How to make Ukrainian chernozem more expensive. An interview with the head of the State Land Bank.

The state earns more from renting its land than private owners of land shares. This is due to open auctions for subleasing state land, which are held by the "State Land Bank".

The agency was created a year ago to transfer state-owned agricultural land into sub-lease. Through Prozorro, new users find the land plots they need. In a year, almost two hundred farmers have taken more than 50,000 hectares of state land into sub-lease.

The average annual rent for such a hectare is 20,000 UAH. Private landlords usually receive half that amount. How does the State Land Bank manage to rent out hectares at such a high price? LIGA.net This was stated by Yaroslav Yaroslavskyi, head of the State Land Bank. We asked him how much agricultural land will be put up for auction in the near future, who is most interested in such land, and about the sabotage by agrarian academicians.

Billion, hectares, "the big leagues"

A year ago you said or told, that the state will receive a billion hryvnias from the lease of its land. What are the results?

Over the year, the State Land Bank transferred 53,245 hectares of state-owned agricultural land in 19 regions for sub-lease through land auctions. 1.2 billion hryvnias have already been paid for this state resource.

The average fee for subleasing state land is now almost 20,000 UAH per hectare (previously there was no clear price tag – ed. note).

Almost 3,500 auctions have been organized. But the auction is only the beginning. After that, it is necessary to support the contracts and monitor compliance with the intended use of the land.

How many people are working on this – what is the staff size of the "State Land Bank"?

25 specialists, mostly land surveyors and lawyers.

Agro-companies pay landowners 6,000–10,000 hryvnias per hectare per year. At State Land Bank auctions, agro-companies leased land for as much as 40,000 hryvnias. What needs to be grown to pay such sums just for rent?

I am not an agronomist, and I will not speculate on the profitability of growing different crops. My task is to ensure that state resources are transferred for use in the most efficient way.

But a rental fee of $1000 per hectare is in Ukraine, where there is only one harvest per year.

It seems to me that no one expected such results. I certainly didn't.

Analyzing the situation, I see three reasons for this phenomenon. First of all, it's the uniqueness of the offer: so far, no one but the state can provide the market with such large areas of land as a single block. The average size of plots at our auctions is 45 hectares.

Moreover, high-quality land. By the way, we plan to make information about the quality of land on state plots available to everyone – simply on an interactive map that is available on the "Land Bank" website. It will become clear how it changes from year to year.

Furthermore, such auctions give farmers the opportunity to quickly increase their land bank. This opens up the possibility of moving the business to the "upper league" and taking advantage of economies of scale.

For example, receiving a volume bonus for sales of their products. Or a discount when purchasing a large batch of fertilizers or fuel. Perhaps that's why the winners of our auctions are usually small and medium-sized companies and farms. Almost 90% of the winners employ fewer than 200 people.

Finally, sub-leasing state land frees up additional, informal expenses. For example, for additional social support. And this always exists when farmers deal with land that belongs to hundreds, or even thousands, of land owners.

Why is land sub-leasing the cheapest in Zakarpattia – a little over 3,000 hryvnias per hectare?

The state has limited opportunities to form large, attractive plots of land in Transcarpathia. For some reason, there is no significant competition at auctions – usually only two or three participants. Perhaps this is because there are fewer agricultural companies in Transcarpathia.

But there's always room for miracles. Seven participants took part in the latest auction for a plot of land in Transcarpathia. The winner offered 27,000 hryvnias per hectare.

When we see that there are three participants in the auction, it is clear that the price will be low. If there are ten participants, it's better. If there are thirty, then the sub-lease price will increase significantly.

What Kernel and Nibulon rent

Due to high sublease rates, landowners have realized that their land is four to five times more expensive than what current tenants are paying. This will trigger a mass review of lease agreements. Along with this, land for sale is already becoming more expensive.

Why should Ukrainian land be cheaper than in Poland, for example?

Before the war, the most expensive land in Ukraine was in the Kharkiv and Sumy regions. Okay, let's take into account the risks of the war. But in other respects, our land is definitely not worse. Therefore, from this point of view, I consider our auctions useful: market rental rates make Ukrainian land more expensive.

The costs of forming land banks are increasing for agricultural producers. Have you already spoken with owners or top managers of agricultural holdings on this topic? Or with members of parliament associated with them?

Such meetings did not take place. I am sure that there is no point in them – because the entire auction procedure and the formation of bids are transparent. We specifically designed it in such a way that it would be impossible to influence or change anything manually.

Agroholdings often participate in auctions. So far, they are stopping at offers of 20,000-25,000 hryvnias. Nibulon won 18 auctions, acquiring 2,400 hectares. "Druzhba-Nova" (Kernel – ed. note) won 21 deals, acquiring almost 1,000 hectares in sub-leasing.

According to your agreements, the land is transferred to sub-lease for a period of 14 to 25 years. The sub-lease rate is fixed in hryvnia. How is possible devaluation taken into account in this case?

Previously, tenants had a significant advantage in this matter. From 2013 to 2023, the normative monetary valuation (NMV) of land was indexed annually by a factor of 1. That is, over 10 years it remained unchanged – averaging 30,000 hryvnias per hectare. The hryvnia exchange rate against the US dollar decreased several times during this period.

Sublease agreements now stipulate that the land's market value is indexed annually, in accordance with the inflation rate. Accordingly, the lease fee increases. Therefore, current sublease payments will be 12% higher than last year. This balances the interests of the state and the sublessee.

The second pool of state-owned land and the sabotage of agricultural academics.

How much land is left to be subleased?

This year, we have planned tenders for plots of land with a total area of almost 10,000 hectares. Regarding the second pool – it should include land from the State Property Fund and the National Academy of Agrarian Sciences (NAAN). In total, this is 200,000 hectares, of which NAAN should transfer 150,000 hectares.

There are no problems with the State Property Fund's land – perhaps this land will start appearing at auctions as early as October. The situation with the National Academy of Agrarian Sciences is different – they are not in a hurry.

Currently, communication with the National Academy of Agrarian Sciences of Ukraine (NAAN) is ongoing. They are conducting accreditation of their land. Perhaps, based on the results, they will transfer some plots.

Will this land be received by the "State Land Bank"?

For the second pool, the government cannot seize land from state-owned enterprises (SOEs) and transfer it to the LLC "State Land Bank". The company does not have the right to permanent land use, only lease.

Therefore, for this purpose, the state-owned enterprise must transfer the land to another state-owned enterprise, free from obligations. It seems that this is the state-owned enterprise "Reserve". And then a decision will be made whether to also transform this state-owned enterprise into a limited liability company as a separate independent state operator, or, for example, to reorganize it by joining "Derzhzembank".

Wasn't it the same thing a year ago – the same model was used when the "State Land Bank" was created and started operating?

A year ago, for the first time in the history of Ukraine, corporatization was carried out in a form where the state enterprise "Fund of Agrarian Investments" was transformed into the LLC "State Land Bank". The sole owner of this company was and remains the state.

Why did they do this?

There is a right to permanent use of land plots belonging to the state. This right does not provide for the possibility of transferring it for rent.

State-owned enterprises (SOEs) that have the right to use state land pay only land tax for the use of the land. This usually amounts to 200-400 hryvnias per hectare. However, the market benefits from such land are not just several times higher, but orders of magnitude higher.

What's next? Such a discrepancy provokes corruption and various shadow schemes. State resources – land – are unofficially given by the state enterprise management to efficient businesses that make money from it. The participants in the scheme divide the profits among themselves. The state enterprise itself reports continuous losses, sometimes not even paying the meager land tax.

Unlike state-owned enterprises, LLC "State Land Bank" received state land on lease. This was done in order to legally transfer state land for work to efficient companies and farmers. De jure, this is sublease – with market rates, transparent rules and for a period of 14 to 25 years.

Thus, a legally sound model was obtained, in which the state began to receive fair, market-based payment for its resource.