Field Associations:An alternative approach to the Consolidation Issue

Field An area best suited for one type of production, preferably, by one producer.

(optimal) Production Pattern = Field

Ownership Pattern

Consolidation Issue Production Pattern ≠ Ownership Pattern:

1. Potential for non-optimal multiple use2. High transactions costs3. Potential strategic behaviors by landowners4. Asymmetric bargaining power of lessors and

lessees

Small landholdings = problem

Approach in the Draft Law

Encourage equating of Production & Ownership Patterns

Article 25. Initiation of the Development of the Agricultural Land Consolidation Design

1. The consolidation of the agricultural land may be carried out on the basis of a land management design for the agricultural land consolidation (hereinafter referred to as the ("land consolidation design"), if the land mass is characterized by the strip holding that results in the ungrounded use of land plots located therein.

2. The development of the land consolidation design may be initiated by the parties that in aggregate own land plots accounting for at least 75% of the land mass.

&

Preemptive Purchase Rights for Lessees and Neighboring Landowners

Problems with Production Pattern = Ownership Pattern • Ownership caps ----- Many producers could not legally own all the

land they cultivate. --------- Cannot legally

• Limits on banks, prohibitions against legal entities (except farm homesteads), banning of foreigners ---- limited capital to buy land. -------- Cannot financially

• Advantages of partial reliance on leasing ---- conserve capital, flexibility. --------

Would not want to, anyway.

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Percent of Farmland which is Leased

Field Associations: Separating Ownership and Function

• Mandatory owner associationsMuch like: Apartment associations

• Voting based on ownership. Lessees do not vote.• Field Associations functions

1. Negotiate leases Seek to maximize total lease payments ≡ maximizing economic value of the field

2. Track payments3. Arbitrate disputes4. Consider requests for split usage

Field Associations

• Reduced transactions costs negotiating leases• Farmers• Elderly and/or infirmed lessors• Lessors residing remote from the land

• Improved market power for lessors

• Effective separation of ownership and functionality

• The Association makes the many landowners act as one landowner.

Small landholdings ≠ problem.

Farmers acquiring land at a pace consistent with financial ability and operational needs

Ukrainian citizens holding and investing in land for lease payments and long-term price appreciation.

Small landholdings can be manageable building blocks for farms and portfolios.

Thank you