October 28, 2011

Black Market in Agricultural Land is Booming in Ukraine

with Oleg Peregon, Vice President, NGO Green Front, Ukraine

A sale of agricultural land has been illegal in Ukraine since the Moratorium Act of 1992. Despite many promises, neither administration liberalized a market in agricultural land. Nonetheless, a black market in farmland has thrived. Now it is becoming one of the largest illegal markets in farmland, with approximately $900 million in annual sales, in Eastern Europe. The black market has a backing of local state officials. Corrupt bureaucrats embezzle their power to stuff their pockets with cash while they are stripping the nation of important natural resource and robbing poverty-stricken rural population of their private property. The black market causes environmental degradation and undermines sustainable economic development of Ukraine, one of the major world grain exporters.

The moratorium has never stopped the black market in Ukraine. According to Ukraine’s State Committee on Land Resources (SCLR), almost 20 percent of farmland changed ownership in the last decade. And it seems that the black market is booming now more than ever. Kharkiv-based environmental NGO Green Front reports that a number of sales advertisements featuring farmland has increased in local newspapers recently. The popular local newspaper Premier went from 58 to 300 weekly sales ads in less than a month. The black market has also made it to the internet. Now you can find hundreds of listings of farmland sellers online. For example, online store AllBiz that is popular in Ukraine has almost 200 listings of farmland sellers. Many sellers’ websites even guarantee a one-day delivery of farmland.
The black market in farmland is going strong with no questions asked. The buyers are farms, greenhouses, flower shops, landscapers, and house owners who can afford landscapers. The sellers are either firms subcontracted by the local government or local state officials. The black market quantity is equal to a capacity of one truck (e.g. Russia-made Kamaz truck). A single Kamaz truck carries, on average, ten tons of soil. The black market price is seasonal with its high in spring and summer ($80-100 per ton) and its low in fall and winter ($150-180 per ton). According to the Green Front, the projected annual sales are almost $900 million in Ukraine.

This is how the black market works. An excavator digs out fertile soil, on average, up to four feet deep. Then an excavator loads a soil into a truck that delivers a product to a buyer. To double their profits, infamous entrepreneurs bring garbage from urban areas and dump it in the excavated areas. Thus, the damaged farmlands are converted into illegal landfills. This black market activity causes irreversible soil depletion and environment pollution. The SCLR reports that almost 32 percent of farmland is degraded and 20 percent of arable farmland is low-yield due to soil erosion. It is obvious that the black market could not reach the current volume of sales without backing of state and law enforcement officials. 
The state officials abuse law even when it comes to private ownership of their constituency. The black soil is extracted from two main sources: abandoned land and retiree-owned land. A so-called abandoned land is a land parcel whose heirless owner is deceased. Abuse of the abandoned land is just another proof of the government embezzlement because ownership of the abandoned land is transferred to the local authorities automatically in Ukraine. The magnitude of the power abuse is mind-boggling. When the NGO Alternative interviewed deputies (Party of Regions) of the Pesochyn village council in Kharkiv province, the second largest province of Ukraine, the Regionals said blatantly that the farmland sale is only legal in their county while it is illegal elsewhere.
Retirees who own farmland also suffer a great deal from the government abuse. The SCLR reports that 53 percent of land owners are retirees and 30 percent of them have no heirs. The Green Front reports several cases when the soil was extracted from the land parcels owned by pensioners in Kharkiv province. Several local residents tried to stop the illegal extraction of their land. However, the local government silenced the whistleblowers. The Green Front also submitted evidence of illegal extraction of land, including these pictures, to the Kharkiv department of law enforcement. The law enforcement officials considered available evidence insufficient to open a case. 
                                                                   NGO Green Front copyrights.
                                                                    NGO Green Front copyrights.

Right now it is too early to predict the impact of the black market in agricultural land on Ukraine’s economy, one of the major world grain exporters. It is clear that the current black market activity causes irreversible damage to the environment and retards economic progress. And the government embezzlement not only undermines a fundamental institution of capitalism and democracy – secure private property rights but also erodes trust and accountability in political order.

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