Shagaida, Natalya

English

Research Papers in Economics

 
 
 
 
 
 
 
Agricultural land market in Russia and large corporate farms 
 
 
 
 
NATALYA SHAGAIDA  
VIAPI – Institute of Agrarian Problems and Informatics,  
Moscow, Russia.  
E-mail: vuzun@raf.org.ru 
 
 
 
 
 
 
 
 
 
 
Paper prepared for presentation at the  102
th EAAE Seminar‘SUPERLARGE FARMING COMPANIES: 
EMERGENCE AND POSSIBLE IMPACTS,’ Moscow, Russia  
May 17-18, 2007 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copyright 2007 by Natalya Shagaida.  All rights reserved.  Readers may make verbatim copies of this document for non-
commercial purposes by any means, provided that this copyright notice appears on all such copies. 
  1Agricultural land market in Russia and large corporate farms 
 
1.  Privatization outcomes and incentives for land market development  
In Russia in general, the share of land that is not publicly owned is as low as 7.6%.  
Privatization in Russia was mainly limited to farmland that was used for agricultural produc-
tion prior to the reform. Here the share of privately owned land reaches 80% (Table 1). The 
second largest share of privately owned land accounts for land of populated localities where 
about 18% of land is privatized. Here, too, the land plots that were privatized were mainly 
those occupied by citizens’ individual houses and those that were partly used for agricultural 
production. The rest of the land remained in public ownership.  
 
Table  1.  Structure of ownership of farmland plots used for agricultural production  
 
total agricultural 
land 
operated by 
  mln ha  % 
privately 
owned 
agricul-
tural land 
including 
land owned 
by opera-
tors 
 
% of pri-
vately 
owned 
agricul-
tural land 
including 
% of land 
owned by 
operators 
citizens (not peasant farms)   34.2 18 16 15.6  47  46
peasant farms   19.5 10 11.9 6.5  61  33
large corporate farms   124.6 65 99.6 2.8  80  2
state-owned farms   13.3 7 0.9 0  6  0
total   191.6 100 128.36 24.9  67  13
Source: Federal state statistical monitoring. Form №22-3 (organizations). Data on rights enabling corporations, organizations, farms, socie-
ties involved in agricultural production to use land as of 1.01.06. Form №22-3 (citizens). Data on rights enabling citizens (groups of citizens) involved 
in agricultural production to use land as of 1.01.06. Form № 22-4 (organizations). Data on availability of land in use by corporations, organizations, 
farms, societies involved in agricultural production as of 1.01.06. Form № 22-4 (citizens). Data on availability of land in use by citizens (groups of citi-
zens) involved in agricultural production as of 1.01.06.  
 
This table shows that large corporate farms: 
•  Utilize  about 65% of agricultural land; 
•  Use agricultural land  that is in private property 
•  This means that this large corporate farms are strongly involved in transactions 
with agricultural land. 
In addition, starting from 2001, the government has been attempting to include an-
other 212.6 million of publicly owned land into land turnover. These are both agricultural 
and non-agricultural types of land that have been in a varying degree used by organizations 
  2in their agricultural production process. These types of land had to be bought out or leased. 
Such supply volumes are usually considered detrimental for the market. However this land is 
dispersed among 56,400 organizations that have been exploiting this land exercising their 
right of use. And these organizations in particular have the right to buy out or lease this land. 
In other words, this land will not be available to the market in the true sense of the word. 
 
  2. Development of land market  
  2.1. Law-permitted types of land transactions and constraints to the land market  
At present, the legislation permits a wide variety of transactions in land shares
1 and 
land plots: 
  Land share  Land plot 
Sale   •    •   
Transfer by way of gift  •    •   
Lease     •   
Transfer on terms of lifelong annuity   •    •   
Investing in equity capital   •    •   
Bequeathing   •    •   
Using land as collateral    •   
Trust management   •    •   
 
The legislation is liberal – any citizen or organization (with the exception of those 
with the controlling interest owned by foreigners) can buy land. 
Constraints to transactions: 
•  Transactions with land shares are only possible in favour of another 
member in jointly shared ownership, corporate or peasant farm that is using the land 
plot which is in jointly shared ownership of citizens. Otherwise the land share owner 
has to convert his/her land share into a physical land plot and only then make a trans-
action with it; 
•  If a land plot is to be sold, the priority right to purchase belongs to the 
respective municipal entity or oblast (a unit of administrative-territorial division in 
Russia). Only if the aforementioned entities refuse to purchase, the land plot can be 
sold to other individuals/entities; 
                                                           
1 shares in the right to joint shared ownership of a land plot, hereinafter referred to as land shares  
  3•  Foreigners and corporations where foreigners have controlling interest 
are banned from purchasing agricultural land plots; 
•  There are limitations on how much land a single individual (entity) can 
have in ownership. 
However all these constraints are easily side-stepped and cannot be regarded as 
significant.  
2.2. Amount of activity on land market  
Official statistics keeps records of transactions in land plots only; transactions in land 
shares remain outside its scope. Since the majority of transactions are actually made in land 
shares (accounting for the territory of over 100 mln ha), one can conclude that no informa-
tion on the bulk of the transactions is available at the national level.  
2.2.1. Market of land plots  
In 2004 (data for 2005 are not available), 1.2 million transactions in land plots were 
made involving altogether 12.3 mln ha or 0.7% of the Russian total land fund. The number of 
transactions in land plots was changing but the trend towards increasing size of transacted 
land plots remained unchanged: 
Information on the transactions in all types of land is given in the following graph: 
  4LAND TRANSACTIONS
4,4
0,57
70,5
54,52
0
1
2
3
4
5
6
1999 2000 2001 2002 2003 2004
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a
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m
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40
50
60
70
80
90
100
t
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a
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h
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number of transactions, mln  including agricultural land, mln
total transacted land, mln ha  including agricultural land, mln ha
 
 
Transactions in agricultural land plots accounted for as little as approximately 4% of 
the total transactions. However these transactions involved 77% of the total transacted land.  
This is explained by the fact that the average size of a state agricultural land plot leased under 
one transaction was 585 ha, whereas one transaction in other types of land plots accounted 
for 4.4 ha. Transactions in farmland plots accounted for 28% of the total agricultural land. In-
formation on types of transactions in agricultural land plots is given in Table 2. 
Table 2. Transactions in agricultural land plots   
Types of transactions 
Number, 
mln (%) 
Size, mln 
ha (%) 
Average size 
of transacted 
land plot, ha 
in state-owned land plots   0.19 54.31  292.9
% in total transactions in agricultural land   (32.6)  (99.6)  585.0
lease by peasant farmers and corporate farms   (16.3)  (99.6)  0.1
sale of land plots to citizens not registered as peasant 
farmers   (16.2) (0)  25.3
sale of land plots to peasant farmers and corporate farms   (0.1)  (0.1)   
in privately-owned land plots  0.4 0.21  0.5
% in total transactions in agricultural land   (67.4)  (0.4)   
  5sale between peasant farmers and corporate farms   (0.3)  (0.1)  0.2
sale of land plots between citizens not registered as peas-
ant farmers  (38.6)   (0.1)  28.3
transfer by way of gift  (4.7)  (0)  0.9
bequeathing   (23.8)  (0.2)  0.7
using as collateral   (0.0)  (0)   
total transactions   0.57 54.52   
   
Source: State (National) Report “On situation with and utilization of land in the Russian Federation in 2004”. – M.: Federal Agency for Im-
movable Property Cadastre. – 2005 – 196 pages. P. 130-137 
 
State and municipal farmland lease was the dominant form of transaction (92,800 con-
tracts covering about 19% of land used by peasant and corporate farms were in effect in 
2004). 
The bulk of transactions made by private individuals involved buying and selling land 
plots between citizens, however, such transactions account for only 0.7% of the total land 
plots. This market can be considered the most developed as covert transactions in land plots 
through transactions in immovable property have been made in Russia at all times. 
Transactions involving land plots used as collateral are practically non-existent.  
At the same time, up to 2005, transactions in land shares involving their buying and 
selling and investing in equity capital of corporate farms were quite numerous in some Rus-
sian regions. Such transactions were most frequent around cities, particularly Moscow and 
Saint-Petersburg. There land is purchased for construction purposes. Despite repeatedly de-
clared protection of agricultural land, farmland is being very easily removed from agricul-
tural production.   
Other regions where land shares are actively transacted are territories with conditions 
favourable for crops production and where intensive farming technologies can be used. New 
farm corporations and capital from other industries are moving to these territories. It is they, 
and not traditional agricultural producers, that are the entities which initiate land purchase in 
these regions.  
The number of such transactions in not known. However, according to my experience, 
every time there was a buyer for land shares in Moscow Oblast (region) the number of refus-
als to sell did not exceed 15% of the total owners.   
 
  62.2.2. Prices 
Statistics of selling prices is only available for state-owned land plots. This averaged 
as little as $150/ha across Russia in 2004. For large farmland plots the average lease payment 
slightly exceeds the land tax and equals the land tax in most parts of Russia.  
Information on prices for transactions between citizens, including peasant farmers and 
corporate farms is not available. Prices can be studied only on some pilot objects. For exam-
ple, in Moscow region, taking into account the established practice of using farmland for 
non-agricultural purposes, the purchasing prices for land plots or rights to use land plots 
(land shares) for the period of 2003-2006 have become 20 times higher and reached on aver-
age of about $3000 per land share, a standard land share size being 4-7 ha.  
Market prices are not used to determine lease payments as, in fact, there is no some-
what developed market of leased land yet. Table 3 gives information on average lease pay-
ments.  
 
Table  3. Average lease payments for leasing state and municipally owned land plots in 
the Russian Federation, $/ha 
2004 (depending on location)  Types of land plots  
inside populated lo-
cality 
outside populated 
locality  
Land plots of citizens not registered as peasant farmers   61  29
Corporate and peasant farms  39  7
For reference: other companies   4286  582
$1=RUR28. Source: State (National) Report “On situation with and utilization of land in the Russian Federation in 2004”. – M.: Fed-
eral Agency for Immovable Property Cadastre. – 2005 – 196 pages. P. 132 
  
The only prices that can be considered established are the prices for land plots of citi-
zens not registered as peasant farmers. These land plots are, as a rule, occupied by houses. 
The prices are established because transactions in this sort of land plots have been made at all 
times – until 1990, it was the immovable property situated on the land plot that was sold and 
the right to the land plot passed to the new owner as a result of this transaction. The prices 
vary significantly depending on the location of the land plot. 
Land plots of peasant and corporate farms are rarely sold. These land plots are quite 
different in quality. Therefore hardly anything can be said about their market prices at this 
stage.   
2.2.3. Reasons for poor development of the land market  
  7During the survey conducted in three Russian regions (with highly developed agricul-
ture, medium agricultural development, and agriculturally depressed) covering 144 corporate 
farms, 206 peasant farms, and 187 household plots of citizens not registered as peasant farm-
ers, the potential market players
2 named the following reasons – Table 4: 
Table  4. Reasons for poor development of land turnover  
Reason  Frequency of replies, % 
no need   38 
problems in connection with formalization of the transaction   31 
too many land share owners   11 
no information on what transactions are possible   10 
ignorance of what selling prices and lease payments could amount to  10 
 
Only in one of the three regions the respondents replied that they had been approached 
with an offer to buy, and only in one region (with highly developed agriculture) transactions 
involving purchase and sale of land took place. Citizens who most frequently pointed out that 
they might be willing to sell were household plot holders (citizens owning land plots and not 
registered as peasant farmers), i.e. owners of land plots with houses on them for permanent 
or summer residence.  
Therefore the poor development of the land market is explained, firstly, by the fact 
that the demand for land to be used for farming by peasant or corporate farms exists only in 
certain Russian regions. 
Secondly, the respondents noted that it was extremely difficult to make a transaction. 
If the whole land plot that is registered with the Cadastre were to be sold there would not be 
so many problems. However, as has already been mentioned above several times, all the land 
plots used by a peasant or corporate farm are entered into cadastral records as one unit. This 
unit of land (for example land used by a corporate farm) may consist of hundreds of land 
plots scattered all over a vast territory. In order to sell one field from this unit of land one has 
to prepare the documents necessary to register this field with the Cadastre (which is ex-
tremely expensive and takes a lot of time), collect a huge set of documents and spend a lot of 
time on formalization and registration of the transaction. Currently, problems are also arising 
in connection with the land plots that are already registered with the Cadastre. This is due to 
                                                           
2 BASIS Survey (2001-2005)  
  8the fact that in 1998 the system of registration of rights changed and now the boundaries of 
all land plots have to be ascertained anew. Without this the right to land is not entered into 
the new Immovable Property Rights Register. In other words, the object of a transaction – a 
land plot – is not ready for the transaction. And this is a huge problem. This is the reason 
why de facto land is often used under a verbal arrangement. 
The respondents also noted the lack of any market benchmarks to help them make a 
decision. They do not know where to get information on prices or demand. And this is an ab-
solutely true observation. In Russia, accessible market information is not available. Conse-
quently, similar land plots may be sold at significantly varying prices.  
 
3. Opportunities for using land as collateral and specifics existing for farmland plots 
The law allows a pledge (mortgage) of farmland. However the requirements enabling 
to use a farmland plot as collateral are quite severe: a pledge of share in the right to a farm-
land plot is not allowed (for other types of land this is possible), nor a pledge of a part of a 
farmland plot is allowed (first one has to get this part of land registered as a separate land 
plot to be pledged which takes up to 6 months and entails significant expenses).   
Protection mechanisms designed to take control of or sell a pledged land plot do not 
make a pledge of land attractive for pledge holders unless he/she intends to retain the land 
plots if the loan is not repaid.  
There is no limitation on loan types against collateral (for example loans to fund capi-
tal investments). Besides, the legislation requires the collateral to be insured otherwise the 
contract of pledge can be terminated at any point in time. The insurers, however, do not 
know what risks to insure in connection with a land plot. In fact, they have no practical ex-
perience in insuring farmland plots. Only few banks have a methodology for providing a loan 
to develop farmland.   
As a result, lack of demand for land, absence of established prices for land plots, un-
availability of finalized documents certifying the right to a land plot to be pledged often 
make a pledge of a land plot impossible. Corporate farms (controlling a larger part of the 
farmland) are unable to use land plots as collateral as these land plots are owned by citizens 
except for the 2% of the agricultural land that is in their ownership.  
  9Recently, Russia has launched several national priority projects that will be funded 
from the budget. One of them is the project on Priority Development of the Russian Agro-
Industrial Complex. This national project includes a pilot project on mortgage-based lending 
that is being actively implemented by Rossel’khozbank (the Russian Agricultural Bank). The 
bank developed lending methodology is filling in the existing legislation gaps. Moreover, the 
basis for successful mortgage development already exists which includes land plots of peas-
ant farms and the 2% of the land used by corporate farms that is in their ownership. Two per 
cent may seem a low figure but in real terms it stands for 2.8 million ha which together with 
land owned by peasant farms amounts to as high as 9 million ha.  
4. Conclusion  
In general, land in Russia is in private ownership of millions of private owners. Never-
theless, agricultural land market is not developed, the costs associated with transactions in 
land are extremely high and the demand for land exists only in some regions. The market is 
distorted because in some regions agricultural land is purchased for construction purposes. 
Corporate and peasant farms are incapable of competing with such buyers. And yet, the mar-
ket is developing despite all the problems.  
  10

Agricultural land market in Russia and large corporate farms

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