space in Central and Eastern Europe 17: 109-119. DOI:10.7163/Eu21.2008.17.

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Abstract

Agricultural land market development is among the top priorities for state agrarian policy in the Ukraine. There exist two main forms of land transactions: land lease and land sales. However currently, due to a moratorium on land sales, the land market in the Ukraine is represented primarily by the practices of land leases.

Land lease rates can play an essential role in guiding land allocation and in improving land use efficiency. In the Ukraine, they are also an important determinant of rural welfare, especially of numerous rural households who lease out their land as they cannot cultivate it. For them, the rentals they receive become a vital source of income, which is often not guaranteed by wage earnings.

Existing in 2000-2006 lease rents were equal to 1-2% of the value determined by normative monetary agricultural land evaluation (NMLE) (often not more than 100 hryvnas (about 15 Euro) per hectare per year). Lease rents are often subjective and do not reflect current conditions and trends of land use and agricultural markets, e.g., the basket of crops, crop profitability and prices, lessors incomes, lessees earnings, etc.

Currently, agricultural production in the Ukraine is characterized by a growing importance of corporate farms. They lease in land to enlarge their cultivated area. Introduction of corporate farms has led, in general, to mono-cropping dominated by highly profitable cash crops such as sunflower and rapeseed. While land lease rates are set very low, the corporate farmers earn high profits producing cash crops.

Determining a fair lease rent is a key question of agricultural development and land market reform in the Ukraine. In this paper we develop a methodology to estimate minimum and maximum rents that would enable fair conditions both for lessors and lessees. In the proposed framework, the minimum rent is determined in such a way that landowners can achieve sufficient profitability of land assets. The maximum rent, on the other hand, has to be sufficiently low for land operators to allow for profitability of crop production. Numerical experiments conducted with historical data show that rents could be much higher than 1-2% of the NMLE. For example, for land with cash crop production the lease rate even at the level of 30% of the NMLE allows land operators to be profitable. The proposed methodology is a new conceptual approach for agricultural land pricing in Ukraine and can be used as an effective mechanism for determining land lease rates.

Item Type: Article
Research Programs: Integrated Modeling Environment (IME)
Modeling Land-Use and Land-Cover Changes (LUC)
Bibliographic Reference: EUROPA XXI: New Functions of Rural and Industrial Space in Central and Eastern Europe; 17:109-119 [2008]
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:40
Last Modified: 07 Sep 2016 07:27
URI: http://pure.iiasa.ac.at/8482

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