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Shafted: The Winners and Losers of Ukraine’s Austerity Agenda

March 17, 2015
By: Elizabeth Fraser

On March 2, 2015, the Ukrainian government passed amendments to its 2015 budget that will cripple the economic well being of most Ukrainians, but satisfy the International Monetary Fund (IMF). At the cost of their pensions, tax increases, sky-rocketing energy bills, and a re-organized banking sector, Ukrainians are now poised to get an IMF-led bailout of up to $40 billion. These austerity measures will have a huge adverse impact – with inflation soaring, many citizens of Ukraine already face dwindling financial reserves. Increases in taxes, energy bills, and lost pensions, are enough to throw any family into financial turmoil.

These reforms also have vast implications for Ukraine’s agricultural sector.

The IMF and World Bank have been pushing for Ukraine to lift its moratorium on the sale of farmland for some time. In early March, Heinz Strubenhoff, the agribusiness investment manager for the World Bank’s International Finance Corporation in Ukraine, told the Thomson Reuters Foundation that “it’s time to think about privatization,” and urged Ukrainians to “prepare everything to allow for farm land sales (to foreign and domestic investors).” Given the power that the IMF and World Bank hold over Ukraine right now, their wishes may finally come true.

Land is a precious commodity in Ukraine. The country is known as Europe’s bread basket, and holds some of the world’s most fertile soils. In 2001, Ukraine passed a Land Code, providing Ukrainians who had previously been part of collectivized farms with titles to approximately four hectares of land each. Since then, the majority of farmland has been in the hands of either smallholder farmers or the government, with a country-wide moratorium on its sale.

Large agribusinesses have been readying themselves for a possible dissolution of the ban. Monsanto, for instance, has invested $140M in the past year on a new seed facility, which should be completed shortly. The clause in the EU-Ukraine Agreement that opens Ukraine up to planting GM crops makes this an even-more-lucrative deal for companies like Monsanto–it is now well-poised to corner the seed market when large-scale land acquisitions begin. Cargill has similarly bought up five percent of UkrLandFarming, Ukraine’s largest agro-holding, as well as shares of a large Black Sea port to enable the export of future grain sales. In early March, amidst speculation about the upcoming budget decision, the investment blog “Seeking Alpha” even published a piece about the substantial gains that Monsanto seeks to receive because of the ongoing crisis and impending bailout.

Should the land-sale moratorium be lifted, many expect land to be bought up quickly by speculators and large agribusiness giants. The economic losses faced by average Ukrainians during the war make it likely that some may sell their land out of distress and migrate either to urban regions or to other countries.

Economic recovery plans during times of crisis and war are far from easy to craft, but the consequences of the current IMF-deal in Ukraine puts too much at stake. The structural adjustment program being advocated essentially asks that Ukraine both tighten its belt financially, and sell off its family jewels—farmland. Without these assets, how will Ukraine recover once the bailout ends?

In post-WWII Europe, a different mentality prevailed. Rather than push an agenda of liberalization and privatization, investments were made to establish co-operatives, credit facilities, and state agencies that supported farmers. Instead of maintaining that a country sell its most valuable assets at a time of crisis, policies and investments were made to maintain the integrity of agricultural systems in Europe.

A replica of the post-WWII recovery plan is obviously not the right fit for Ukraine either, but re-focusing on the real needs of Ukrainians citizens is vital.

The economic growth that Ukraine needs is development that supports its citizens, not financial speculators and large Western agribusinesses. The economic development that Ukraine needs is one that will directly support the country’s diversified, small-holder agricultural sector. The economic development that Ukraine needs does not include selling off Ukraine’s most valuable resource—land—and consolidating its control in the hands of a few.

Image source: Oleksii Leonov under Creative Commons