Next year, the lease agreements under which AS Tartu Agro currently uses a total of 57 state-owned properties will expire. In August this year, the government approved organizing a public auction to conclude new 12-year agreements.

Andres Härm, CEO of Tartu Agro, was fundamentally opposed to the new auction. He was particularly disturbed by the initial idea of dividing the auctions into four parts.

"Dividing up today's land use into parts through a public auction is a clear prerequisite for the destruction of a 2,570-head livestock herd," Härm emphasized in a letter sent to the Ministry of Regional and Rural Affairs back in June.

The initially vigorous process soon stalled over the question of how many parts the plots of land should be divided into for auction. After the summer change in government, the responsibility for leasing the land was transferred to the Ministry of Economic Affairs and Communications, which confirmed to ERR that a decision would be made next year.

Amendment part of a cluster bill

Minister for Regional and Rural Affairs Piret Hartman (SDE) stated that the decision on leasing must be coordinated with her. According to Hartman, the state-owned lands currently used by Tartu Agro should be leased out as a single parcel.

"There are people who think it could be divided into 57 parts; at one point, there was a proposal to divide it into four parts. But after considering various aspects, my position is to proceed with a single parcel," Hartman said, adding that, as of this summer, all coalition parties were in agreement. "This ensures a sufficiently competitive area of land where the winning bidder can operate effectively."

On November 12, the matter was discussed in the Riigikogu Rural Affairs Committee. During the meeting, Ahti Kuningas, secretary general of the Ministry of Economic Affairs and Communications, stated that while current legislation permits the sale of state land as a single unit, there is no provision for leasing it in the same way. He noted that a legal amendment is planned to address this issue.

At the same meeting, Alo Aasma, deputy secretary general of the Ministry of Regional and Rural Affairs, emphasized that Tartu Agro's lease agreement will expire next year. "We are facing a challenging situation where we are essentially racing against time," Aasma said.

By the time of the meeting, the proposed amendment had already been included in an omnibus bill, which also reorganizes the responsibilities of various ministries and removes the requirement for a legal education for the position of state secretary. The Riigikogu will vote on the bill at its Wednesday session.

Minister: We are not catering to a single company

Piret Hartman stated that the proposal to amend the State Assets Act originated from her ministry.

"We are not, in fact, talking about the interests of a single company," Hartman emphasized. "The question is simply what is the most reasonable approach for this land. If we want a sustainable business to operate there, we cannot talk about dividing it into 57 different parcels."

Hartman reminded that Tartu Agro itself had requested that the state extend its lease agreement without a public auction. Such an approach would have been illegal.

"All parties have the opportunity to submit their bids," Hartman said.

Current legislation already provides the existing land user with what is essentially a right of last refusal. This means that regardless of how many parts the plots are divided into for auction, Tartu Agro can still retain the land by matching the final price.

Throughout the discussions that have continued this fall, one argument has been that dividing the land into smaller parcels for auction would create opportunities for a greater number of businesses. Leasing the land as a single parcel, however, may favor Tartu Agro, as competitors might lack the time to prepare a business plan. Hartman acknowledged that opinions on the matter vary.

"When we talk about sustainable, larger companies that are engaged in livestock farming, grain cultivation and biogas production, it is not viable to discuss smaller land areas," Hartman said. "Of course, we also support smaller businesses today, but for the sustainability of the sector, larger enterprises are also crucial."

Tartu Agro lease agreement and its colorful circumstances

Tartu Agro's predecessor was the Tartu Experimental, Model and State Farm, which operated during the Soviet era and owned the land now up for auction in the early 1990s. Despite the active return of land to rightful owners during that period, this particular land was not returned. At the time, the minister of agriculture was Aavo Mölder, a member of the People's Union, who later became the owner of Tartu Agro.

In 1999, newly appointed Minister of Agriculture Ivari Padar (SDE) decided to keep 3,000 hectares of land in state ownership, in addition to the 90 hectares desired by his predecessor, Andres Varik of the Coalition Party. Under Padar's decision, the state leased the land to Tartu Agro for 10,000 kroons (approximately €639) per year, with a 25-year lease agreement. At the time, the Estonian Farmers' Union stated that this rental price was nearly 30 times below market value.

The land was subsequently used to form the state farm Tartu Agro, which was privatized by its then-leaders. In a 2005 audit, the National Audit Office found that the Ministry of Agriculture had leased the property under terms unfavorable to the state, citing the Tartu Agro case among others.

The audit noted that although the ministry justified the symbolic rent with the obligation included in the contract requiring the tenant to cover all costs associated with maintaining and improving the land – including investing in upgrading land improvement systems, plant protection and more – the rent was not aligned with the tenant's ordinary business activities and did not convincingly show that the state would benefit from the transaction.

The National Audit Office stated that none of the tenant's obligations as outlined in the contract would significantly or permanently increase the land's value, which could be considered an improvement of the real estate. The audit also pointed out that the tenant was already required to maintain the property at their own expense and make necessary improvements for ordinary upkeep. Additionally, the company could apply for state subsidies for the maintenance and renewal of land improvement systems, as well as for liming the land.

Since 2005, the rent was increased to 80,000 kroons (approximately €5,113) per year.

Helir-Valdor Seeder (Isamaa), who served as minister of agriculture from 2007 to 2014, convened a commission to investigate the Tartu Agro land lease situation. The commission recommended, if possible, to revoke the 1999 order that kept the land in state ownership. In 2014, when Padar became minister of agriculture again, he promised that the ministry would conduct a legal analysis to determine whether this was possible.

In the same year, the European Commission received a complaint that the below-market lease agreement with Tartu Agro might constitute illegal state aid, as since Estonia joined the European Union in 2004, it has been required to adhere to EU competition rules. Estonia maintained that no illegal state aid had been provided.

In 2017, the European Commission launched a formal investigation and concluded in early 2020 that Tartu Agro had received incompatible state aid and must repay €1.2 million to the state.

Tartu Agro then appealed to the European Court of Justice, demanding that the EU General Court annul the Commission's state aid decision in its entirety. In 2022, Tartu Agro won the case in the EU General Court. The court found that the European Commission had unfairly simplified the situation in its decisions and had based its conclusions on inaccurate calculations.

The Commission subsequently reopened its investigation into the aid provided by Estonia, taking into account the conclusions of the court ruling. In its latest decision, the Commission confirmed that AS Tartu Agro received state aid incompatible with EU internal market rules up until the end of 2019, as the rent for agricultural land was below market value. Following the Commission's initial decision, Estonia raised the rent to comply with the ruling.

Last year, Tartu Agro had a turnover of €10.56 million, marking an increase of over 10 percent compared to the previous year. Despite this growth, the company, which employs 117 people, recorded a loss of nearly €559,000. In 2022, however, Tartu Agro earned a profit of €2.6 million.

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