Lithuania may seek another ban of farming land sale

13.05.2013, 12:24

Lithuania wants to secure yet another 5-year extension of a ban for sale of agricultural land to foreign nationals, writes news2biz LITHUANIA.

The current 3-year ban expires at the end of April 2013. Earlier farming land was kept away from foreign nationals with the help of a 7-year ban agreed with Brussels upon Lithuania's accession to the EU in 2004.

In theory, the ban serves to shield local farmers from competition from richer foreign peers, allowing the locals to gain financial strength and increase their land holdings. In practice, it is major farming groups that have kept boosting their land holdings.

The pro-ban argument that does not enjoy a wide support is that after the economic crisis local farmers are still weak to amass land holdings of an efficient size.

The ban, present and the theoretical extension, does not extend to legal persons, so foreigners have owned thousands of hectares of local land for use and lease ever since 2004. For instance, German listed KTG Agrar now owns 4,300 ha of land under cultivation, and with another 2,900 ha leased, controls one of the biggest land holdings in the country.

Thousands of hectares are also owned by German and Northern European farmers through their Lithuanian companies. This year alone news2biz has reported two instances of farming land sales by foreign owners.

On the surface, this looks odd because the law limits ownership of land by one legal person or a farmer to 500 ha but the restriction has been easily ignored by some actors setting up numerous companies or engaging family members to buy up thousands of hectares of land.

This 500 ha limitation may soon be enforced in a much stricter fashion as the government mulls forbidding connected persons (e.g., farmer kinship or same company owners) to acquire more than 500 ha.

Land market activity soars
In 2012 trading activity in the private farming land sector expanded by 28% to reach new highs. 174,400 ha that changed hands during the year were still below the earlier activity peaks of 2006 (-2%) and 2007 (-8%) but in H2 2012 land trading reached a historical half-year high.

Together with the 50,000 ha of state-owned land that entered the market, the total trading volume reached 224,300 – 4% below the 2006 peak.

The activity was boosted by Lithuania's good overall economic development in 2011 and its relative resilience to the Eurozone debt crisis. Some transactions were influenced by the new land taxation regime that effectively has raised the land tax rate (0.01-4% of land market value, the exact local rate is set by the municipalities) and the expected expiry of the ban on the sale of farming land to foreigners.