Kernel criticizes Groysman farmland market proposal

Holding company Kernel (KER PW, KERPW), Ukraine’s largest sunflower oil producer and among its largest farmers, stated on April 10 its opposition to the farmland reform plan outlined by Prime Minister Volodymyr Groysman last week. The plan limits purchases to Ukrainian citizens, not companies, and at no more than 200 hectares.

If Groysman’s model is implemented, it will only promote “the development of shadow schemes for buying up land and further growth in corruption,” the company said. Most individual citizens do not have the financial resources to purchase and cultivate large amounts of land, which, in turn, means that “the owners of land shares will not receive real value,” the company said, accusing the prime minister of playing politics rather than pursuing real reform.

Kernel said it opposes lifting the current moratorium of farmland sales, as requested by the IMF, “until a well-reasoned, consolidated position” on land reform is developed. Recall, Ukraine is among only a handful of countries in the world that forbids the trade of farmland. The others include Cuba, Belarus, Zimbabwe and North Korea.

Igor Zholonkivskyi: The Ukrainian govenrment has pledged to the IMF that it will approve legislation to establish a farmland market by the end of May. Besides being able to sell their land, average citizens stand to benefit from the possible development of mortgage loan banking, enabling them to use their land as collateral.

The land reform proposed by Groysman will certainly find some public support, as it will alleviate public concern that Ukrainian land will be sold to foreigners, local oligarchs and multinationals. But ultimately, we see enough opposition, both from Ukrainian agri-holdings and populist politicians, to potentially derail any attempt to create a land market, let alone Groysman’s plan.

The glaring weakness of his proposal is that it would force large Ukrainian agri-holdings such as Kernel to pay more for the rental of land than they do now (as the land rental rates will likely increase in line with the bargaining power of individual owners) without being able to purchase it and use it as collateral for its business activities. 

We believe we’re in the early stages of a fierce debate in launching this market, which has even chances for success and failure, at least this year.