“We should create the land market and the rules on it by ourselves”

Iurii Diachuk, CEO of the Investment Company INTELEVRAZ

Author: Iurii Goncharenko

BY THE EDITOR. One farmer complained to my deputy while they talked that he had found nothing for himself in the second issue of the magazine. Because there is progress and advanced technology here, but he is worried about the land market, what will happen to the land…
Everyone is interested in this question.
So we are again applying for expertise to Iurii Diachuk, the CEO of the Investment Company INTELEVRAZ, the specialist and practitioner of the land market.

– Recently we had said that the land market starts with a grain of sand the size of 2 hectares and grows to 100 hectares of stones…
– Pebbles, I would say.

– And should we expect that a huge number of stones gatherers appear on the market?
– An incredible amount. Speculators, direct investors – there will be an insane number of them. Interest in this market is much higher than the ability to make meet the market stakeholders needs. We can clearly see that there will be much less land for sale than those who want to buy it.

– This is a direct path to rising prices.
– Of course, people will be ready to go for the lowest yield to enter this investment. This is good for sellers. What are the other advantages of the primary market? At the first sale, there will be minimal or no taxation. From 0% to 1%. The legislator has established a mechanism that allows to form a tax base, show the real price of transactions, introduce non-cash payments and continue to sell, but with a tax of 6.5%.

– It is logical and normal.
– However, this taxation will lead to an increase in prices in further operations.

– I do not think that 6.5% will be significant. It seems to me that the market is capable of much bigger jumps.
– 6.5% is a bar to break even. Of course, the price increase will be greater. People who are cultivating this land now, farmers, agricultural companies have an advantage. They will be able to buy land at the original price or sell their right to the original price. It is not only the right to buy, it is an interest in concluding lease agreements with new owners, while the rental price is not raising. This is important for land valuation because there will be the rental price for the current day here. First of all the cost of land will grow and then the cost of rent will follow. The investor will try to improve the return on his investment…

– Now farmers’ associations are reporting alarmingly that farmers will not be able to buy the land they used to cultivate: lack of funds, everyone has a terrible crop failure, everyone is in credits…
– In part, they have already bought the land. When the participants of the anti-terrorist operation were provided ownership of the land with the right of sale, someone bought these lands. Most of these lands have been redeemed.
Most often, the land was bought by farmers, who also found it for a participant of the anti-terrorist operation, facilitated its allocation and then bought. The soldiers received the money they wanted. Practice shows that farmers have already entered this market.
The bulk of this market will remain with farmers, although some owners may not have the resources to buy. Such farmers can always find an investor who can enter the land with the money and lease it to the farmer.
However, if a farmer has money and earnings, he can make his business more sustainable, and all good owners will try to do so. The problem is more acute for holdings because they will not be able to buy a number of hundred-hectare land pieces as many as they are cultivating, even if they buy to employees who will be credited… It is a very risky process to force people to buy land and keep their obligations… I am sceptical in this regard.

– What are the forecasts for the sale of Ukrainian land to foreigners? After all, we know that according to the law it is impossible, according to mental sentiments too. However, business is always adapting.
– So far we do not see any information attack on the preparation of a referendum on this issue. And what are 100 hectares for foreigners?! This is done for farmers, now they have the opportunity to buy land in three years. Take into account the cyclical nature of agricultural business. Last year, yields were low, but prices were really high, and many earned higher per hectare than with good harvests and low prices. The costs were less, fewer cars taken out of the field, cheaper logistics in volume. And the price is higher. For a farmer, the land market is a way to find a business partner. Investors do not rush to become a part of the agricultural business because they do not understand it and do not see who will manage the investment.

– Yes, it’s with every business, and with the magazine as well…
– Of course, financiers have a problem with every specialized business. However, this is a good time for new partnerships.
If a farmer does not have the funds to buy his land, he can attract a financial partner to the enterprise, sell part of the enterprise and buy land for cash, which he can rent.

– So this is a period of the management companies rising?
– That’s right, everyone in the market will be extremely interested in professional effective management companies, this is a completely underdeveloped segment, but it will be surprisingly rapid.

– As well as the market for the sale of corporate rights?
– So. If previously an investor considered: why should I buy an agricultural company when I can wait for the land market and buy land? – Today everyone sees that it is extremely difficult to do without a farmer.
And everyone believed that the value of corporate rights would also decline. Now it turned out to be obvious that the corporate rights of agricultural companies with long-term land lease agreements are greatly underestimated.
Their value will increase. We will have a more transparent market for land lease rights. It will not be a shareholder with two hectares, but an investor who has stones or boulders, and the market will become more civilized. This creates risks for farmers. In what condition did they take the land?
In which returned? Some analyzes are done by public services once per five years, but they are not making it accurately. There are isolated cases of appeals to the court due to the deterioration of land quality. If it is the investor’s land, he will meticulously take care of the operating process, observing crop rotations and the land condition when it is handed over and returned.

– But what is your attitude to the sale of land to foreigners?
– Regardless of my attitude, we have to form the land market ourselves, work out the rules on it and only then consider the participation of foreigners.
Although it is not about them. There is the question of whether to allow large capital to the land market. Whether to admit to the market pension funds (land market in large areas is important for them). This is a debatable issue. Admission of large capital is beneficial to the seller, prices will rise. But small investments are much more useful for our land, for its preservation, for increasing its value as an asset. Gardens are always better cultivating than commercial fields.
The farmers’ market is healthy, and even if we launch foreign farmers here, it is also in favour of the land. However, if we open access to large capital, there may be negative aspects. We need to consider: to raise the value of land or fight for our soils’ quality. Now there are many more questions than answers. However, the market will answer everything.

– Is it good? Where are we here in this design? Will we just watch while the market will creating a goddamn thing?
– To avoid such precedents, it is necessary to create a regulator, such as works in France.

– SAFER (an organization created by farmers together with the state, which controls the value and transparency of each land sale agreement, its compliance with the law and the interests of the territories and gives the participants the right to agree. – Ed.)?
– SAFER. If we create such a regulator, we will automatically reduce the value of our land. This is a matter of priorities, this is a political issue…

– The worst option is to launch a political issue into the market. Let’s hope that we are smart enough to go through the initial stage without it.

Source: Magazine “ZERNO”, 2021 №4 (181)

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