UAAS: A chronology of corruption
Ukraine’s most fertile lands have yielded lousy results
KYIV. According to Deputy Prime Minister Stepan Kubiv, the president of the Ukraine’s Academy of Agrarian Sciences (UAAS) is doing a great job. That’s what he said on December 7, 2017 when he crashed an extraordinary meeting of the UAAS presidium to prevent Yaroslav Gadzalo from being sacked.
Gadzalo, a leader of Ukraine’s revamped Agrarian Party, has headed the much-maligned state academy since 2013, the heyday of disgraced ex Ukrainian President Viktor Yanukovch’ rule. Allegations of corruption in UAAS have only multiplied since then.
Scandals rock academy
Recent scandals involving UAAS include:
Perhaps the most embarrassing charge, at least for Gadzalo, was the reported charge that that he purchased a $10,000 pair of Zili shoes. The ensuing scandal sparked multiple investigations documenting in excruciating detail how Gadzalo’s academy rakes in millions of dollars in undeclared land lease deals.
UAAS is Ukraine’s third largest owner of agricultural land, controlling more than 478,000 hectares, or an area about the size of Delaware.
The estimated amount of undeclared cash Ukraine’s Academy of Agrarian Sciences makes each year by illegally renting publicly owned farming lands to commercial agribusinesses exceeds $100 million, or 10,000 pairs of Zilli shoes.
What went wrong?
More than a quarter of a century has passed since Ukraine became independent, but its government remains the biggest land owner. Stewardship over huge tracts of Europe’s most arable farmland remains the the main task of UAAS, which was created in Soviet times to manage and allocate agricultural resources. It has failed. Miserably.
Ukraine has 60.35 million hectares of land, some 42.7 million of which are designated as agricultural land. That’s 70 percent of the country. The country’s government owns some 10.5 million hectares.
The 478,000 hectares UAAS manages is the best of the best Ukraine’s agricultural lands. They were set aside for scientists to use for developing, testing and cultivating the best crops. Unlike Ukrainian commercial agribusinesses, UAAS pays zilch to rent these lands. While UAAS is among Ukraine’s top three land owners, it has been unable to produce profits.
Ukraine’s State Statistics Service lists 44,998 agricultural enterprises operating in Ukraine. Only 20 of them are large, UAAS is the third largest.
How much does “free land” cost to buy?
UAAS rents out 45% of the lands it controls, some 216,000 hectares. Parliament extended the moratorium on land sales until January 1, 2019. ___________________________
UAAS productivity stinks
Theoretically, UAAS’ primary task is the development of agrarian sciences. Over the first nine months of 2017, the academy posted a measly UAH 99 million. That works out to a $75 per hectare, substantially less than the average $423 per hectare posted by most large agribusinesses operating in Ukraine.
Land lease prices depend on fertility and location. Lands controlled by the UAAS, theoretically, at least, are of high quality for two reasons. The first is because they are very fertile, and the second is because we are talking about large tracts of land with one owner. Most Ukrainian agribusinesses use multicolored maps on computer tablets to show visitors the land they cultivate. The maps have blacked out squares, because some local owners decided not to renew their leases. That forces commercial agribusinesses to carefully maneuver their machinery to avoid plots they don’t rent.
How much does “free land” cost to rent?
Lease prices in Ukraine are are low, ranging from $80–90 per hectare annually. The highest fees are charged in Denmark, Ireland, and Greece. ____________________________
Ukraine’s Academy of Agrarian Sciences gets away with charging three to four times less than the market price for land leases for the following reasons:
- Lack of transparency: UAAS is not required to explain why it charges what rate for land leases. The procedure of expert farmland appraisal in Ukraine is meant to fix land rental prices, but is not followed.
- Lack of competition: UAAS deals directly with enterprises which lease its lands. There are no open competitions for leasing land from the academy. Market mechanisms can’t offset the influence of artificially lowered rates. The stated rule of putting state-owned land tracts up for sale does is not followed.
- Lack of interest: There is no economic stimulus for UAAS managers to increase profits. It is a budget organization. It doesn’t matter whether a director of an academy institute rents 1,000 hectares of land for $28 per hectare or organizes a tender that fetches $100 per hectare. The director’s salary remains the same whatever the price is. Academy expenditures do not depend on academy profits. UAH received UAH 740 from the 2017 State Budget.
These three factors indicate the actual margin between rental prices of academic and commercial lands is not very high. Land is a commodity. Actual rental prices are determined by the market. Shadow business at the academy doesn’t help it accomplish its main task.
It is difficult to estimate how much money Ukraine has lost because of UAAS. Average annual earnings per hectare among the top Ukrainian agroholdings is $424. The academy’s earnings in 2016 totaled UAH 346, $28 per hectare, or 15 times lower.
If we assume that the academy leased its lands for slightly less than the market rate, let’s say for $70 per hectare, than 216,000 hectares would bring in $15 million per year.
How best to clean up the academy and get it working for Ukraine instead of the people managing the academy? Unfortunately, no one in Ukraine’s law-enforcement agencies has come up with an answer to this question … yet. Parliament’s agriculture committee has so far also failed to address issues involving UAAS.
It is increasingly obvious that maintaining the status quo in 2018 is unsustainable. As a minimum the the academy’s land holdings should be reviewed. Some members of parliament’s agrarian committee say UAAS requires only 200,000 hectares maximum to accomplish its designated task and that remaining lands could be sold off at auction and/or given to veteran’s of Ukraine’s Anti-Terrorist Operation in Donbas.
The time to act is now.