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Paving the way: how will the agricultural receipts work with the opening of the land market

What farmers and lawmakers should pay attention to

The sale of land starts on July 1, 2021. At the same time, the bank will be able to acquire ownership of agricultural land. How will the overall situation on this market change and how will these factors affect the mechanism for applying agricultural receipts.

How will the land mortgage work

On July 1, 2021, the Law of Ukraine “On Amending Certain Legislative Acts of Ukraine Concerning the Conditions for the Turnover of Agricultural Lands” of March 31, 2020 No. 552-IX comes into force.

The provisions of this law, as an exception, provide banks with the right to acquire ownership of agricultural land from July 1, 2021, as a pledged item (changes are provided by Law 552, clause 15, article 145 of the Land Code of Ukraine). Previously, the bank could not levy execution on a land plot for agricultural purposes, since there was no turnover of agricultural land in Ukraine. In addition, according to the provisions of the Land Code of Ukraine, the bank could not be the subject of ownership of agricultural land.

The lack of mortgage for small farms will lead to a lack of bank lending, therefore, back in November 2012, the Verkhovna Rada adopted the Law of Ukraine “On Agricultural Receipts” No. 5479-VI, which entered into force in March 2013, which regulated the mortgage mechanism for future crops and is now both subject to collection, and automatically to mortgage.

Since then, Ukraine has begun the process of active implementation of agricultural receipts in order to ensure the attraction of additional financing in the domestic agricultural sector. From the beginning of the implementation of the tool, 2063 agricultural receipts were issued for a total amount of UAH 1.4 billion.

In 2019, the positive dynamics of the use of agricultural receipts in the market continues: from the beginning of the year, 1212 agricultural receipts worth a total of UAH 7.8 billion have already been issued. In total, 995 agricultural producers used the tool, 90% of which are small in size, and more than 130 for lenders.

How the farmers should use agricultural receipts

With the entry into force of Law No. 552, in the absence of a harvest, the bank will now be able to repay the debt in full size and interest for using a loan at expense of the land on which the future harvest should be grown.

For farmers, this is a direct instruction to analyze once again the conditions of issued agricultural receipts and the conditions for lending by the bank, since the debt document, on the basis of which it is now possible to levy execution on agricultural land, is an agricultural receipt.

However, on May 19, 2020, the Verkhovna Rada refered for delelopment the draft law “On Amending Certain Legislative Acts of Ukraine regarding the Functioning and Circulation of Agricultural Receipts” No. 2805, by which the legislator wants to equate the agricultural receipt under Law No. 5479 with a security.

After the adoption of the bill, agricultural receipts, if it remains in the same version, will turn over both on the unregulated market and on the stock exchange. This means that foreign banks and non-residents can be an investor of such a security as an agrarian receipt, that contradict to law No. 552 on the prohibition on acquiring ownership of agricultural land by foreign entities.

Therefore, despite the gaps in the legislation, it is still impossible to judge the positive aspects of land reform, as well as the positive aspects of financing small farmers and the ability of farmers to use such loan portfolios.