Toward a Modern Land Market: Tackling Informality in Ukraine’s Agricultural Sector

A World Bank study on Ukraine's land markets reveals that addressing land informality, enhancing competition, and supporting medium-sized farms can boost efficiency, equity, and productivity. Targeted reforms, including land registration and transparency measures, are key to unlocking the sector's full potential amid Ukraine’s EU integration and reconstruction.

The World Bank’s Development Research Group, through researchers Klaus Deininger and Daniel Ayalew Ali, has undertaken an in-depth study into the dynamics of agricultural land pricing in Ukraine. By analyzing over one million geo-coded transactions, the research delves into the effects of land informality, farm size, and recent reforms on land values. These findings are particularly relevant given Ukraine's pivotal role in global agriculture, its post-conflict reconstruction efforts, and its alignment with European Union standards.

The Hidden Costs of Land Informality

One of the study’s central revelations is the economic inefficiency caused by unregistered and informal land rights. Parcels without formalized ownership or lease agreements are less valuable, undermining productivity and discouraging investment. Informal lease contracts, often used to bypass rigid regulations, offer flexibility to renegotiate terms but fail to provide the security necessary for long-term planning. The researchers argue that the costs of these inefficiencies likely exceed the expense of registering all land. They emphasize that addressing informality could unlock significant economic benefits, especially for smaller farmers who are most affected by tenure insecurity.

Farm Size and Market Liberalization

Farm size emerged as a critical factor influencing land values. Larger parcels and farms typically command higher prices due to economies of scale, such as reduced operational costs and increased productivity. Medium-sized farms, in particular, represent untapped potential, with market-based consolidation offering a pathway to higher productivity. The study also highlights the uneven distribution of gains from land market liberalization. Legal entities, which can navigate regulatory complexities more effectively, have captured most of the benefits, while smaller producers struggle to compete. This disparity underscores the need for targeted interventions to reduce transaction costs, enhance credit access, and level the playing field.

Competition: A Double-Edged Sword

The study paints a complex picture of market competition. In rental markets, higher transaction volumes correlate with increased lease prices, indicating that competition fosters efficient land use. However, in sales markets, the dominance of large players depresses prices, reflecting the exercise of market power. This highlights the need for policy measures to ensure transparency and fairness. Tools such as electronic auctions and credit guarantee facilities could help smaller producers participate more effectively, fostering a more equitable market.

The Path to Sustainable Land Reform

Reducing land informality is a cornerstone of the study’s recommendations. Unregistered or unmapped parcels lower their value and create spillover effects that depress the value of neighboring lands. The researchers estimate that eliminating informality could increase lease prices by 1.7%, representing substantial economic gains. They advocate for comprehensive land mapping and registration programs, suggesting that these initiatives could be funded through recurrent land taxes tied to the value increments they generate. Such measures would distribute costs fairly, particularly for credit-constrained landowners, while fostering long-term market efficiency.

Tailoring Policies for Agricultural and Personal Land

The research also uncovers nuanced differences between land classified for agricultural and personal use. While larger agricultural parcels and fields consistently yield higher values, personal-use land is influenced more by location and alternative uses, such as housing. This highlights the importance of tailoring policy approaches to different land types. For instance, personal-use land close to villages may require policies that balance agricultural productivity with other community needs, ensuring inclusive and sustainable development.

A Vision for Data-Driven Transformation

The findings underscore the transformative potential of leveraging administrative and spatial data to inform policy. By linking parcel-level data with remote sensing, the researchers demonstrate how data-driven approaches can enhance transparency and efficiency in land markets. This is especially critical for Ukraine as it navigates its EU accession process and post-conflict rebuilding. Transparent land valuation and fair taxation mechanisms, informed by robust data, can prevent exploitation and ensure equitable development.

The comprehensive study by the World Bank’s researchers provides a clear blueprint for reforming land markets, addressing systemic inefficiencies, and promoting equity. By implementing targeted interventions to reduce informality, enhance competition, and support small producers, Ukraine can unlock the full potential of its agricultural sector. These changes are pivotal for Ukraine’s economic recovery and global food security, offering valuable lessons for other nations facing similar challenges.