Regulatory pecuniary evaluation of each hectare of arable land overestimated by 6500 UAH

Increased by 75,6%, the regulatory pecuniary evaluation of agricultural land that was conducted according to the resolution №1185 adopted by the Cabinet of Ministers of Ukraine, is based on the miscalculation. During the recalculation of the regulatory pecuniary evaluation of arable land on the basis of the methodology, developed in 1995, each hectare of land was overestimated by 6500 UAH.

According to the Association “Ukrainian Agribusiness Club” (UCAB), the official methodology for determination of value of arable land is based on the sum of two types of return to land – differentiated rental income and absolute rental income. However, due to miscalculation of the first and the latter, the value of land was substantially overestimated.

Differentiated rental income is derived from the economics of agricultural production. In fact, it is comprised of a margin of an agricultural commodity producer minus revenue needed for reproduction and development. In 1995, differentiated rental income was determined at the level of 7,4 centner of grain per 1 ha of arable land on the basis of productive indexes of farms in 1986-90, when the profitability of grain production, at the average, was 77%.

The recent indexation of value of land was calculated by means of simple multiplication of the differentiated rent amounting to 7.4 centner / ha of grain, based on the indexes in 1986-90, to the current price for grain. But the fact that for the last 5 years the average profitability of grain was 17% only due to rapid growth in prices for resources and reduction of governmental support was not taken into account. Thus, costs of resources for agricultural production from 1996 increased in 22 times, while the prices for grain – only in 16 times. Calculating the differentiated rental income, based on the actual indexes of the last 5 years (2007-2011), one can notice that it fell to 3,4 centner of grain per 1 ha i.e. more that twice.

The usage of absolute rental income, which in Ukraine was set at the level of 1.6 centner / ha without any justification, according to most experts, is also very doubtful, because absolute rent is considered only by the Marxist economics.

“The vast majority of the developed countries do not use the concept of absolute rent, and only in the Russian Federation that experienced a similar process of the land reform, the absolute rental income is set at the level of 1% of gross production from 1 ha, which is about five times less than the fixed level of 1.6 centner / ha in Ukraine “, – the President of the Association” Ukrainian Agribusiness Club “Alex Lissitsa said.

According to the President of UCAB, miscounts in calculation of regulatory pecuniary evaluation of land amount to 6500 UAH/ha. “Real regulatory pecuniary value of arable land, should increase, taking into consideration the indexation, by an index of 1.2, to 14 thousand UAH per hectare of arable land “- Lissitsa underscored.

Moreover, UCAB experts claim that the calculation of land rent in previous years based on significant amounts of budget support. The cut of direct budget support of agricultural sector from 6.9 billion UAH in 2008 to 2.9 billion UAH in 2012 also reinforces the negative impact on the profitability of agricultural production and, therefore, historical evaluation of rental income provides overestimated results under such conditions.

Earlier, according to the resolution №1185 adopted by the Cabinet of Ministers of Ukraine on 31.10.2011, the value of an average hectare of arable land in Ukraine, starting from January 1, 2012, increased from 11,784 UAH to 20,693 UAH.

The memorandum on law about the illegitimate introduction of index of regulatory pecuniary evaluation of agricultural land can be found here.

by UCAB Press Office 


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