This article is part of our special report EU-Ukraine Relations.
As of next year, Ukraine will lift a moratorium on the sale of agricultural land, a move seen as an important step in opening up the country to potential foreign buyers. But legislation that would establish a truly modern land market is still lacking.
The parliament in Kyiv recently refused to prolong a moratorium which has prohibited land sales since 1992.
On 16 August, a parliamentary hearing took place on a new 'law on land’, with the participation of scientists, civil society and foreign donors.
According to observers, Ukraine's President Viktor Yanukovich and his team are seriously intending to open up the land market within the next year or so.
The move could herald new opportunities for foreign investors. Ukraine has 42 million hectares of farmland and dwarfs the EU's largest agricultural nation, France, and its 29 million hectares.
It could also help Europe's drive to lower food prices, as Ukraine harbours huge potential to increase farm yields by adapting to modern agricultural techniques. Ukrainian Prime Minister Mykola Azarov admitted that the productivity of Ukrainian agriculture is three to five times lower than in most EU countries.
However, experts warn that the move may backfire politically and may pose significant challenges, as there is no official cadastre or legal base for the sale of agricultural land.
For the time being, over half of Ukraine's seven million land owners lease their land (see 'Background'). More than two thirds are against putting an end to this practice, even if they were to give them a chance to sell their property.
But around 100,000 farmers have a strong interest in seeing a genuine land market emerge. Many would actually like to buy the land, which would then lease or use as collateral for business projects or bank loans.
According to Andrei Blinov, chief editor of the newspaper 'Expert', illegal land sales have become widespread. Several independent Ukrainian economists quoted by Deutsche Welle confirm that a massive land black market has emerged in recent years.
Prices to skyrocket?
According to specialists, the price of land in Ukraine is currently hovering at around $500-700 per hectare (€360-505). In comparison, the average price of arable land per hectare in France is €4,580.
Should a land market be put in place, the price of land could double in the first year and continue to increase afterwards, according to experts.
Vladimir Litvin, the speaker of the Ukrainian parliament, recently declared that before any talk of land sales, all the land that has been bought illegally should be returned to its former owners and a cadastre should be put in place.
Litvin's statement prompted contradictory reactions from independent experts. Vitaliy Bala, director of the Situation Modelling Agency, refused to rule out the risk of large swathes of territory ending up being owned by just a handful of people.
Other experts warned against the risk of foreigners buying up most of Ukraine's farmland, especially Russian citizens.
Nikolai Kalyujniy, president of Goszemagenstvo, Ukraine's state authority for land, believes all such fears are unfounded. According to him, existing legislation clearly states that only Ukrainian citizens can own or buy land in the country.
But Blinov refuted this view. According to him, any foreigner can become a shareholder in a Ukrainian company, which can then buy Ukrainian land.
The Ukrainian state authorities may well in fact be the biggest player in the land market. According to Kalyujniy, the authorities will hold at least 30% of agricultural land as state property after the moratorium is lifted.
He warned peasants against selling their land and advised those who are entertaining such plans not to rush into selling to private owners, but rather to wait until prices rise.