Despite the size and influence of Ukraine’s major agro-holdings, the politically sensitive issue of land reform has exposed some of their weaknesses.
Ownership
Agriculture is an exceptional case in Ukraine, in that it is a large sector of the economy not controlled by the top-tier business interests that dominate sectors such as banking, energy, metals and transport. Agricultural lands used for commercial farming are held by private individuals in the form of communal property. Commercial farmers lease these and operate at the level of large agro-holdings, mid-sized farms and small farms, with around 50,000 legally registered entities active in the agricultural sector. In addition, there are an estimated 1–4 million unregistered small farms cultivating around a third to half of the country’s arable land (up to 20 million hectares). These have no access to state subsidies or bank finance.
Influence mechanisms
The reluctance of successive governments to permit the free purchase and sale of agricultural land has favoured the development of large agro-holdings controlling 50,000 hectares and more in the absence of a legal limit on the amount of land they can lease. Some have been able to secure access to land on decades-long leases. Even though the agro-holdings control less than 25 per cent of Ukraine’s agricultural lands, they have exercised decisive influence on legislation, market rules and lease prices, as well on prices for commodities and equipment. These companies include Astarta, Kernel, MHP, Salic (formerly Mriya) and UkrLandFarming. Typically, companies of this size have strong relationships with regional authorities because of their importance as employers and taxpayers.
In a sector blighted by ‘corporate raiding’, the big companies have their own security guards but often work closely with local law enforcement agencies to protect their assets – and in some cases to increase their land holdings by using various tactics to put other farmers out of business. At the national level, they also have significant lobbying capacity. One of the best-known examples is that of Vitaly Khomutynnik, a shareholder in Kernel and a member of parliament’s Tax Committee at the time when, in 2018, it pushed through VAT legislation favouring Kernel and other companies in the oilseed-crushing business. The founder of Kernel, Andriy Verevsky, was an MP for over 10 years up to 2013, and served on parliament’s Agriculture Committee until forced to step down because of a conflict of interest.
In a sector blighted by ‘corporate raiding’, the big companies have their own security guards but often work closely with local law enforcement agencies to protect their assets – and in some cases to increase their land holdings by using various tactics to put other farmers out of business.
However, despite the size and influence of the agro-holdings, the issue of land reform has exposed some of their weaknesses. This became clear after the IMF signalled that ending the moratorium on the sale of agricultural land would be a precondition for a new support programme. Up to that point, the large agro-holdings were happy with the status quo, and in some cases actively discouraged reform, sometimes using the media to harness public support. Oleksii Mushak, Verevsky’s cousin and the then prime minister Oleksiy Honcharuk’s adviser on land reform, was an advocate of the most liberal version of the law to allow foreign ownership of land, a provision that favoured large companies such as Kernel because of their ownership structure. Faced with a popular backlash against concentrated ownership of land, including by foreign entities, the government was forced to retreat. It ultimately proposed a version of the law that favoured the interests of the operators of small farms (up to 100 hectares) over the biggest companies. Parliament adopted a new version of the bill in a second reading without revisions of substance and Zelenskyy signed it into law. Some observers consider that the government chose to disregard the lobbying of big business because of the sensitivity of the issue with the public and fear that it could have a negative impact on upcoming local elections. Others point to the risk that some of the large companies may succeed in persuading lessors that they are better off leasing land than selling it.
The land reform issue is an important example of how dominant business interests were unable to win the day in a sector in which the biggest FIGs, with their lobbying and media tools, are absent. Although the law adopted is not as liberal as some reformers had hoped, the pressure of the IMF and the strength of public feeling proved more important for the government than any gains it may have received by supporting the position of the agro-holdings. Ultimately, these business groups do not command the same level of authority as the main FIGs which – with their representatives in government and parliament as well as their media channels – have far greater resources to influence decision-making.
