Agribusiness in Ukraine: investments or risks?
For a long time, Ukraine was known as one of the best places in Europe for growing agricultural crops. A great climate and fertile soils make it possible to get a great harvest. For centuries, cultivated crops (primarily wheat) were exported to European countries. Without any debts, the investments in agribusiness are attractive for many people. However, there are huge risks in this area nowadays.
Problems, that can show up in agribusiness
Most problems in agribusiness are connected with the political situation in Ukraine. In this article we point out the following problems.
- Checking and pressure on business by governmental authorities
- Long time of preparation of documents (bureaucracy)
- Corruption and venal practices
- A limited amount of available land
- Access to different types of networks and infrastructure
- Land moratorium in Ukraine
- Sale of business in corporate rights
- Human factor (locals are against the purchase of land)
- Dualism and frequent shifts in legislation
Abovementioned problems are typical for our country. Each of them represents a great risk for the investor.
Consequences of these problems
If you do not resolve the abovesaid problems during the first stage, they can lead to the serious consequences.
Business checking for violation of the law is a method of pressure on entrepreneurs by the authorities. Often it is carried out in order to get money or other benefits for themselves. If you do not find a way to protect yourself from illegal attacks by state employees, they can create serious troubles for you. For example, large fines, long legal proceedings to each issue, the arrest of accounts. Of course, in the long run, it transforms into significant losses of time and finances.
One of the main problems that have remained in Ukraine since the times of the USSR is the extraordinary prosperity of the bureaucracy. Often it takes weeks or even months for a single document to be issued. It leads to a significant time costs, formulation of additional unnecessary documents, complications in the work or misunderstanding of the procedure. Sometimes due to bureaucratic requirements, the work may fall off in the middle.
Corruption is probably the most urgent problem in modern Ukraine. Almost every public official, with whom you have to cooperate, will claim «compensation» for the performance of your duties. It leads to financial losses and deteriorate your reputation. Giving bribes is a crime. This means that by making concessions to an unfair state employee you risk getting into prison. In addition, a bribe does not always solve the problem and also gives grounds for blackmail.
The number of lands in the market is sufficiently limited and as a rule land plots offered for sale are immediately bought up. Some people can get «unique rights» to purchase land, using financial, legal or political influence. This reality has created a closed market. Sometimes plots are resold or registered for several people at the same time. Over time, the quality of land is reduced due to prolonged use. Another significant problem – very difficult to change the purpose of using the land.
If you manage to buy land, then you will need to equip it for your purposes. At this stage, there are many problems due to the connection to networks (gas, water, electricity) and infrastructure. The prices for those types of services are often overcharged since the responsible persons are aware of the need for their services.
There is a land moratorium in Ukraine. Firstly, foreigners do not have the right to own agrarian land plots. Secondly, the priority right to purchase land is given to the person, who rents it at this moment. In many cases this leads to the inability to acquire land without pre-lease.
Sometimes the agrarian business is sold as corporate rights. This is quite unprofitable for the buyer since he gets along with the rights, the credit history, debts and court cases of the previous company. Also, such agreement, the seller can appeal, and all that you have managed to do will pass to him.
Sometimes an entrepreneur, who bought a site for the agricultural business, may face resistance from the locals. Many people are concerned about the inconveniences associated with the presence of agrarian sites near their homes, including noise, environmental degradation, etc. Sometimes such conflicts can lead to a complete closure of the business. Also, your employees may become disloyal to you as a result of a constant confrontation with the local population.
Many Ukrainian laws can be interpreted differently depending on the situation. In addition, legislation is very often changed. This creates serious problems for the purchase of land and business. It may be necessary to change the activity of your company often according to the new legislation to draw up new documents. As a result, you may find yourself in a situation where you won’t understand the processes that occur with your business.
“Bachynskyy & Partners” company is an expert in agribusiness
Our company has been engaged in legal support of agribusiness since 2009. Among our standard services is assistance in the purchase and further operation of farms, as well as support for foreign investments. Investors from Israel, Great Britain, Germany, Poland and the USA cooperate with us. The average cost of agreements signed with our help is about four million dollars. We are engaged in supporting the activities of farms from 3 hectares to 25,000 hectares.
The standard procedure for buying of land is as follows. On the first stage is a selection of maximum number of sites. This is done by agents. All of the objects for sale are taken into account. Also, agents are negotiating with the owners of farms, that are not officially sold yet, but they can be put up for sale. Very important at this stage is the maximum coverage of land plots, because there is limited number of such on the market and specialized agents, who work for large companies hunt for all interesting offers.
After that, the customer chooses the most attractive object, and we immediately negotiate with the owner. A preliminary agreement (memorandum) is concluded on such sites. It stipulates the intention of buying a farm, the price, and timing. Also at this stage the seller receives a small prepaid expense (0.1-10% of the price of the site). We recommend our clients to pay cash in advance, as in Ukraine this practice is the most common. After signing the memorandum, the owner terminates active negotiations with other potential buyers. Next, the seller sends the documents and a legal audit takes place, it can last up to a month.
After that, it may turn out that the land plot requires additional structuring. In the absence of a conflict of interest, we can recommend to the seller another legal company that will do this. If structuring is unnecessary, a purchase contract is signed.
In company “Bachynskyy and partners” there is a department specializing in agribusiness. We officially consult The agrarian department of the Lviv regional administration.
We can predict or solve all the main problems connected with agribusiness. Thanks to our experience, we already have ready-made schemes for each of them.
It is necessary to be prepared for inspections from the authorities beforehand. We help to prepare all the documents immediately. Knowing the weaknesses that can be taken into consideration during the audit and we can help you to protect them. You can also get advice from our lawyer around the clock.
Our employees will help to overcome the bureaucracy due to the knowledge of laws and requirements to documents. Also, we can present your interests and assist in drawing up the documents.
We do not give bribes. Using the support of the media and authorities, which are striving for a future without corruption, we are legally protected from such demands.
We cooperate with a large number of agents, and also create our own investment portfolio of relevant objects. Thanks to this, we can find an object for any client.
We cooperate only with trusted brokers and business partners and carefully check everything before signing the purchase contract.
Our company provides legal support for connection to networks and infrastructure. We will help you to do this at a price determined by law, not by the desire of monopolists.
Working in reality the land moratorium, we will help to rent the desired plot in advance. We can also offer alternates of possession of agricultural land for foreigners.
To avoid problems when you buy a business in form of corporate rights, we conduct due diligence and warn the client about all risks. Also, we are looking for information about the vendor, the relationship between its founders, and other aspects that may pose a problem for the client.
Our company helps clients to establish relations with the locals in advance. This is done through negotiations, charitable contributions and repair of infrastructure. While we show locals that the presence of an enterprise is more advantageous than its absence.
Problems with the dualism of legislation are resolved through careful analysis and studying of all new bills.
Contact the “Bachynskyy & Partners” Law Firm
If you want to invest in agribusiness in Ukraine without unnecessary risks, use our support. We already have a solution for all the problems that you may face. Thanks to our experience, professional employers and foreign consultants, we will help even in a very difficult situation.
If you are looking for high-quality legal support, contact “Bachynskyy & Partners” Law Firm!