Macours and Swinnen 2002). A 1999 Presidential Decree altered this by prescribing conversion of land shares into physical plots, thus transforming 7 million rural residents, most employees of large collective farms, into landowners<sup>7</sup> . This helped output to recover from the crisis levels and, with price hikes during the 2008-2010 period, increased attractiveness of the agricultural sector and prompted high levels of export growth (Liefert _et al._ 2010). Lacking farming experience and non-land assets, most of the new farmers leased their land to corporate farms (Lerman _et al._ 2007).

In addition, macro-economic instability and volatile sectoral policies dented incentives to invest in much-needed physical and human capital formation. For a long time, reforms moved in a stop- and go mode with far-reaching and progressive moves followed by regressive measures. Fundamental policy issues, e.g. whether to lift a moratorium on land sales, have been debated inconclusively for years without substantive impact on legislative proposals.<sup>8</sup> Price controls, export taxes, quotas, and support to ‘infant industries’ such as livestock channeled large rents to few players, creating a danger of entrepreneurs shifting attention from increasing productivity to preserving rents and preventing new entries that could make markets more competitive.

In-depth analysis to help inform Ukrainian and global policy debates remains scant. One study pointing towards superior technical efficiency by large farms (Lissitsa and Odening 2005) is based on a limited sample (92 enterprises in 4 rayons close to Kiyv) during the pre-2000 period that appears structurally quite different from current conditions. A 2005 survey finds higher profits for peasant compared to corporate farms -though no significant differences in total factor productivity (Lerman _et al._ 2007)- but does not reconcile this with expansion by super-large farms. While credit market imperfections have been identified as a key constraint to needed investment in new technology (Zinych and Odening 2009), this is not translated into differences in capital costs.

# **3. Data and descriptive evidence**

Detailed panel data illustrate three features. First, yields grew rapidly after 2006, with sunflower-, corn-, and soybean-yields almost doubling, prompting a marked shift to oilseeds. Second, transformation of the agricultural sector was due more to new entry than to existing farm growth. Most entrants cultivated farms 1,000-3,000 ha in size, which are large by European standards but not super-large. Finally, although land sales are not allowed, there was massive concentration of operational holdings; area farmed by units above 10,000 (20,000) ha expanded by more than 2 (1.5) mn. ha (or 10% of the total) in

> 7A ban on sales of agricultural land (moratorium) was established in 2001 making the rental market the only instrument for land transfer among cultivators.

> 8 The 2012 draft “Law on Land Market” is the country’s 5th attempt to lift the current moratorium on land sales since 2005. Although there is broad consensus about the need to establish secure property rights to land to encourage investment, there was agreement that the Draft Law was worse than the status quo resulting in its withdrawal (Lapa 2011) and a decision has now been postponed until 2016.

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