2007), e.g. by reducing supply of public goods to keep unskilled labor plentiful and cheap (Nugent and Robinson 2010). This is observed even in the United States where, during the late 19<sup>th</sup> century, high levels of land inequality at county level were associated with lower taxes and investments in public education (Vollrath 2009b) or lower levels of financial sector development (Rajan and Ramcharan 2011). This mirrors cross-sectional evidence of a negative relationship between and negative impacts of unequal asset distribution on agricultural production structure, economic outcomes, political economy, and public goods in Latin America (de Janvry 1981), India (Banerjee and Iyer 2005; Iyer 2010).<sup>4</sup> Although the coercive methods historically applied by land owners are now less viable, high levels of land concentration may still affect local competition through entry and exit dynamics. Establishing farming operations from scratch is risky, with high rates of failure even in favorable circumstances (Tyler 2011).<sup>5</sup> It has been argued that ways to ensure that land and other assets will be priced properly and can be transferred quickly from unsuccessful to more productive ventures will be important to ensure efficient use of scarce resources, reduce speculation, and focus economic agents’ efforts on productive activities rather than lobbying (Deininger 2013). This is an important policy issue as the lack of such mechanisms in land abundant countries where high levels of investor interest has materialized may create opportunities for rent seeking and bureaucratic interference, evidence on the longer-term impact of initial farm structure that could be used as a basis for policy advice remains scant.<sup>6</sup>

# **2.3 Evolution of Ukraine’s agricultural sector**

With vast areas of fertile black soils, Ukraine has traditionally been a regional breadbasket. It produced about 60% of the corn, 50% of the sugarbeet, and 40% of the wheat and sunflower seed of the former Soviet Union, even though it made up only 15% of the area, (World Bank 1995). In volatile world markets and as one of the few countries expected to benefit from climate change (Fischer et al. 2002), Ukraine’s performance is likely to affect global food prices, implying a key role for the country in contributing to global food security; some do predict that Ukraine’s share of global grain markets will exceed that of Argentina and Australia within a decade (Cramon-Taubadel _et al._ 2007).

In practice, the country has not always lived up to its potential. After the collapse of the FSU, land reforms that issued initially paper shares to agricultural workers transformed former collective farms into corporate structures (Csaki and Lerman 1997, Lerman _et al._ 1994). As they involved little change in the actual structure of agricultural production, their performance was disappointing (Csaki _et al._ 2004,

> 4 Channels for such effects to come about include credit market imperfections in the presence of indivisible investments (Aghion and Bolton 1997, Galor and Zeira 1993); wealth-induced limitations on households’ ability to voice concerns in politics (Bourguignon and Verdier 2000); and willingness/ability to supply local public goods (Cardenas 2003).

> 5 Failures include the “bonanza farms” in the US in 1860-1900 (Drache 1964), Brazilian rubber plantations by Henry Ford in the 1920s (Grandin 2009), and efforts in the 1960s to establish large-scale agriculture in the Lakeland Downs of Australia’s far Northeast (Rogers 2008).

> 6 Many countries have laws that preclude transfers of land among individuals and instead require these to be mediated by the state (Deininger _et al._ 2011b). In fact, efforts in Ukraine to establish a ‘land bank’ with pre-emptive right to land purchases go in the same direction.

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