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Evgeny Arbuzov commented on a bill submitted to the State Duma enabling regions to redeem unused agricultural land from private owners

15 march 2016

Source: RBK

The Duma is considering a bill obliging the regions to buy unused agricultural land, for 40 percent of the cadastral price, from private owners. The governors, however, are afraid that they will have to pay for illiquid assets.

On 29 February, a group of deputies from United Russia, under the leadership of the speaker of the Duma, Sergey Naryshkin, submitted a bill to correct the order regarding the seizure of agricultural land. The document has a very good chance of being approved, say sources close to the leadership of the group that introduced the bill and the State Duma.

According to an explanatory note in the bill, its authors prepared the draft after a speech by of President Vladimir Putin, who, in December 2015, called for putting into circulation any unused agricultural land. According to the authors of the document, about 20-25 million hectares, from a total of 385.5 million hectares, classified as agricultural land are not used or are misused. The Profile Committee, under civil law, is taking responses to the document until April 2.

The deputies propose to reduce, from five to two years, the period after which the authorities can withdraw agricultural land from an owner who uses it for nonagricultural purposes or does not use. The obligation to apply to the court for the seizure of land will rest with the regional authorities. They will have to organize a public auction to transfer the confiscated land “to those who are willing and able to cultivate the land,” as Putin said in his December address to the legislature.

If the first public auction will not be successful, the bill instructs the regional authorities to hold another auction, after lowering the initial price by 20 percent. The initial price will be equal to the cadastral value. If the land cannot be sold at the lower price or after an additional discount of 50 percent (i.e., 70 percent below the original price), the municipality may purchase the land. If the municipality does not have desire to do so, the regional authorities will have the obligation to redeem it, with the same discount, according to the bill.

Reasonable price

The average cadastral value continues to be “detached” from reality, as noted in a report from the research company BEFL, compiled in November 2015. For example, in the Orlov Region, the “fair” price of agricultural land, according to the calculations of BEFL, is at a level less than RUB 40 thousand per hectare, while the cadastral price starts from RUB 90 thousand. The comparability and relationship between the cadastral value and the fair value of land, in the region, is amiss, the report said. The situation is different only in a few regions, such as Bryansk, Kursk, and Lipetsk.
Due to the economic crisis, the regions are losing income, and if the Duma adopts this rule, their burdens will be increased. The governor of the Kaluga Region, Anatoly Artamonov, expressed his concerns when he stated that “budgets are being formed with difficulty, and, in addition to that, there will be a need to find the money to buy the land.” He calls the deputies’ bill “a step forward” to address the problem of unused agricultural lands, but he believes that regions should not be obliged to buy the land.

Alternatively, Artamonov suggests the following scheme: establish a performance criteria for the use of land. For property owners who use it ineffectively, introduce a land tax increase of ten times. “That would be an incentive [to the owners] to contact the local authorities with a proposal to purchase these lands “at a reasonable price,” Artamonov explained. “Most of all, we would not buy back the land. Our investors will form a queue of those willing to buy [these lands].”

Who owns the Rusagro group

Vedomosti previously reported about a regional official, a former federal official, two consultants, and a former contractor of Rosagro, who own a group Bin, which is in hands of Mikhail Shishkhanov and the Gutseriev family. The Rosagro web site asserts that it manages more than 400,000 hectares of land in the Saratov, Penza, Voronezh, Orel, and Stavropol Regions. In the Penza region, the company manages 268,000 hectares of land.

On Monday, RBC reported, but BINbank denied that BIN has a share in Rosagro’s equity. “BIN, its shareholders group, and the companies included in the BIN group, including BINbank, are not beneficiaries of Rosagro,” according to their claim.

The bill is intended to assist authorities in the region, regardless of the economic profile of the region, to solve the situation with the budget. The head of Kalmykia, Alexey Orlov, said that the land goes to the regional or municipal land fund and then it is sold through auctions. It also may be leased, on the basis of transparent arrangements, to bring extra money to the budget. “The main objective is to make this land function effectively for its intended purpose,” he said. “This echoes a decade of history, when, for a song, huge tracts of land were bought up, and part of it was unused.”

Orlov said that the claim that the land cannot be used is “questionable.” “In our country, farmers ask for additional allotments, and we do not have such a possibility [to have unused land].”

The regional authorities will cope with the cost of purchasing land. The chairman of the Duma Committee on Agrarian Issues and coauthor of the initiative, Nikolay Pankov, thinks that the costs will be low for those lands that are in worse condition than others. According to the deputy, a number of regions requested that the bill include a provision on land redemption so that they are able to transfer land to investors who require parcels to implement their plans. Owners who lose their property will receive money from the sale of the unused land. Pankov said: “We believe that land has an owner, and one cannot just take it and redistribute it.”

Who benefits?

As of 1 January 2015, Russia had 385.5 million hectares of agricultural land, that is, 22.5 percent of all land in the country. According to one of the initiators of the project, deputy Airat Khairullin, tightening the legislation will result in the release of 12-18 million hectares of land.

According to a partner of at the ART DE LEX law firm, Evgeny Arbuzov, the new amendments will benefit the state and municipal authorities as they accelerate the process of redeeming land.

“This is one of the mechanisms for coercion because the land is idle,” said Alexander Nikitin, the vice president of Agribusiness, one of the largest Russian agro-holdings. “As for the authority that handles land, the new rules do not change anything. There just will be more available land.”

The general director of the Institute for Agricultural Market Studies, Dmitry Rylko, doubts that the new amendments will change the situation much. According to him, the economic regulatory measures would be more effective if the land holders were to receive incentives for using the land.

When introducing the measure, the leaders of those who authored the bill said that they developed the initiative jointly with the Ministry of Agriculture. The press service of the Ministry of Agriculture told RBC that the deputies had not submitted their bill to the department. “The Ministry of Agriculture of Russia will form its opinions, regarding certain provisions of the said federal laws, after it receives the measure, according to the procedures,” the Ministry of Agriculture said, in a response to RBC’s request. After the December presidential address, the ministry drafted a bill regarding the improvement of agricultural land acquisition procedures, which is under negotiation with the federal bodies of the executive.

The Ministry of Agriculture has been promoting its initiative to withdraw unused agricultural land since 2010. The ministry’s bill also has a provision to oblige the regions to buy land, which would be impossible to sell at a public auction. Experts previously criticized this plan, including Vasili Uzun, a professor and a chief researcher at, RANHiGS, the center for agricultural and food policy. In his comments to the bill in the Peasant Newspaper, he wrote that the federal center is not entitled to oblige the regional authorities to buy unused land. In addition, this land acquisition procedure will not enable the land to enter into circulation, and it only allows people who got the land, almost for free, to profit. The provision suggests that the former owners of the confiscated land will get money from its sale at an auction or when the authorities take control of the land, the expert pointed out.