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nt. J. Business and Globalisation, Vol. 25, No. 3, 2020
Copyright © 2020 Inderscience Enterprises Ltd.
Indirect corporate agricultural land use in Ukraine:
distribution, causes, consequences
Andrii Martyn, Oleksandr Shevchenko,
Ruslan Tykhenko, Ivan Openko* and
Oleksiy Zhuk
National University of Life and Environmental Sciences of Ukraine,
Faculty of Land Management,
17 Vasylkivska Str., Kyiv, 03040, Ukraine
Email: martyn@nubip.edu.ua
Email: shevchenko_ov90@ukr.net
Email: rvtyhenko@ukr.net
Email: ivan_openko@ukr.net
Email: oleksiy_zhuk@ukr.net
*Corresponding author
Oleksandr Krasnolutsky
Department for Land Management, Land Use and Land Protection,
The State Service of Ukraine for Geodesy, Cartography and Cadastre,
3 Narodnoho Opolchennya Str., Kyiv, 03151, Ukraine
Email: krasnolutski@land.gov.ua
Abstract: In the example of Ukraine, it has been studied the conditions of
ever-growing popularity of new forms of indirect control over land resources in
the field of agriculture, when agricultural enterprises do not acquire any
property rights or the rights on land use and, instead, they tend to use land plots
of the subsidiary companies that act as nominee land users. The research
findings have shown that the traditional forms of state regulation of the
agricultural land market are currently losing their effectiveness. Furthermore,
land right acquisition is more and more often being fulfilled not by buying land
plots but through acquiring corporate rights for the companies that own or use
land nominally. The directions of control improvement over economic
concentration of land resources in agriculture have been substantiated in the
conducted research.
Keywords: agricultural land market; agroholding; agricultural lands; corporate
enterprises; economic concentration; Ukraine.
Reference to this paper should be made as follows: Martyn, A.,
Shevchenko, O., Tykhenko, R., Openko, I., Zhuk, O. and Krasnolutsky, O.
(2020) ‘Indirect corporate agricultural land use in Ukraine: distribution, causes,
consequences’, Int. J. Business and Globalisation, Vol. 25, No. 3, pp.378–395.
Biographical notes: Andrii Martyn is a Doctor of Economy, Associate
Professor and the Head of Department of Land-Use Planning. He is
well-known expert on land management, economics, land use, land law,
territorial management, surveying, with extensive experience of work on land
management, and spatial planning.
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ndirect corporate agricultural land use in Ukraine 379
Oleksandr Shevchenko is a Senior Lecturer in Department of Geodesy and
Cartography at the National University of Life and Environmental Sciences of
Ukraine. He teaches such areas like geodesy, topographic and geodetic
maintenance of works in land management.
Ruslan Tykhenko is an Associate Professor in Department of Management of
Land Resources at the National University of Life and Environmental Sciences
of Ukraine. He teaches such areas like engineering in land management, state
examination of land management decisions, and geodetic works in land
management.
Ivan Openko is a Senior Lecturer in Department of Geodesy and Cartography
at the National University of Life and Environmental Sciences of Ukraine. He
teaches such areas like geodesy, GNSS observation, topographic and geodetic
maintenance of works in land management.
Oleksiy Zhuk is an Associate Professor in Department of Geodesy and
Cartography at the National University of Life and Environmental Sciences of
Ukraine. He teaches such areas like geodesy, and electronic surveying
instruments.
Oleksandr Krasnolutsky is the Director of Department of Land Management,
Use and Land Conservation. Scientific researches related to the rational use of
land resources, land cadastre management, etc.
1 Introduction
Nowadays, various countries of the world widely tend to implement the practice of
different restrictions on the market of agricultural land, depending on the geographical
features, historical and cultural peculiarities, as well as the legal traditions, which have
been established for centuries. It is a common practice to introduce a set of the regulation
mechanisms of the agricultural real estate market such as the restrictions on land
acquisition for foreigners, some territory restrictions, the restrictions on the land area
being under one person’s control, the preferential rights on land purchasing in case of its
selling, the ban to change land assignment, etc. As a rule, such regulation policy is aimed
at preserving the traditions of agricultural industry, promoting as wide land ownership
distribution as it is possible, and ensuring the economic sovereignty of the state
concerning the food provision issues, etc.
At the same time, in recent decades, the industrialisation of agriculture has caused
such a situation when more and more agricultural corporations are becoming the major
food producers in many post-socialist and developing countries. It is those agricultural
corporations, which cultivate dozens or even hundreds of thousands of agricultural land
hectares. These companies are prone to using a wide range of available legal mechanisms
aimed at maintaining and increasing the land bank, including indirect land ownership
through the participation in the authorised capital of those companies that act as so-called
nominee ‘holders’ of agricultural land. Under the above-described conditions, the
traditional regulation forms of the agricultural land market fail to be effective, and the
market itself actually tends to be transformed into the market of the corporate rights to
the landowner companies.
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Furthermore, the agricultural land market can actually get out of control of the state
authorities supervising the market transactions. This appears possible when a foreign
company becomes an ultimate beneficiary of the landowner company. For instance, if
Company B, registered in the Republic of Cyprus, is the final beneficiary of the
registered in Ukraine Company A, which is an agricultural landowner, then, the actual
sale of Company B together with a land plot being under its indirect control through the
Ukrainian Company A could take place in accordance with the corporate law of the
Republic of Cyprus. Meanwhile, the Ukrainian authorities might be hardly aware of the
fact that this land real controller has been already changed.
The land reform, initiated from the beginning of the 1990s, has significantly altered
the structure of agricultural land tenure and land use in Ukraine. Thus, almost 12,000
former socialist agricultural enterprises (collective farms and state farms, in particular)
were firstly transformed into the collective agricultural enterprises aimed at implementing
collective land ownership policy, and then, the land areas were divided into separate plots
(shares). As a result, about 6.77 million Ukrainian citizens have become the owners of
separate agricultural land plots that cover approximately four hectares of land.
At the same time, mass unwillingness of rural inhabitants to use the land they had
received in an independent way, on the one hand, and the legal prohibition of agricultural
land alienation, on the other hand, resulted in the introduction of widespread agricultural
land lease model. The latter one presupposed that agricultural lands, being under private
ownership, were leased to agricultural enterprises like limited liability companies,
joint-stock companies, and others, which were mostly reorganised from the former
collective farms. Later on, in the period from 2005 to 2010, the Ukrainian land market
was characterised by establishing a specific mode of management within the agrarian
sector, that is, huge agro-business groups and large-scale farming entities similar to
holding companies – so-called ‘agroholdings’. The latter ones used to strive to large-scale
purchase of corporate rights of land users, thereby acquiring actual control over
thousands of acres of agricultural lands in Ukraine.
The problem of agroholdings’ introduction and establishment on the territory of
Ukraine is of great interest for the economic science, since the functioning of such
economic groups presupposes a number of significant socio-economic risks for the
further development of rural areas. The thing is that agroholdings are most likely to be
just some business projects which, due to the intense industrialisation process and
advanced technology deployment, tend to form a relatively small number of jobs for rural
inhabitants. Consequently, it is likely to cause destroying the traditional rural
socio-cultural environment.
2 Brief literature review
The research, related to the issue of the land grabbing phenomenon, is mainly conducted
by a number of world-known scientists, such as Kagan (2013), Wrzaszcz and St. Zegar
(2016), Cochrane (1958), Bruinsma (2009) and Borras et al. (2011).
Among the researchers, who study the problems of the formation, introduction and
functioning of agroholdings in the context of the evolution of economic processes within
agro-business of Ukraine this problem has not lost its relevance at present due to the fact
that the processes related to the dynamic changes within the Ukrainian economy, as well
as the European integration tendencies, require further and more profound investigation.
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ndirect corporate agricultural land use in Ukraine 381
In addition, a rather interesting analysis of the economic and political situation in
Ukraine has been highlighted in the publication ‘When economies change hands: a
survey of entrepreneurship in the emerging markets of Europe from the Balkans to the
Baltic States’. The author Dana (2013) noted the main historical events that to some
extent influenced on the current state of land reform in Ukraine.
Meanwhile, the researchers often fail to emphasise the economic and legal
mechanisms used by the agricultural corporations in order to acquire land rights. What is
more, the phenomenon of secondary (indirect) land use, when land goes under control by
the company owners acting as nominee holders, is almost under investigated as well.
3 The purpose set in the research is to study the growing popularity of new
forms of indirect control over land resources in agriculture at the
example of Ukraine
The objective under the investigation is to research the conditions when agricultural
enterprises do not acquire any property rights or the rights on land use and, instead, they
use land plots of the subsidiary companies that act as nominee land users.
4 Research results
Nowadays, agriculture is an important source of income for one third of the economically
active population of the whole world. For instance, in Asia and Africa, there are millions
of small farmers, pastoralists, fishermen and indigenous peoples who produce most of the
food they consume by cultivating rather small pieces of land (Industrial Agriculture and
Small-scale Farming Global Agriculture, 2018; Tuzová et al., 2016).
The vast majority of the farms in the world are small or rather small (so-called
‘marginal’ farms) (Page and Brower, 2008). It is a worldwide tendency, when the farms
with an area of less than 1 hectare make up 72% of the majority of the farms, but control
only 8% of all agricultural lands. As for the farms with an area from 1 to 2 hectares, they
make up 12% of all farms and control up to 4% of the land. It is only 1% of all farms that
covers more than 50 hectares, but they manage to control nearly 65% of the world’s
agricultural lands.
As practice shows, small-scale farming could be highly productive. In Brazil, for
example, family-run farmers provide on average 40% of the main crop production,
cultivating 25% of agricultural land. In the USA, family-run farmers produce nearly 84%
of all agricultural products – totalling US$ 230 billion by value of sales, while cultivating
78% of all agricultural lands. Moreover, family farmers in Fiji supply 84% of pit, rice,
manioc, corn and bean products, cultivating only 47% of land (Industrial Agriculture and
Small-Scale Farming Global Agriculture, 2018).
At the same time, the average size of agricultural enterprises in Europe and
North America tends to be increasing, while their number is being acutely reduced. In
Latin America, the average figures make vague the extremely sharp contrast between a
couple of huge corporations, engaged in one of the most industrialised forms of
agriculture in the entire world, and, on the other hand, a large number of small farmers
owning less than two hectares of land (see Figure 1). For example, in Argentina, the
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average size of a farm is about 582 hectares. In North America and Europe, these
calculations are also concealed by small farms, whose owners can no longer earn a living
from agriculture activity (Industrial Agriculture and Small-Scale Farming Global
Agriculture, 2018).
Figure 1 The average farm size in different parts of the world, ha (see online version for colours)
Source: Industrial Agriculture and Small-Scale Farming Global Agriculture
(2018)
Figure 2 The worldwide farm distribution, (a) global distribution of farms below ten hectares
(b) global distribution of farms over ten hectares
(a) (b)
Source: Industrial Agriculture and Small-Scale Farming Global Agriculture
(2018)
As a matter of fact, approximately 2.6 billion people, that is almost 35% of the entire
world’s population, depend on agriculture in terms of livelihoods. It is known that almost
half of the population in the world dwells in rural areas. 83% farmers out of the
537 million farms around the world are featured as small ones with the land plots of no
more than two hectares, and 97% of all farms cultivate less than ten hectares. However, it
is these exact small farms that produce the largest amount of food (in Asia and Africa, in
particular, this quantity is about 80% of their whole agricultural production). In addition,
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ndirect corporate agricultural land use in Ukraine 383
such farms cultivate nearly 60% of the arable land worldwide and often harvest the crops
on soils that are less fertile and insufficiently irrigated. Although the proportion of small
farmers in comparison with the world population is constantly decreasing, in Asia their
absolute number is increasing. In Asia and Africa, this also reflects a reduction tendency
in average farm size, except the regions of Europe and North America (see Figure 2)
(Industrial Agriculture and Small-Scale Farming Global Agriculture 2018).
International Assessment of Agricultural Knowledge, Science and Technology for
Development (IAASTD) generally describe such a model of the industrialised countries’
development as a so-called ‘treadmill’ in agriculture. In 1958, Cochrane, a distinguished
American agricultural economist, was first who described the concept of the ‘treadmill’
technology (Cochrane, 1958).
The ‘treadmill’ technology begins when the small number of farmers starts
implementing new technologies at an early stage of development. These farmers make
profits in a short period of time, because their production costs are lower than the
corresponding ones of other farmers. As more and more farmers become engaged in the
‘treadmill’ process and adopt some technology, the overall production constantly goes
up, while prices go down, and as a result, their profits become hardly possible even at
lower production costs. Hence, they are bound to develop a new technology to reap
profits. Moreover, the rest of the farmers are forced to sell their own products at lower
prices if they are still willing to remain competitive. At the same time, those farmers, who
fail to meet the requirements of the ‘treadmill’ technology, start being squeezed by
enormous price pressure – it happens because their revenues are more and more
shrinking, even if their efforts remain the same, – and more successful farmers and
companies expand over them (Dreyfus et al., 2009). Thus, it can be assumed that due to
the large-scale farming principle some agricultural corporations are able to innovate
faster and more effectively, and therefore, they succeed the most in implementing such
‘treadmill’ technologies.
By virtue of the temporary ban on agricultural land alienation, the prevailing form of
land tenure in Ukraine has become a lease. According to it, the owners of land plots, who
are not involved in agro-business sector by themselves, transfer their land plots (shares)
to agricultural enterprises, including corporate enterprises of holding companies. Thus, in
accordance with the state service of Ukraine for geodesy, cartography and cadastre, as of
January 1, 2017, there were about 16.5 million hectares of land leased, which made up
59.7% of the total area of agricultural land owned by the Ukrainian citizens.
At the beginning of the 2000s, widespread lease relations created rather favourable
conditions for a specific form of agro-business in Ukraine, namely agroholdings entities,
which represent an agricultural business group of a parent-subsidiary relations when there
is a parent company, on the one hand, that holds a controlling interest in a subsidiary or a
daughter company, on the other hand, that is owned or controlled. The peculiarity of such
entrepreneurial entities is that the parent company does not act as a nominee land user,
although it controls all factual decisions related to the use of land resources of
subsidiaries (corporate enterprises).
Commonly accepted is the definition of a holding company (holding) as the parent
company owning a controlling interest in other companies aimed at managing or
grouping their activities under a single economic policy (Gryaznova et al., 2004).
According to Shitkina, a holding company or a company group is such a form of
business association that represents a set of organisations and is based on economic
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control relations, and whose members, while maintaining formal legal independence, are
under control of one of the participants within this business group, a holding company
(the main board of the holding, in particular). A holding company due to providing the
dominant participation in authorised (share) capital, a contract or other issues directly or
indirectly (through the third entities) has a decisive influence on the decision making of
other members of the holding. The etymology of the word ‘holding’ (originated from the
English holding – i.e., ‘retention’, ‘storage’) explains the historical roots of this notion
(Shitkina, 2008).
It is established by the Law of Ukraine dated March 15, 2006 No. 3528-IV
‘on holding companies in Ukraine’ that a holding group is a joint-stock company which
owns, uses and disposes of holding corporate shares (pieces) of two or more corporate
enterprises (The Law of Ukraine, 2006).
Consequently, in case of a holding company establishment in the agricultural
production field, it could happen that the officially registered land user (a corporate
enterprise) actually becomes featured as a nominee entity, but in reality land is used by
the parent company, which, in terms of the land legislation, is not a factual land user. At
the same time, the subsidiaries within the framework of a corporate strategy can be both
loss-making and super high profit-making companies.
Sometimes a nominee land user does not even farm land on his own and has no
production staff, because within an agroholding some production units (for example, a set
of machines and tractors, etc.) can be centralised and one agricultural holding company
can actually carry out production operations on land plots, whose nominee user or owner
is another corporate enterprise. Hence, various enterprises within the framework of the
corporate strategy can act as a single business group, but legally they are separated from
each other.
Agroholdings differ from other holding companies, first of all, by territory
diversification, various kinds of activities and different business processes performed by
their structural units (corporate enterprises). In fact, an agroholding in Ukraine
encompasses a combination of the parent company and its subsidiaries carrying out
economic activities in the field of production and processing of agricultural raw materials
by combining the capital of the holding company and its subsidiaries. Apart from
common holdings implying the parent company and one or a few subsidiaries under its
control, which are said to be so-called ‘sister’ companies, there are also more complex
holding structures, in which subsidiaries act as the parent companies in relation to other
companies. At the same time, the parent company, which dominates within the entire
group, is referred to as a holding company. The parent company fulfils the policy of
control over its subsidiaries both through the dominant participation in their authorised
capital and by planning their economic activities (for example, acting as their sole
executive body), or otherwise, provided by law (Martin, 2010).
Most agroholdings have a complex multi-level hierarchical structure, which operates
as the single financial and economic mechanism due to the interaction of the
profit-oriented units and services within the integrated agro-industrial units. The
peculiarities of the organisational structure of an agricultural holding are determined by
the branch affiliation of the parent company. In addition, the holding business is
structured according to the directions of activities and grouped in business units – a
division of a company that is responsible for certain functions or activities. The typical
structure (model) of the organisational and economic system of the participants’
interaction of the corporate agricultural enterprise group is shown in Figure 3.
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ndirect corporate agricultural land use in Ukraine 385
It should be noted that joint-stock companies are the most attractive organisational
forms for the creation of agroholdings. Thus, using such an organisational and legal form
of doing business, agroholdings are actively raising capital by issuing and placing shares
on stock exchanges abroad, which is unaffordable for other types of enterprises
(German-Ukrainian Agrarian Dialogue, 2008; Openko et al., 2017).
Agricultural holdings have recently become one of the integral parts of the
agro-industrial complex of Ukraine. They actively influence the economic, social,
environmental conditions of agriculture, as well as the development of agricultural areas.
In spite of the fact that integrated agricultural business groups of the holding type
have become widespread in the agro-industrial complex of Ukraine, both the state
authorities and scientists lack complete and detailed information related to their scale and
structure. In particular, some groups of companies still do not act as the objects of
independent statistical observations, that prevents to analyse and evaluate the
effectiveness of their activities.
From our point of view, an agricultural holding can be conditionally considered as a
set of combined companies, which collectively use more than 50,000 hectares of
agricultural land. There are already more than 50 such companies in Ukraine. Kernel,
UkrLandFarming, Agroprosperis Group (NCH), Myronivskyi Khliboproduct (MHP),
Agri-industrial holding ASTARTA-Kyiv and others are the largest agroholdings in Ukraine
(see Figure 4).
Figure 3 The model of agroholding and corporate agricultural enterprises in Ukraine
Income
centre
Profit
centre
Investment
centre
Cost
centre
Agroholding
(Parent company)
Agricultural
industrial
enterprises
Agricultural
service
enterprises
Agricultural
processing
enterprises
Subsidiary
company
Subsidiary
company
Subsidiary
company
Subsidiary
company
Subsidiary
company
Subsidiary
company
Subsidiary
company
Subsidiary
company
Subsidiary
company
Subsidiary
company
Distribution companies
Subsidiary
company
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Figure 4 Land bank of the largest agroholdings in Ukraine, ths ha (see online version for colours)
Source: Latifundist (2017a)
As a rule, agroholdings in Ukraine are featured with a closed technological
cycle: ‘agricultural production – transportation (storage) – processing – marketing
(distribution)’ within the framework of a single business project, the main purpose of
which is to achieve profits and increase the capital of their founders.
As far as agroholdings in Ukraine use agricultural land mainly on lease terms, the
founders (owners) of agroholdings are mostly uninterested in the long-term preservation
of the productive properties of land that is not under their ownership. Moreover, they also
show no interest in long-term investments, even in those cases when such investments
can significantly improve the efficiency of agricultural production. In addition, the
founders or owners of agroholdings, as a rule, do not dwell in those places where
agri-business is done, and neither they nor their family members use rural infrastructure
and are unlikely to intend to develop it in future (German-Ukrainian Agrarian Dialogue,
2008).
In total, today, 70 largest agroholdings control approximately 5 million hectares, or
almost 15% of the arable land area in Ukraine. Moreover, Kernel and UkrLandFarming
holdings are among the world’s top 20 leading agricultural giants (Latifundist, 2017b).
Making a comparison, it should be stated that the size of the top ten largest
agricultural holdings in the Russian Federation varies from 300 to 800,000 hectares of
land under a single land owner, while in Argentina, there are a couple of holders owning
1 million hectares of land (see Table 1).
Agroholdings have been mainly developed in the former republics of the
Soviet Union and in many post-socialist countries of Eastern Europe, which are rich in
significant resources of agricultural land. The reason why agroholdings tend to appear on
the territories of the above-mentioned countries is because of the lack of necessary
institutional and legal conditions for conducting effective business, the imperfection of
state regulation of the economy, inadequate land policy of the state and, first of all, the
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ndirect corporate agricultural land use in Ukraine 387
lack of the full-fledged land market for agricultural purposes. Furthermore, it should be
mentioned that the main stimulus for the formation of agroholdings is a profit-boosting
opportunity and its capitalisation (Martin, 2010).
Table 1 The world’s distribution of agricultural land
No. The largest agricultural landowners Country Land bank, million ha
1 S. Kidman Co Ltd. Australia 10.7
2 AACo Australia 7.0
3 NAPCO Australia 5.8
4 CPC Australia 5.6
5 Beidahuang Group China 5.4
6 Ivolga-Holding Russia 1.0
7 El Tejar Argentina 1.0
8 Cresud Argentina 1.0
9 KazExportAstyk Kazakhstan 1.0
10 NCH Capital USA 0.8
11 Prodimex+Agrokultura Russia 0.8
12 UkrLandFarming Ukraine 0.6
13 Kernel Ukraine 0.6
Source: Latifundist (2017b)
Moreover, there are a number of factors, which have boosted formation, rapid
development and increase of capital value of agroholdings in Ukraine (Martin, 2010;
German-Ukrainian Agrarian Dialogue, 2008), namely:
1 favourable global market conditions related to agricultural and food products (i.e.,
constantly increasing demand in the world markets for wheat, soybean, oil, sugar,
etc.)
2 profit-boosting opportunities due to the modern technology implementation in
agriculture and obtaining higher yields of agricultural crops, cost reduction on
storage and transportation of raw materials, non-payment of value added tax (VAT)
on raw materials, the introduction of the latest innovations of logistics in raw
material provision and final product distribution, etc.
3 access to cheap labour resources in agriculture (the thing is that the average wage
within agriculture in Ukraine is twice as low as in other branches of the economy and
6–10 times as low as in the corresponding fields in the European Union)
4 access to cheap land resources due to low rental values of farm land (that is
approximately ten times as low as the corresponding rates in the European Union)
5 tax payment minimisation applied to agricultural enterprises (that is approximately
three times as low as it is in other branches of the economy)
6 receiving subsidies and grants from the state budget for the development of the
agrarian sector
7 the possibility to accumulate large land areas due to agriculture lease agreements
with land subsequent resale.
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The main advantage of the agricultural holding organisation in Ukraine is that a
centralised group of corporate agricultural enterprises interacted with each other under
certain rules, achieves rather higher results than the sum of equal but individually
functioning enterprises. Consequently, the agroholding obtains a set of exact and vivid
benefits. Firstly, it is a great opportunity for agricultural and agro-processing production
and trade to be integrated, which enables to obtain and sell the finished product at more
competitive prices, avoiding numerous intermediaries. Secondly, the holding is able to
control the quality of products at any of the stages of their production and to introduce all
necessary quality standards that will ensure indisputable competitive strengths over other
forms of agro-business. Thirdly, although business group participants have only a general
idea of the counterpart enterprises, corporate enterprises-participants in the chain are able
to build an optimal range easier and produce much more profitable trending products.
Finally, the above-described conditions of agricultural holding organisation in Ukraine
are also benefited from expense reduction, since such business policy combines all of the
components necessary for profitable production and selling of the final product.
The corporate enterprise structure of individual Ukrainian agroholdings, worked out
in our research by making an analysis of the business register and companies’ reports, is
shown in Figures 5, 6 and 7.
The formation of agroholdings, on the one hand, is a completely natural consequence
of agro-business strategy to increase its own efficiency by resource concentration under
the conditions of the globalised agricultural market. On the other hand, agroholdings’
activities can cause risks of the market monopolisation and restrict competition in
economy. All in all, that will lead to the production efficiency loss and the growth of
public expenditure on the payment of monopoly land rent.
It should be noted that nowadays in Ukraine, under a temporary ban on agricultural
land alienation, the phenomenon of alienation of the company land-users has become
rather widespread.
According to the Association Land Union of Ukraine, as of January 1, 2018 in
Ukraine, the companies owning land areas of more than 300,000 hectares were put up for
sale. That is, the specific land market has been already formed, which establishes the
regulation of the acquisition right on land use that is not connected with land acquisition
or making lease deals. Instead, so-called ‘secondary land use’ is becoming more and
more widespread, when access to land resources is possible through a company with
official ownership or property-user rights. In this case, land value is actually transferred
from a land plot to value of a land owner/user company.
It is also worth mentioning that in many countries worldwide, as well as in Ukraine,
the agricultural land market is generally regulated by means of a free order of providing,
alienation of land plots, etc. However, alienation of corporate rights of the land owner
enterprises is often out of the state influence or regulation, which actually enables to
conduct de facto alienation of land or the right to use it together with the companies
without the transaction on land alienating procedure.
Moreover, in cases when the state makes an attempt to regulate the market of
corporate rights, it could arise such a situation under which the actual ownership of the
company would be withdrawn beyond national jurisdiction. In Ukraine, for example,
most parent companies of the agricultural holdings are foreign enterprises, and it is quite
a common tendency when the Republic of Cyprus, the British Virgin Islands,
Liechtenstein and other countries as corporate right holders on agricultural enterprises
become the official place of these companies’ registration. In fact, foreign capital already
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ndirect corporate agricultural land use in Ukraine 389
controls 2.4 million hectares of the entire 42.7 million hectares of agricultural land in
Ukraine. For instance, let us consider the simplified corporate structure of the business
groups of Industrial Milk Company S.A. agroholding and indicate all subsidiaries,
including two non-operating ones (see Figure 8).
Figure 5 The structure of agroholding Astarta Holding N.V. with its corporate enterprises’
EDRPOU codes
LLC
‘Novoorzhytskiy
sugar plant’
38960990
Astarta Holding N.V.
Agricultural Sugar
production
Fodder
production
Soybean
processing
Trade
Research and
development
LLC ‘Agricultural company ‘Pokrovsk a’
32534993
LLC ‘APO
‘Tsukrovyk
Poltavsh chyny’
30811110
ALC
‘Novoivanivskiy
sugar plant’
00373178
LLC ‘APK
Savynska’
37010685
LLC ‘Globinskiy
bioenergetichniy
complex’
39521844
LLC ‘Shyshaki
combined forage
factory’
33408454
LLC
‘Kobelyatskiy
combined forage
factory’ 00687286
LLC ‘Khorolskiy
combined forage
factory’
00687356
LLC ‘Globinskiy
processing
factory’
30547403
LLC
‘Agropromgaz’
34603822
LLC
‘Investpromgaz’
37885875
LLC
‘Tsukragrom-
p
rom’ 38234087
LLC ‘Zerno-
Agrotr ade’
38234181
LLC
‘Kochubeyivske’
38342414
LLC ‘Astarta-
Selektsiya’
37569910
LLC ‘Agro Core’
6911017391
LLC ‘Сompany
‘Dovzhenko ’
03770394
LLC ‘Сompany
“Dobrobut”
32682703
LLC ‘Сompany
“Musievske”
03770359
LLC
‘Khmilnitske
00692245
LLC “List-Ruchk
33830885
LLC ‘Dobrobut’
13551724
OJSC ‘Сompany
‘Zhdanivske
00385684
OJSC ‘Сompany
‘Agrocomplex’
00384897
LLC “Company
“Lan” 31374188
LLC ‘Volochysk-
A
g
ro’ 33007668
LLC ‘Сompany
‘Poltavazerno-
prod uct’ 31059651
LLC ‘Сompany
‘Mirgorodska’
36805165
LLC ‘named after
Ostrovskiy’
31898737
LLC ‘Сompany
‘Khorolska
37137609
SC ‘Agro-Kors’
30786645
LLC ‘Nika’
32469673
LLC ‘Zhytn ytsya
Podillya’
32883721
LLC ‘Agrosvit
Savyntsi’
37681793
PC ‘Lan-M’
34988168
PE ‘TMG’
30036235
LLC ‘Savynci
agro’ 35108089
АLLC ‘Lyaschivka’
03793567
LLC ‘Eco energ y’
36604126
LLC
‘Geoexpertservice’
3783561
0
390
A
. Martyn et al.
Figure 6 The structure of agroholding Myronivskyi Khliboproduct (MHP) with its corporate
enterprises’ EDRPOU codes
Group of companies PJSC
Mironivsky Hliboproduct
Grain growing
Fodder production
Poultry production Other agricultural
operations
Breeding
Elevators and storage
capacity
Meatprocessing
PrJSC ‘Zemoproduct МНР’ 32547211
LLC ‘Poultry Snyatynska Nova’
31673059
PE ‘Cherkassy factory of
reinforced concrete products’
33536258
LLC ‘Vinnitsia poultry farm’
35878908
PrJSC ‘Myronivska poultry
farm’ 30830662
PrJSC ‘Oril-Leader’
24426809
PJSC ‘M yronivsky plant for
production of cereals and mixed
fodders’ 00951770
LLC ‘Tavriysky plant for
manufacturi ng feeds’
32547185
LLC ‘Katerynopilsky Elevator’
32580463
LLC Vinnitsia poultry farm,
Branch «farm complex for
manufacturing feeds»
complex for the production of
feed 38023113
PrJSC ‘Urozha
y
’ 31860551
PrJSC ‘Agrofor’ 3 4378735
LLC ‘Urozhaina Krai na’ 37078234
Branch ‘Perpective’
PrJSC ‘Zerno
p
roduct МНР’ 34970166
LLC ‘WEST-AGRO MHP’ 3 7042858
АLLC ‘AGROKRYAZH’ 36187994
LLC ‘AGRO-S’ 31522243
Branch «RIDNYY KRAY»
37113389
Kitaigorodsk y elevator bran ch of PJSC
‘Oriel-Leader’ 24426809
PJSC ‘Zernoprodukt MHP’ Elevator
complex” 32547211
Voskresintsevsky elevator branch of
‘West-A
g
ro MHP’ 37042858
Krasnyansky elevator branch of
‘West-A
g
ro MHP’ 37042858
Dobro
p
ilsk
y
KHP 00957465
Andriyshevsky elevator branch
LLC ‘Urozha
y
na kra
y
ina’ 37078234
Yampilsky elevator branch of
PJSC ‘Zerno
p
rodukt MHP’ 32547211
Vendichansky elevator branch of
АLLC ‘Ahrokr
y
azh’ 36187994
АLLC ‘Poultry Starinskaya’
30925770
PE ‘Poultry Factory
‘Peremoha Nova’ 30 541899
PrJSC ‘Ukrainian Bacon’
33380539
Myronivsky Meat Processing
Plant ‘Lehko’
33111644
Therefore, in case when a nominee owner of an agricultural enterprise is a
Cyprus-based company, it becomes possible to organise alienation of land use rights on
Ukraine located land areas and to resell the Cyprus company in accordance with the
legislation of Cyprus. At the same time, in the framework of Ukraine’s national
I
ndirect corporate agricultural land use in Ukraine 391
jurisdiction, there will be no transactions on land or corporate rights, and the nominee
final beneficiary entity will not be changed at all, despite the actual land ownership of the
Cyprus company.
Figure 7 The structure of agroholding Industrial Milk Company (IMC) with its corporate
enterprises’ EDRPOU codes
Industrial Milk Co mpany S.A.
PJSC ‘Vyryvske HPP’
05387446
Agricultural and
farming production
Grain elevator
Granting of PPE
into finance lease
Bakery
production
Trading
company
Storage
facilities
Ltd ‘Burat-Agro’
30152327
Ltd ‘Chernihiv
Industrial Milk
Company’
34832050
Ltd ‘Ukragrosouz
KSM’ 31921729
Ltd ‘Burat’
13948686
PJSC ‘Mlibor’
14226133
PJSC ‘Poltava
Kombilormoviy Zavod’
00952189
Ltd ‘Bobrovitsky
Hlebzavod’
35052398
Aristo Eurotrading
Limited
Ltd ‘Nosovsky
Saharny Zavod’
36213924
PAC ‘Slobozhanschina
Agro’ 3800113
PE ‘Agroprogress’
31174509
Ltd ‘Plemzavod Noviy
Trostyanet s’
37199089
Ltd ‘Ag roKIM’
32370430
PJSC ‘Bobrovitske
HPP’ 00957040
Negoce
Agricole S.a r.l.
Preparation of
technical
documentation
concerning land
issues
PE ‘Zemelniy
Kadastroviy Centre’
32464633
Subholding
company
Unigrain Holdin g
Limit ed
Bluerice Limited
Ltd “Agroprogress
Holding” 37728951
Thus, secondary corporate land use business does not recognise any borders and could be
even featured as super-national, while national governments are losing the opportunity to
regulate the agricultural real estate markets in case of failure to control and track the
deals on agricultural land.
An important task of economic and legal science under the conditions studied in the
research is not only the development of approaches to the identification of agroholdings
and assessment of their land bank scale, but also the working out of approaches to
quantify the economic concentration in the territorially distinguished markets of land
resources (Martin, 2010).
Providing that national governments are willing to regulate economic concentration
of land resources within corporate agricultural enterprises, firstly, it is necessary to
evaluate this issue correctly by applying to different criteria. For example, the Law of
Ukraine, as of January 11, 2001 No. 2210-III ‘on protection of economic competition’,
stipulates that the so-called relative concentration coefficient for one (CR1), two or three
(CR2, CR3) and four or five (CR4, CR5) market participants is used. The above-indicated
coefficient characterises the aggregate proportion of assets of the largest owner company.
392
A
. Martyn et al.
Figure 8 The corporate structure of the business groups of Industrial Milk Company S.A.
Industrial Milk Company S.A.
(Luxembourg)
2.4% 4.0%
Unigrain Holding Limited
(Cyprus)
JSC ‘Mlybor’
Grain silo
(Chernihiv region,
Ukraine)
LLC ‘Chernihivska
Industrialna Molochna
Коmpaniia’
Farming and dairy farming
(Chernihiv region, Ukraine)
Mr. Oleksandr
Petrov
LLC
‘Burat-Ahro’
Farming and
dairy farming
(Poltava region,
Ukraine)
LLC ‘Burat’
LLC
Grain silo
(Poltava region,
Ukraine)
LLC ‘S.C. Zemelno-
Kadastrovyi Tsentr of
CIMC’ Dormant
(Chernihiv region, Ukraine)
OJSC ‘PKZ’
Fоder production facilities
(Poltava region, Ukraine)
100%
3.05%
71.8% 99.0% 97.6% 96.0%
87.5%
100%
According to the current legislation of Ukraine, if a company controls more than 45% of
a certain asset (for example, land property) within the territorially distinguished market,
or three companies control more than 45%–70%, or five companies manage more than
70% of some certain asset, then such business entities are considered as violators of
antimonopoly legislation and a set of appropriate sanctions could be applied against
them. At the same time, economics offers other, more sophisticated approaches to
assessing business competition within commodity markets, based on the application of
Herfindahl-Hirschman, Lerner, Gini, Lind, Rosenbluth, and Tobin indices, etc.
It should be also mentioned that it is necessary to clearly determine the final
beneficiaries of all companies in order to identify the whole land use scale of an
agricultural holding aimed at evaluating land resource concentration in corporate
agricultural enterprises effectively. In addition, it is important to identify the structure of
holding companies and those lands which they use, and get an access to business register
data aimed at regulating secondary (indirect) land use.
Such an activity of agroholdings that could result in forcing non-corporate
agricultural enterprises and farms out of the agricultural land market, establishes a new
social and economic environment in the countryside. It can be mainly featured as follows:
the termination of agricultural enterprises’ functioning as legal entities; reduction of tax
and other payment revenues to local councils from the enterprises that have ceased to
exist; job losses for locals; lack of funding for the establishment and support of rural
infrastructure introduced by local agricultural enterprises (German-Ukrainian Agrarian
Dialogue, 2008).
I
ndirect corporate agricultural land use in Ukraine 393
Furthermore, most agroholdings are characterised as mono-specialised entities, that
is, the only crops they grow are high-margin ones (e.g., cereals, sunflower, soya, etc.),
and in most cases their business seems to overlook livestock breeding. The corresponding
business specialisation gives the companies a great possibility of obtaining high profits.
Meanwhile, both soil depletion and soil fertility loss take place due to neglecting crop
rotation practices (Kutsenko, 2014; Shevchenko et al., 2017; Kurylo et al., 2017).
Agroholdings in Ukraine are interested in producing only those types of products,
which can be industrialised (plant growing, in particular). For example, having the land
bank of nearly 602.5 thousand hectares, agroholding Kernel specialises mainly in the
sunflower cultivation. This super-large company and one of the Ukrainian agricultural
giants seems to lack so-called ‘agricultural crop diversity’, when a large number of crops
are cultivated, so diversification of business strategies is not their first priority.
Being registered mostly in the cities, agroholdings rarely pay taxes to local budgets.
Therefore, it is necessary to introduce such a procedure that would ensure the tax
payment by agricultural enterprises running agro-business not by their parent company’s
registration location, but according to the actual location of their structural units
(corporate enterprises). Obviously, it will allow rural councils to accumulate funds from
local budgets aimed at developing social infrastructure in the countryside.
There is also an interesting fact that farms as nominally independent agricultural units
could be sometimes the elements of agroholdings. For example, the Ukrainian legislation
encouraged family-run farms, at the same time these farms were granted with certain tax
privileges or a simplified access to land resources. As a result, such family farms
managed to receive land plots of state and communal property for further use avoiding
corresponding business competitive procedures. However, the actual constituents of
agricultural holdings are individual farms, which are nominally family-run farms. In fact,
such farms are used within the framework of a corporate strategy aimed at obtaining the
right to use state-owned land avoiding the procedure of land trades. The land received on
sublease agreements or in an informal manner can be transferred to be under corporate
enterprises’ control. At the same time, an agricultural holding can use farms, for example,
in order to operate simplified tax regimes, incentives and subsidies provided to farms, etc.
5 Conclusions
The research findings show that in recent decades within the field of agricultural land use
of Ukraine, the so-called ‘secondary land use’ phenomenon has become rather
widespread. It is that case when a corporate enterprise is considered to be a nominee land
user, while in reality it is the parent company itself that runs actual control. Taking into
account such a tendency, the structure of agricultural holdings and their land bank should
be observed more thoroughly and, in the long-term, regulated particularly in terms of
governing over the economic concentration of land resources. When the problem of
secondary land use by holding companies happens to be neglected, it could cause the
state failure to control its agricultural real estate markets and increased monopolisation
risks of access to land resources in rural areas.
394
A
. Martyn et al.
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... The driving force behind the development of the social system is certain contradictions between the tendencies of economization and socialization. Ignoring one of these components leads not only to a significant deterioration of the functioning of the other, but also to negative systemic changes [11,17]. ...
... At the present stage of reforming the agricultural sector, there is a certain separation of agricultural production from rural areas [13,17]. In an effort to maximize profits, tenants and landowners do not take into account the fact that agricultural production and rural areas are extremely closely linked, and a significant increase in the efficiency of such production is almost impossible without integrated rural development [1,3,15]. ...
... One of the main reasons for the deficient balance of humus and nutrients in general is the insufficient amount of mineral and especially organic fertilizers [2, 13,18]. Organic fertilizer application in the region has decreased more than 10 times. ...
... The structure of the land fund of Ukraine by the main types of land and their functional use have been significantly transformed not only over the centuries, but especially during the last decades [2,18]. The rapid development of technology has led to the withdrawal of large areas of land for housing, new businesses, transport infrastructure, mining facilities, etc. [17,19,20]. Excessive intensification of agriculture has led to large-scale land depletion. ...
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When economies change hands: a survey of entrepreneurship in the emerging markets of Europe from the Balkans to the Baltic states
  • L P Dana
Dana, L.P. (2013) 'When economies change hands: a survey of entrepreneurship in the emerging markets of Europe from the Balkans to the Baltic states', Business & Economics, Vol. 386, International Business Press, an imprint of The Haworth Press, New York [online] https://books.google.com.ua/books?id=IZAnAAAAQBAJ&pg=PA258&lpg=PA258&dq= When+Economies+Change+Hands+Ukraine&source=bl&ots=g8poTXpj2Q&sig=RPjGCmB3 b4H0LsTANQlS3cBfSaI&hl=ru&sa=X&ved=2ahUKEwi0op2m6e7cAhWnHJoKHdIeDFIQ6