New law on selling agricultural land in Slovakia. Not really a move forward

In the blog post of March attention was paid to the opportunity that Slovakia had to further develop its agricultural sector by opening up to capital and knowledge. The question then was stated if Slovakia would make the same proactive choice as its neighbouring country the Czech Republic and other EU member states, such as the Netherlands, had made before? These countries have clearly chosen to open up the agricultural sector, therewith increasing output, quality, employment and profitability of the sector. Within the EU, Slovakia is one of the least productive countries in agriculture and has the most fragmented land structure in the EU. Opening up the sector would stimulate the inflow of capital and knowledge and would certainly be beneficial for the sector and the country (see also the blog post of February).

However, just after May 1st, the Slovak government decided in a somewhat hastily action, to create a new law that strongly limits the Slovak landowners to sell their agricultural land. This new law, that became effective on June 1, makes it more difficult for both Slovak and foreign small farmers to start, expand and develop their agricultural businesses in Slovakia.

What does the new law include?

For all parcels of agricultural land over 2000 m2 the seller has to follow the next procedures:

  1. The seller can directly sell to relatives, co-owner(s) or an agricultural company or farmer (with 3 years of agricultural activities) from the village in which the land is located.
  2. If the land is not sold to a person mentioned in point 1, then the seller has to:
    • Follow several procedural steps such as publishing the intention to sell the land (including details on asking price, location, etc.) for at least 15 days on the bulletin board of the municipality and on a special website of the Ministry of Agricultural (the register).
    • Submit proof of the under 2 mentioned publications, including additional documents and statements, to the District Office of the region where the land is located. This office should rule (within 60 days) if all procedures were followed and if the seller is allowed to sell the land. This office should then issue a certificate as approval of the selling.

Who can buy the agricultural land when it is up for sale?

The law distinguishes the following groups, based on preference:
1st    Farmer(s) from the municipality where the land is located, then
2nd   Farmer(s) from neighbouring village, then
3rd    Any other farmer from Slovakia, then
4th    Any other buyer.

These preferences seem to strongly discriminate Slovak farmers from other regions (than where the land is located) and foreign EU farmers. Besides, the buyer of the land needs a permanent resident or registered address in Slovakia for at least 10 years, unless he is a so called young farmer (under 40 years of age). This restriction might be in contradiction with EU values and Objectives as stated in the Constitutional Treaty (such as “freedom, security and justice without internal frontiers” and “an internal market where competition is free and undistorted”). An interesting case for The European Commission to look into.

In Slovakia the law is criticised by lawyers who believe it is potentially unconstitutionally because it limits free competition, it causes great administrative burden and it clearly restricts people from buying agricultural land. Besides, it strongly limits landowners to sell their land and to receive a fair market price.

What could be the consequences of the new law?

Time will tell what the consequences of the law are for the Slovak agricultural sector. Slovak politicians mentioned that the law was made to protect the Slovak agricultural companies from so called (foreign) speculators. Since, most (smaller) Slovak agricultural companies lack the finances to buy agricultural land, only the already operating large Slovak agricultural companies, often backed by large financial groups and already farming over 10.000’s hectares of land, seem to profit from the new law. They will be able to buy up the lands (and for a lower price because of lack of competition) and push out the often financially struggling local small farmer. That does not seem to be beneficial for stimulating small farmers and creating diversity in the Slovak agricultural sector.

The first reaction to the new law from some specialised smaller European agricultural companies, such as vegetable and potato growers and exporters, is that they will most likely now invest their money in other countries in the region, especially the Czech Republic. From these countries they will then export their goods to Slovakia. This could also apply to some agricultural logistic and food processing industries, as they prefer to be close to their suppliers. Buying a wide variety of fresh agricultural products “made in Slovakia”, something that most Slovak people favour, seems then to be more far away.

Private Slovak landowners might face the biggest problems (and losses) from the new law. For them it will be harder, if not impossible, to sell their land and receive a fair market price in line with the quality and location of the land.

What could have been a better functioning law?

A more proactive law could have been a law that obliges the seller to first offer the agricultural land to the farmer who is renting and using the land. If this farmer does not want to buy it, then the land can be sold to anybody else and for a fair market price. This can also be a (foreign) investor who has of course to respect the rental contract with the farmer. This farmer could also have the first right to prolong the rental agreement after it expires. The unclear and complicated procedures to sell the land and the not very transparent decision making at the District Office, could then also be avoided. Such law would more benefit the current (small) land user, the seller but above all the Slovak agricultural sector.

For more information please do not hesitate to contact us.