Экономические науки/14. Экономическая теория

Oleksandr Virchenko, post-graduate student

economic faculty of Taras Shevchenko National University of Kyiv

department of economic theory

Land Reform: Consequences and Market Regulation for Ukraine

Typically, land reform is expected to contribute to greater efficiency and production, to enhance comparative advantage, which in turn may promote foreign trade, and to eliminate the irrationalities of planning whereby climate and soil quality were only secondary considerations for cropping patterns. A vibrant land market may also support social change as urbanization expands into former rural areas.

In post-soviet countries land reform affects politics in other ways as well. First, rural democracy deepens societal democracy and supports the development of a pluralistic democratic society with an inclusionary political system. Second, the rise of new rural interest groups is, at least in theory, consistent with the diffusion of economic power. Third, land reform that successfully implements a functioning land market will provide local governments with sources of income from land taxes and fees that would increase political independence [2].

Problems of land market formation and land market regulation considered in scientific papers of Mykola Malik, Pavlo Sabluk, Mykola Fedorov, Stephen K. Wegren, Jim Higgins, Robert Innes etc.

Consequences of land market formation in Ukraine can be presented as a system of possible opportunities and threats for Ukrainian economy.

As for the crucial opportunities for Ukrainian economy, we should admit next:

- land legislature improvement;

- private ownership establishing;

- formation of system for private ownership defense.

Besides that, Ukrainian economy can achieve serious stimulation of small-scale agricultural business development. In addition, improvement in land use efficiency can boost labor demand in agricultural sector.

Cooperation development in small-business sector can lead to credit transmission improvement in agricultural sector [1]. Price discrepancy liquidation and governmental pricing policy offsetting also can be a strong opportunity for further agricultural development. Market infrastructure can be improved with development of land banks and agricultural insurance companies.

Most possible expected threats of land market formation, such as generating a new model of land market - a virtual market, in which planning expectations are unconnected with real current demand and attain an inordinate role, siphoning off capital which will thus become unproductive, or which will be non-taxable if the money is black – should become a subject for governmental regulation.

Also, we can add to possible threats next expected result of land market formation:

- consequently higher rather than lower land prices, and the creation of a highly speculative virtual market of real-estate assets;

- possible situation, when agricultural land can be turned into urban-use land;

- land overdevelopment, exhaustion of the soil, decrease in land fertility;

- landscape demolition;

- uncontrolled conversed land sales [4];

- decrease in qualification of agricultural workers;

- landowners, uninterested in efficient land use;

- labor migration from countryside toward cities;

- agro-industrial concentration and deepened price discrepancy; as a result – establishing of complete cycle conglomerates.

Ways for avoiding monopolization on land market may be included in governmental program, considering governmental protection of economic competition and limitation of agricultural land shares for avoiding land concentration; price regulation, establishing minimal limit for land price, market price stabilization; including agricultural land to the market as equal to urban land. Among the efficient ways for avoiding monopolization are combination of administrative and economic methods of land tenure regulation; avoiding of information asymmetry on the land market; fixing maximum land share for each category of landowners and limitation of transnational corporation expansion on the land market [5]; non-admission of parceling out agricultural land shares and limitation for mortgage and derivative use to avoid land market “overheating”.

In addition, market concentration can be limited with institutional program, which should contain such constraints as: only individuals holding Ukrainian citizenship should own land after land market formation; land owned but not cultivated should be a subject to fines and possible loss of the right of use after two years of non-cultivation; new landowners should be given two options to organize production: they could farm individually or they could set up associations by pooling together the newly distributed land; land should be free of land taxes for few years of market adaptation; soil degradation prevention and amelioration should be financed and coordinated largely by the government [6].

In our case, model of regulation rests on three main propositions: first, that controls are necessary to prevent a land boom followed by a land market formation; second, that regulations will raise the farmer’s activity; and third, that regulations are necessary to prevent the development of an undesirable land ownership situation.

As for the third point, competition between investors and tenants for farms is weighted heavily in favor of the investors. Since the investor commonly uses surplus funds to invest in farm land he is not likely to be dependent on current income from the land for his living. He can and sometimes does buy land with little regard for the rate of return, what he is looking for is a safe place to invest his surplus funds. Furthermore, the investor is usually able to offer a larger percentage of the sale amount in cash, a factor which may be of critical importance in the purchase of a farm which the tenant operator also wants to purchase. As a consequence, tenant operators often times find it difficult to outbid investors [3].

Three types of regulation or control are suggested to free the land market from objectionable developments. The first is a limitation on farm mortgage credit to prevent a land boom and to reduce indebtedness. The second is a special tax program to soak up the profit from any land speculation which does develop. And the third is a system of permits to regulate transactions in farm land.

1. Fedorov M. Specialties of agricultural land market formation in Ukraine / Fedorov M.// Economics of AIC, №5, 2007. - p. 73-74.

2. Wegren S.K. Land Reform and the Land Market in Russia: Operation, Constraints and Prospects / Wegren S.K.// Europe-Asia Studies, No. 6, 1997. - Vol. 49. - p. 959-987.

3. Murray W.G. Land Market Regulations / Murray W.G.// Journal of Farm Economics, 1943. - Vol. 25. - p. 203-218.

4. Higgins J. Price Determination and Price Control in the Agricultural Land Market / Higgins J.// Irish Journal of Agricultural Economics and Rural Sociology, No. 2, 1979. - Vol. 7. - pp. 127-148.

5. Innes R. Stop and Go Agricultural Policies with a Land Market / Innes R.// American Journal of Agricultural Economics, No. 1, 2003. - Vol. 85. - p. 198-215.

6. Medici G. Some Considerations on the Land Market in Europe / Medici G.// The Journal of Land & Public Utility Economics, No. 2, 1946. - Vol. 22. - p. 171-173.