Expanded summary

The land issue is strategically important for any country, and countries like Georgia it is vitally important. In the work below we concentrate attention around the issue of putting agricultural land in the international free market. The problem is analyzed in condition of land price, land rent, demographic situation, agricultural subsidies and so on. As conclusion we represent opinion that, it is unacceptable to put Georgian agricultural land in international free turnover, because country can lose significant part of agricultural land and the possibility of development profitable agricultural sector.

Key words: price of agricultural land, agricultural land, land rent, subsidies of agriculture

There has long been a discussion on land legislation in Georgia. The idea of placing agricultural land on the free international market is still valid, which is allegedly justified by the economic arguments. Proponents of this approach state that the sale of agricultural land to foreign nationals will increase its value and consequently, will increase the capitalization of agricultural enterprises that in turn, will make it easier for farmers to search for resources and will contribute to the growth of economic activity. In classical economic sense, the higher the demand for goods, the higher is the price, although this seemingly doubtless truth, only partially and within certain limits reflects the mechanism of pricing on agriculture land and the justification of rise in prices of Georgian agricultural lands only by this argument is just economic primitivism. In the article, the authors indicate the absurdity of the abovementioned position and, on the basis of a clear economic logic, assert that the placement of agricultural land on the free international market will not promote the development of agriculture in Georgia.

In agricultural land pricing, a number of factors should be taken into consideration, of which the most important is the land rent and legislative regulations related to agricultural lands. It is not by accident that the land rent is an important component of the land price determining formula. On the other hand, the essential part of the rent of agricultural land is land capacity.  The universally recognized formula for determining land price is as follows:

   , (1)

where rent is an annual rental value of land, but ir is a real average bank interest rate. Rental value of agricultural land is directly linked to land capacity, its quality, proximity to markets and means ща communication.   

At the beginning of article, the authors criticize the allegation that the growing demand for agriculture land is permanently causing an increase in land price. They believe that there is a certain ceiling in this case, after reaching of which, the land actually loses the agricultural status. In order to prove that, first of all, they use precisely the analysis of the land price formula.

    ,(2)

From the formula (2), which is a transformed version of the formula (1), it follows that in case of a permanent rise in land price, the rent rate should also be increased. However, the basis for agricultural land rent is land capacity, and the value of products grown on this land determines land price, and not vice versa, when the value of agricultural products is determined by land price. Land capacity, as well as the yield, has an upper limit, and these qualities are restricted by the rates of technological development.

In Georgia, there are unique natural-climatic conditions in the region, which is the best in terms of tourism development, and if we add to this extremely small farm size and fragmentation of lands, all this creates a severe background for industrialization of agriculture. As a result, Georgia is facing the threat that a rise in land price could make it even more unprofitable for local agriculture, and this may result in withdrawal of large areas from agricultural use. In order to justify this view, the authors use the local land market data.

The analysis revealed the regions of Georgia, where some agricultural land prices are so high that they have actually lost their agricultural value, and this name has only been formalized. These include Mtskheta, Borjomi, Dusheti, Gardabani and seaside districts. In this regard, Mtskheta and Borjomi deserve special attention, where the prices of the vast majority of the locations of land vary between $ 50,000- $ 1,000,000 per hectare.

The authors also analyze the natural-climatic and demographic data in Georgia’s neighboring countries, and based on all the above mentioned, they concluded that if in Georgia agricultural lands will be allowed to place on the free international market, they will be purchased by the population from neighboring countries, and most of these lands are likely to withdraw from , of such in the largest Circuit come from agricultural use, which will destroy agriculture in Georgia as an economic sector.

The authors believe that the view, according to which the price of agricultural land in Georgia is lagging far behind the same data in the developed countries, and in order to align it, it is necessary to thoroughly analyze this issue. The the most expensive agricultural lands in the world are in the EU countries and USA. In addition, they have the most developed agriculture sector. So the attention of the authors is concentrated on them.

The average price of 1 hectare of agricultural land in the USA, in 2014-2017, was $ 7,500. The price of approximately one third of all agricultural lands in the United States is $ 5,500 or less per hectare, and the maximum price is $ 21,000 or over, which is observed in the states of New York and California. To judge by the categories, the average price of 1 ha of arable lands is $ 10,000, while the price of pasture is $ 3,300.

The prices of agricultural lands in the EU countries differed sharply. The lowest land prices are in the countries of former Soviet Union, such as Lithuania, Latvia and Estonia, as well as in Romania, where the average price of arable lands in 2014 was about $ 3000- $ 3300, while the pasture land price was $ 1700- $ 2600. The highest prices for agricultural lands In the European Union have already been discussed above, but as to the average prices for the same period, they vary between $15,000 and $20000.

By comparing these data and similar indicators of Georgia, becomes obvious that the prices of agricultural lands in Georgia are not low at all. However, considering the extent to which the agricultural sector in the USA and the EU is supported, it can be concluded that the agricultural land price in Georgia, before the application of this policy, has reached its maximum level. For example, the budget of the US Department of Agriculture was $156 billion in 2016, and the expenditure amounted $148 billion. In the EU, in 2014-2020, at 2011 price, there are envisaged € 362.79 billion, from which, € 277.85 billion will be spent on the "General Agricultural Program", and € 84.94 billion on the "Rural Development Program". Obviously, such a huge financial aid contributes to a raise in agricultural land prices, and in case of similar financing, the prices of Georgia's agricultural lands will raise significantly.

At the end of article, the aforementioned authors conclude that the price of high-category agricultural land in Georgia has already reached the maximum level. From now on, the possibility of raising this price will be associated mostly to systemic public policy of government subsidies, without which it is impossible to develop a cost-effective and competitive agricultural production. In addition, a significant problem is that a large portion of Georgia's agricultural lands, in fact, are no longer suitable for agricultural use, as the cost price of products grown on these lands will be too high because of high land price. In this case, a State must make timely and adequate changes in the land status, because agricultural land taxes fall into the completely different, favorable tax treatment field, which is prejudicial to the country budget (mainly local municipal budgets). With regard to the territories, where agricultural production will be organized, their status of agricultural lands should be enhanced by legislation, and it should be in fact impossible to change, and the sale of such land to persons who are citizens of Georgia must be ruled out by legislation.