Farmland Investment Performance in Europe – 2011 – 2012

Farmland values across emerging economies in Europe continued to perform well during 2011 as increased investor appetite for productive agricultural assets, as well as active agriculture investment policies from of China and Arab states who are interested in bolstering food security has provided stable short-term pricing support.

Throughout Europe there is little data available to effectively measure the performance of farmland investments; one must then rely on anecdotal evidence supplied by land agents and agribusinesses in the region.

There remains substantial growth potential in the region; in Romania for example, which joined the EU in 2007, farmland can be bought for around €2,000 – €2,500 per hectare – up to 40 times cheaper than in parts of Western Europe. (Daily Telegraph, 2011, Rich pickings from Eastern Europe’s farmlands).

According to Valeriu Tabara; Romanian Minister of Agriculture and Rural Development (MADR), foreigners currently own more than 700,000 hectares of agricultural area in Romania, representing 8.5% of the total arable land.

“The agricultural land owned by the foreigners in Romania at the moment is more than 700,000 hectares, with Italy having 24.29% of the surface, Germany 15.48% and the Arab countries, 9.9%. The request to buy agricultural land is a developing phenomenon,”Tabara said.

According to the data revealed by the minister, other countries with significant farmland investments are Austria with 6.13%, Spain with 6.2%, Denmark with 4.25%, the Netherlands with

2.4%, Hungary with 8.17%, Greece with 2.4% and Turkey with 0.78%, whereas Malta, Cyprus, Monaco, San Marino and Luxembourg have acquires 5.91% of Romania’s agricultural land through offshore companies. Land owners in Iraq, Lebanon, Syria and Iran are present from the Arab world.

In a recent paper published by Institute for Economic Research and Policy Consulting, farmland values in the Ukraine were assessed using the income capitalization approach to farmland price estimation. Based on the actual land productivity (gross margins) for Ukrainian farms over the period of 2007-2009, researchers found that a hectare of arable land would be traded from 1500 UAH (Zakarpattia) to 5500 UAH (Kirovohrad). If the sub sample of top-25% performing farms was to be considered, the maximum land value will increase to around 6800 UAH or $860 USD (Oleh Nivevskiy & Serhiy Kandul, 2011, The Value of Farmland – Expected Farmland Prices in Ukraine after lifting the Moratorium on Farmland Sales, Institute for Economic Research and Policy Consulting).

It is widely expected that farmland values in the Ukraine will continue rise as the number of investors keen to access the productivity potential of the country’s black earth rises

In recent years there has been a proliferation of investment schemes based on the cultivation of Ukrainian farmland, with one scheme collapsing entirely and another offering land parcels for an extortionate price of $2,325 (USD) per hectare. This represents a potential ‘land-banking’ style mark-up of 1,130% at worst, and 170% at best.

Elsewhere in the region, a hectare of agricultural land in Hungary, Poland or the Czech Republic is priced between €5,500 and €7,000 demonstrating a continued upward trend in values throughout 2011.

Source by David D Garner