432.2 thousand hectares of agricultural land were sold in Ukraine by the beginning of 2024

Agricultural land market in Ukraine

The recovery of the agricultural land market continues. Land turnover in 2023 increased by 58% to 172.9 thousand hectares compared to 2022. In the 4th quarter In 2023, the number and area of transactions with agricultural land was the highest in 2023: 23.8 thousand transactions with a total area of 53.9 thousand hectares.

According to the State Geocadastre, since the opening of the land market, 195,900 sales and purchase agreements with a total area of 432,200 hectares have been concluded. So, as of January 1, 2024, 1.05% of all agricultural land in Ukraine was in circulation.

The weighted average price for agricultural land increased by 8.3% during 2023, outpacing the annual rate of inflation in Ukraine. Therefore, the nominal capitalization of the market according to the results of last year increased by UAH 89.9 billion, and since the opening of the land market – by UAH 179 billion.

The volume of sales of communal land lease rights through Prozorro. Sales increased more than four times throughout 2023 - from 402 auctions for plots with a total area of 3.6 thousand hectares in the 1st quarter to 1,677 auctions for plots with a total area of 14.5 thousand ha in the 4th quarter. All since the start of electronic auctions on the Prozorro platform. Sales in November 2021 were successfully leased 5,504 plots of communally owned agricultural land with a total area of 48.7 thousand hectares, which brings the communities an annual income of UAH 428.5 million.

Key indicators of the agricultural land market in Ukraine as of January 1, 2024

Аgricultural companies, farms and agriculture land (farmland) for sale in Ukraine

The impact of the war on the agricultural land market in Ukraine

Russia's full-scale invasion of Ukraine had a negative impact on the agricultural land market in Ukraine. In 2023, the market partially recovered, but its daily volumes are lower than before the full-scale invasion. In the second half of 2023, an average of 529 hectares of sales was concluded daily, or 37% less than before February 2022.

According to our calculations, due to the invasion of the Russian Federation, 120,000 agreements with a total area of 355,500 ha were not concluded. Thus, market losses reached 325 million dollars. USA or UAH 12.4 billion.

The economic effect of the introduction of the land market

In more than two years since the opening of the agricultural land market in the conditions of a full-scale war between Russia and Ukraine, the value of land has increased by 10%, which is equivalent to an increase in the value of potential collateral by 5.5 billion dollars. USA. Taking into account the current coefficient of liquidity of agricultural plots as collateral at the level of 0.35, the specified increase in the value of land could generate 1.9 billion dollars of additional loans to its owners and the agricultural sector. USA. For comparison, at the end of 2023, the volume of bank debt of the agricultural sector of Ukraine amounted to approximately 3.5 billion dollars. USA. Therefore, a more active use of land as collateral would allow for a several-fold increase in the amount of financing for the agricultural sector and land owners.

Thanks to the opening of the land market for legal entities from January 1 of this year, the value of land is expected to increase by approximately 40% in the future, and therefore the capitalization of the land market will increase to almost 50 billion dollars. USA. That is, the potential volume of credit financing could amount to 17.5 billion dollars. USA. This, in turn, would make it possible to close the gap in the financing of the Ukrainian agricultural sector, which currently amounts to about 21 billion dollars. USA, and thus meet the needs for short-term financing, as well as investments in reconstruction, rehabilitation and development.

At most, the further development of the market, increasing its transparency will contribute to the growth of the land liquidity ratio to the indicators of developed countries - at the level of 0.6-0.8, which will automatically increase the volume of possible lending.

Income to community budgets as a result of the functioning of the land market

In 11 months 2023, thanks to the circulation and use of agricultural land, the budgets of communities were replenished by UAH 33.7 billion. This is almost 12% of total tax revenues. The largest share of these revenues was generated by the lease of communal land. In 11 months In 2023, communities received UAH 18 billion in rent, or about 4% of all revenues. However, most of these revenues come from leases that were concluded either through the old offline auction procedure that ran from 2013 to October 2021, or through direct contracts in a non-competitive and non-transparent manner.

For comparison, during 2015-2021, 331 thousand hectares of land were leased under the old opaque mechanism, which is almost 7 times more than the amount of land that was transferred through land auctions on Prozorro.Prodazhi. Currently, it is not known about the exact amount of land leased by all procedures during the last 20 years. However, even if we take the available data only for the years 2015-2021, and assume that the share of land leased through online auctions is 13% (the upper limit), the increase in the annual rental income of communities due to the full transition to Prozorro.Sales can amount to about UAH 29 billion. Some communities are already following this path and have entered into competitive online auctions for the lease of agricultural land for amounts equal to 5-15% of their annual budget revenues.

Another potential source of increasing community income from the circulation and use of agricultural land is the increase in the level of land registration in the State Land Cadastre, which currently accounts for 77% of the total number of such lands. Plots of land, information about which is not included in the DZK, are outside the transparent market: such land cannot be officially sold or leased, it will not be paid land tax or even a single tax of FOP-agrarian. The potential for the growth of community budget revenues due to the registration of all agricultural land in the DZK may reach 2% of all revenues in 2023, or more than UAH 10 billion. This is plus 15% to the current level of capital expenditure (which is considered development expenditure) or 60% of the current expenditure of communities on education.

Attracting investments in the agricultural sector of Ukraine

During the market operation, the total amount of investments in the purchase of agricultural land amounted to UAH 17 billion. Of them, 9.5 billion (56%) were invested already after the beginning of the full-scale invasion of Russia.

As of December 2023, bank loans in the amount of UAH 115.81 billion were issued to the agricultural sector. Of them, 47.5% (54.1 billion UAH) - for up to 1 year to replenish working capital. Loans with a term of more than a year for financing capital investments make up 53.5% (56.7 billion UAH), of which only 3.7 billion UAH were long-term loans with a term of more than 5 years. 75% of loans are issued in national currency.

The average rate of borrowed funds per hectare of agricultural land in Ukraine is UAH 2,792/hectare. At the same time, it is significantly higher in some regions, such as, for example, in Kyiv (UAH 21,53/ha), Lviv (UAH 5,552/ha), Ternopil (UAH 5,759/ha), and Khmelnytskyi (UAH 3,198/ha) regions. Among the new loans issued during March 2022 - December 2023, about 10.3% were provided with agricultural land, for a total amount of UAH 357 million. The total area of land in the pledge was 15.5 thousand hectares.

Compared to the average value in May 2023, the share of agricultural land in the structure of the provision of loans issued in the second half of last year increased by 4%.

Ways to improve land legislation

In connection with the opening of the land market for legal entities, the current regulations and procedures need to be revised in terms of improving the mechanism for checking new land owners and the concentration of land in the same hands, establishing safeguards and ensuring the transparency of purchase and sale agreements.

On September 3, 2023, the Law of Ukraine No. 3272-IX came into force, however, the necessary changes to the regulatory legal acts were not made within the prescribed period, and therefore the sale of sublease rights to state agricultural land did not begin on January 1, 2024, as provided for by the law.

A number of legislative initiatives appeared in the Verkhovna Rada regarding the renewal of free privatization of agricultural land plots from the state or communal fund for military personnel participating in hostilities and family members.

According to KSE Agrocentr experts, these legislative initiatives may have negative social and corruption consequences. Therefore, instead of provoking land corruption, lawmakers should focus on reforming the institution of free land privatization, as stated in the State Anti-corruption Program for 2023-2025, and thank the defenders and families of the victims with respect, money and other life support, respectively to the best world practices.