By Chris Arsenault
ROME (Thomson Reuters Foundation) - The crisis in Ukraine looks set to trigger major changes in its vast agricultural sector with state-owned farm land and small family plots likely to go up for sale despite concerns over the impact on local farmers, according to development experts.
Ukraine, known as Europe's bread basket, has the eighth largest agricultural area in use globally and is the world's third largest exporter of corn and sixth largest grain grower, potentially making it a prime target for foreign investment.
But the government has been wary of allowing foreign land sales, fearing rural unrest, and the value of its 32 million hectares (79 million acres) of farmland has been limited by its division into small plots with relatively low productivity.
However economic turmoil emanating from the conflict between pro-Russia rebels and government forces in the east has intensified the need for change, said Heinz Strubenhoff, agribusiness investment manager for the World Bank's International Finance Corporation in Ukraine.
Opening the farm sector, a key driver of the economy, to outside investors has long been backed by the World Bank and International Monetary Fund (IMF), and Strubenhoff believes changes will now happen sooner rather than later.
"It's time to think about privatization. They need to prepare everything to allow for farm land sales (to foreign and domestic investors) in three to four years," Strubenhoff told the Thomson Reuters Foundation.
Currently, farm land cannot be bought or sold in Ukraine, but companies can sign onto long-term leases with small holders.
LACK OF TRUST
President Petro Poroshenko, elected last May after protests ousted previous Russian-backed leader Viktor Yanukovich, had considered lifting restrictions on land sales during "long discussions" with World Bank officials, Strubenhoff said.
But Kiev backed off the move as it feared a backlash from rural communities, he said.
Ukraine's Ministry of Agriculture was unable to immediately respond to requests for comment.
Agriculture Minister Oleksiy Pavlenko told local media last month that he believes Ukraine can produce 100 million tonnes of grain annually by 2020, up from 62 million tonnes in 2014.
To nearly double production, the country aims to attract $25 billion in outside investment for agriculture, Pavlenko said.
But enticing new capital in the midst of the conflict that has displaced nearly a million people won't be easy.
Jean-Jacques Hervé, counselor to the board for agriculture at France's Credit Agricole Bank in Ukraine, said local people don't have enough money to buy the land.
"Speculators with access to foreign currency would be the biggest winners (if the land market was opened)," he told the Thomson Reuters Foundation.
Selling land to foreign investors could cause problems and the government should instead help get finance to farmers, search for new export markets and simplify the procedures for land leases, he said.
Frédéric Mousseau, policy director of the Oakland Institute, an NGO critical of privatization, said pushing Ukraine to open its land market would end up giving domestic and foreign oligarchs more control over the country's agriculture potential.
"About 20 percent of the country's most fertile lands are already controlled by large agribusiness firms (through long-term leases)," Mousseau told the Thomson Reuters Foundation.
"The (proposed) reforms would just intensify this concentration."
But despite concerns from some quarters, U.N. officials are backing the World Bank's view on sales.
"In the long term, Ukraine should aim to open its land market to allow optimum resource allocation," Dmitry Prikhodko, an economist with the U.N.'s Food and Agriculture Organization (FAO) told the Thomson Reuters Foundation.
With foreign currency reserves low, Kiev needs the World Bank's money - up to $2 billion this year with another $8 billion from the IMF - which potentially gives officials like Strubenhoff greater policy leverage.
"There is a big chance in the crisis for the Ukrainian government," Strubenhoff said.
(Reporting By Chris Arsenault, Editing by Belinda Goldsmith)