The farmland market opens: the first weeks, and the real constraint

Since 1 July, Ukrainian citizens have been able to buy agricultural land, subject to a hundred-hectare cap per person. Legal entities registered in Ukraine may buy from 2024, capped at ten thousand hectares. Foreign nationals and foreign-controlled entities remain excluded pending a referendum that has no scheduled date.

The first three weeks show transaction volumes well below both the enthusiastic and the alarmist forecasts, and prices settling in a range of roughly one to two thousand dollars per hectare depending on region, soil quality and existing lease encumbrances.

Why the price is where it is

Comparable farmland in Poland, Romania or Hungary trades at several times that level, on soil that is generally inferior. Four factors explain the discount, and they are worth separating because they resolve on different timescales.

The buyer restrictions are the largest single factor. Excluding legal entities until 2024 and foreigners indefinitely removes most of the capital that would otherwise compete for this asset. A market with a restricted buyer pool clears at a lower price by construction.

The absence of mortgage finance is the second. Banks have no history of lending against Ukrainian farmland, no valuation methodology and no experience of enforcement. That will develop, but slowly, and until it does most purchases are cash.

Existing lease encumbrances are the third. Most farmland is under long-term lease to an agricultural producer, and a buyer acquires the land subject to that lease. The asset being sold is often a right to receive rent, not a right to farm.

The security discount is the fourth, and it has widened this year.

What this means for investment

The direct route is closed to foreign capital and will stay closed for some time. What exists instead are indirect structures — equity stakes in Ukrainian agricultural companies that themselves hold land or leases, joint ventures with local partners, and financing arrangements against agricultural production rather than against land.

Each of these carries governance risk that the direct route would not. Anyone considering them should assume that minority protection in a Ukrainian company is weak in practice and structure accordingly: shareholder agreements under foreign law, arbitration outside Ukraine, and control over cash flows rather than over votes.

The more interesting opportunity may be in the services layer. A functioning land market requires valuation, title insurance, surveying, brokerage, registry technology and agricultural lending expertise. None of these exists at scale in Ukraine and all of them will be needed.

What the reform actually fixes

The deepest effect is on the seven million individual owners who received land shares in the 1990s. Most are elderly, rural, and have been receiving lease payments worth a few hundred dollars a year on an asset they could not sell, mortgage or meaningfully control.

The ability to sell converts a dormant asset into cash in precisely the regions where cash is scarcest. That is a large transfer, and it is the strongest social argument for the reform regardless of what the price level does.

The second effect is on investment horizons. Under seven-year leases, nobody invests in drainage, liming, soil structure or perennial plantings, because the payback arrives after the lease expires. Ownership changes that calculation on every long-payback improvement, and Ukrainian yields — well below what the soil should deliver — are largely a function of exactly those deferred investments.

What to watch

Three indicators over the next three years. Whether mortgage lending against farmland develops, which determines whether prices converge upward. Whether the 2024 opening to legal entities happens on schedule. And whether the registry holds up: a land market is only as good as the record of who owns what, and Ukraine's cadastre has known gaps.

Related in this archive

• The world's agricultural giant opens its land market: what it means for suppliers
• The grain corridor: how the Istanbul arrangement works and what it does not cover
• Ukraine's agricultural sector: what the structure actually looks like
• Ukraine Annual Review 2021: the best export year and the last normal one

The opening of the land market did something visible on my side immediately: for the first time a farmer could pledge the ground under them and buy a machine. That prices are low is not a fault but a consequence of the market being new. The binding constraint is still credit — land became sellable before the financing to buy it existed.