Ukraine, the Land of Quid Pro Quos

Nov 13, 2019

By Frederic Mousseau and Elena Teare

The withholding of US$391 million in military aid to force the Ukrainian government to investigate the business dealings of political rival Joe Biden’s son has triggered an impeachment inquiry against President Trump.

But if we are concerned about foreign aid being used to undermine our democracy, we should also be wary of other quid pro quos taking place in the Eastern European country, which have so far drawn little attention and concern in the West.

In spring 2014, after signing an Association Agreement with the European Union (EU), Ukraine had to commit to a set of austerity measures in return for a US$17 billion bailout from the International Monetary Fund (IMF). These measures included slashing public pensions and wages, reforming the public provision of water and energy—involving an increase in energy costs for users—privatization of banks, changing the country’s VAT system, and more.

The World Bank and the European Bank for Reconstruction and Development (EBRD) have been aggressively laying the groundwork for the large-scale privatization of land and the expansion of industrial agriculture in Ukraine for the past five years.

One of the most critical measures asked of Ukraine, however, was to end the 18-year old moratorium on the sale of land. Much is at stake for a country known for its rich black soil, with 32 million hectares of fertile land – equivalent to one-third of all arable land in the European Union—and is the world’s leading exporter of sunflower oil and sixth-largest exporter of wheat.

The World Bank and the European Bank for Reconstruction and Development (EBRD) have been aggressively laying the groundwork for the large-scale privatization of land and the expansion of industrial agriculture in Ukraine for the past five years. The EBRD, Ukraine’s largest international investor, has poured millions into supporting the country’s leading agribusinesses while pressuring the government for land reform to increase private investment. In August 2019, the World Bank approved a US$200 million loan for the restructuring of the agricultural market and the auctioning of state lands. The announcement of the loan was accompanied by President Zelensky’s pledge to move fast on lifting the moratorium.

Adding to the pressure was an unexpected actor. In August 2018, the European Court for Human Rights (ECHR) ruled that the moratorium violated the right to the protection of property under the  European Convention on Human Rights. The ruling acknowledged that while Ukrainians can lease their land, being able to sell and “dispose of property [is] an essential element of ownership.” The court further recognized that while the conceived basis for the moratorium was in the public interest, ultimately, the balance between those interests and individual property rights is not met through the policy. Although the ECHR can only issue rulings and recommendations to countries and has no real enforcement mechanism, it enjoys real power in Ukraine where the national legislation requires the state to implement its rulings.

Now the creation of a ‘land market’ appears to be moving swiftly: On September 2, President Zelensky ordered his government to draft a bill for the privatization of the agricultural land market, end the moratorium, and be open for business by October 1, 2020.

A draft of the bill was released on October 1, 2019. However, the bill’s language does little to assuage concerns over privatization, namely land concentration by powerful interests. Total land ownership is capped at 15 percent of an oblast (region) and 0.5 percent of the national territory. Although the draft stated that only Ukrainian citizens and companies could own land, there are no safeguards against foreign companies controlling shares of Ukrainian companies or concentrating land through multiple firms. Furthermore, as it stands, the bill allows direct ownership for foreign-owned companies operating in the country for more than three years.

In response, there have been a series of protests against the bill, and public opinion towards land reform is overwhelmingly negative. A recent survey showed that 73 percent of respondents opposed the lifting of the moratorium, and 81 percent against land sales to foreigners. In response to civil unrest, the government delayed the finalization of the bill and announced consultations with relevant stakeholders. But outside pressure continues to mount as the country negotiates a new, three-year US$5billion loan from the IMF, which appears to be again conditioned to the country moving forward on the land reform agenda.

Public fears of Ukraine’s most productive agricultural lands being handed over to global agribusinesses are well-founded. As previously reported by the Oakland Institute, portions of these lands are already concentrated in the hands of powerful oligarchs and Western agribusinesses. Who precisely controls Ukrainian land has long eluded researchers, as off-shore tax havens and land tenure practices make it difficult to discern. In 2015, the Oakland Institute estimated that foreign companies could command as much as 2.2 million hectares, and in 2018, the top 10 foreign and domestic agro-holdings controlled approximately 2.8 million hectares.

The trend has continued as Cargill, Bayer, and DuPont have all made hefty investments over the past few years. In July 2019, Ukraine announced that it “attracted” two loans from Cargill Financial Services International for €100 million (US$112 million). In August 2019, Bayer (the group that now owns Monsanto), won an anti-monopoly suit in Ukraine’s Antimonopoly Committee – an antitrust body that already approved consolidation in the agribusiness sector, prompting questions regarding its consistency in applying antitrust laws. 

Under President Zelensky, Ukraine seems to be catering to the Western interest in the take-over of its agricultural sector. A five-year national plan to “mobilize private investment in the agriculture and agribusiness sectors” was launched in 2019 with a budget of US$1.2 billion,  partly funded by the World Bank loan. Under the Bank’s program, Ukraine will also endeavor to deregulate fertilizers by adopting the EU’s fertilizer list and exempting it from mandatory state registration. The claim is that the “full harmonization” of Ukraine to EU standards would increase crop output and profits. In August 2019, The Ministry of Economic Development and Trade and the Ministry of Agrarian Policy and Food were put under one cabinet position—The Minister of Economic Development, Trade, and Agriculture. This move was allegedly meant to counter the notorious corruption of the agricultural ministry and “accelerate the implementation of key reforms.”

Although conditionalities accompanying Western foreign assistance is a common practice, the way Ukraine is forced to privatize its land and create a land market has no precedent in modern history. It remains unclear how Ukrainians, including the seven million local farmers, will benefit from such privatization. The experience of structural adjustment programs around the world forebode that the reform programs will increase foreign corporate control of the Ukrainian economy while increasing poverty and inequality in the country.

Conditioning US$391 million of foreign aid to his political gain, president Trump’s Ukraine scandal has rightly prompted outrage in the US and around the world. But if we are to take the matter of quid pro quos seriously, we should take the measure of over US$20 billion of aid forcing Ukraine to privatize its land and its economy for the profit of a few Western interests.