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As we all know, agricultural land in Ukraine is one of our country’s main natural assets which, if used rationally, is able to drive the significant growth is the respective industry. However, currently the land’s capacity is not being used to its full extent. There are a number of factors impeding development of national agriculture. To our mind, moratorium on agricultural land for sale in Ukraine recently prolonged to January 2017 is one of the most significant ones.
Such state of affairs has both advantages and disadvantages.
The positive effects of the moratorium are as follows:
- Low entry level to the market
- Flexibility in timely adjustment to the changes in the market
- Priority of the national enterprises
- Regular income of land owners who are by and large rural people and pensioners representing low-income segment of population
As to the negative effects of prohibition of using agricultural land for sale in Ukraine, there are also some, mainly the following:
- High administrative costs for concluding and regular renewal of the lease agreements;
- Limited access of the agricultural enterprises to loans due to prohibition to use land as a mortgage
- Unfavorable investment climate for foreign companies
- Renter’s attitude to land contrary to the owner’s
- Inability of land owners to negotiate the terms of lease to their benefit due to small share of land owned by each one of them individually.
The above are the general pros and cons of moratorium on land for sale Ukraine initially imposed as long ago as in 2001. Insurance wise there are also some things to be taken into consideration.
Nowadays miniscule proportion of national land bank is insured. First and foremost reason standing behind it is extremely high cost for concluding agreements covering such a risky field of business. Breakdown of the policies currently effective in the market shows that the majority of the insurance agreements are concluded either to meet the bank’s requirements or to meet the foreign investor’s requirements. Since national players mostly struggle to make both ends meet with the surge of prices for fuel, agricultural equipment, pesticides etc. due to the recent depreciation of hryvna, the insurance expenses usually do not fall within the prioritized expenditures.
From lifting the moratorium to use land for sale Ukraine’s insurance market can benefit in the following way. Legislative development as such will most likely attract capital inflow into agricultural field. Since insuring their risks is a common practice in most of the mature markets, this will probably contribute to the higher demand for different kinds of insurance products ranging from crop to cattle insurance, let alone standard property damage policies relevant to farm buildings, grain mills, greenhouses etc. What is even more important, the preference is expected to be given to insurance companies which are related to their foreign parent companies or investors. They are able to provide wide range of insurance options to choose from and easier process of claim settlement. Besides, there will be a bigger number of insurance policies covering the mortgaged land since loans become affordable to agricultural land owners which in turn will boost growth in this sphere.
The opposite side of the medal is that the insurance rates will not be the lowest ones. Nonetheless, they should finally reach the fair level given the rising competition in the market.
Needless to say, that the abovementioned changes are possible given the reforms and legislation have both been carried out prior to lifting the moratorium to use land for sale in Ukraine by the early 2017. This is, of course, if it will be lifted when the set deadline expires. Let us hope for that.