Ukraine is facing a reduction in sown areas, as farmers have limited access to bank lending amid logistical difficulties with exports and low prices for agricultural products. Agricultural receipts are an additional tool for financing the agricultural sector. Currently, the popularity of this instrument is low due to the inability to transfer land lease rights as collateral for agrarian receipts.

New opportunities for the use of agricultural receipts are the basis of the Draft Law "On Amendments to Certain Legislative Acts of Ukraine to Create Conditions for Attracting Funds for Agricultural Production" (No. 9352 of 05.06.2023). The adoption of this draft law, which was registered at the initiative of MPs and is currently being considered by the Verkhovna Rada Committee on Agrarian and Land Policy, will help improve financing of the industry.

The main proposals of the draft law are aimed at enabling the use of agricultural land lease rights as collateral for agricultural receipts and bank loans, as well as creating additional opportunities for protecting the rights of creditors.

The current wording of part 5 of Article 93 of the Land Code allows for the disposal (including pledging) of the right to lease an agricultural land plot without the consent of the owner of such land plot. However, the procedure for conducting land auctions set forth in the Land Code does not provide for the possibility of holding land auctions for the sale of leasehold rights under compulsion. This means that even if the lease right is pledged as collateral for a loan, the lender will not be able to enforce it. The absence of a mechanism for exercising the lease right at land auctions excludes such an asset from circulation and makes it impossible to use it as collateral to raise financial resources.

This significantly reduces the interest of creditors, including banks, suppliers of plant protection products, seeds, fertilizers, and traders, in the instrument. An agricultural receipt itself is not an "acceptable collateral" from the point of view of banking legislation. Regulation of the mechanism for transferring land lease rights will create a market for such rights and conditions for banks to lend to the agricultural sector against agricultural receipts secured by land lease rights.

In addition, the possibility to transfer land lease rights as collateral for crop receipts will significantly increase the reliability and attractiveness of this instrument. Practice shows that collateral in the form of future crops is not attractive to lenders because it requires a lot of effort to administer it (quality assessment, monitoring, growing crops in case of early collection).

The draft law also contains some new opportunities to protect the rights of creditors, which can be used at the request of the farmer:

1. the possibility of restricting the debtor's rights to dispose of the rights to the land plot specified in the agrarian receipt until the agrarian receipt is repaid;
2. the possibility to provide for additional pledges in the agrarian receipt (except for the future harvest) without the need to enter into separate pledge agreements;
3. the possibility to collect out of court through notaries' executive inscriptions not only the principal amount of debt under agrarian receipts, but also fines, if they are provided for in the agrarian receipt.

Unfortunately, the draft law 9352 has been stalled since its introduction to the Verkhovna Rada.  The UAC supports the adoption of the Draft Law 9352 by the MPs as necessary to improve the efficiency of the agricultural sector as fast as possible.