Research | International Farmland Market Bulletin 2011

International Farmland
Market Bulletin

InvestAg
Savills
investagsavills.com
 Research | International Farmland Market Bulletin 2011

International farmland markets

With an increasing interest in this sector in terms of investment,
farmland values on a global scale continue to strengthen

Introduction
Investment in farmland has for many years been the
preserve of farmers and wealthy families and for all but
Inside this edition
a few, of little interest to international investment houses.
As concerns over food security become greater and
03 Farmland as
the use of land for agriculture comes under pressure, an asset class
the financial sector and some governments/sovereign
Considering the opportunities and
wealth funds have now joined the increasing numbers of
challenges facing the potential investor
private Investors who are now appraising the investment
of international farmland
opportunities. Some have already invested in the sector.

Their motives differ; the financial investors seek long- 05 An overview of
term risk adjusted returns and portfolio diversification,
while governments and sovereign wealth funds are
international values
looking for surety of the long-term supply of foodstuffs. From Western Europe to Africa, a
guide to the individual international
Food consumption is expected to double by 2050, with farmland markets
both the world’s population forecast to grow by over
40% (an extra 2.7 billion people) and also an increase 09 Summary and outlook
in the demand for higher protein diets as the emerging The highlights of this report and the
markets become wealthier. prospects for international farmland
markets in the future
At the same time, production/supply is expected to
shrink, with pressure from a wide range of factors
including urbanisation, climate change, the demand for
bio fuels and rising input costs.
Returns will vary in absolute terms and the degree of
In order to go some way towards counter-balancing this, volatility will depend on a number of factors. These
substantial investment in agri-technology and farming, include whether a farmland investor has elected to either
will be required to deliver efficiencies throughout the participate in the business of farming with its higher
agriculture sector and the food industry. returns/risk profile, or take the more stable returns of
cash rents as a landlord. Other factors include location
Land values and enterprise selection. As always, diversified portfolios
The straight line trend for international farmland values will help smooth out volatility.
has remained positive; however the recession has
affected levels of growth in some countries. We believe international land values will continue to
strengthen, although at varying rates between locations.
We expect the basic economics of supply and demand Also that farmland as an asset will increasingly become
will continue to support farmland values globally. a sought after investment.

Page 2
 Research | International Farmland Market Bulletin 2011

Farmland as an asset class

The agricultural sector worldwide has proved itself to be an attractive and
stable investment, but what are the opportunities and challenges to consider?
Investment characteristics place in some countries. Restrictions on land ownership
In addition to the increasing global demand for food, can significantly depress values.
the 2008 world economic crisis has made the long-term
stability of agriculture look very attractive. Agricultural Farm – At the farm level, productivity and the associated
land can produce reasonable cash flows, is a tangible costs relating to soil quality, climate, water availability and
asset and a good inflation hedge. It also has a low or location (proximity to transport links and processors) all
negative correlation with other traditional asset classes impact on profitability and are the main drivers of value.
such as stocks and bonds, giving an interesting portfolio
diversification. In some markets within the EU, including Where in the world?
the UK, there are also attractive tax breaks. A broad geographically spread portfolio is attractive for
risk diversification.
Challenges for new investors
While many potential investors now understand the Investors looking to invest in farmland purely for wealth
strong macro arguments for investing in agriculture, preservation, as part of their portfolio diversification
few institutional and private investors have the in-house strategy, will find the developed markets more appropriate,
agricultural investment and management know-how. even though values are higher, reflecting the sophistication
of the agricultural industry. These include Western Europe,
For new entrants into the agricultural sector, one of USA, Canada, Australia and New Zealand.
the main challenges, alongside understanding the
investment opportunities and risks, is establishing how Potentially higher returns are possible in emerging or even
to invest in this relatively illiquid asset class. The various frontier markets, where entry values are low or agricultural
investment strategies and options are: production is currently underperforming. Opportunities
in emerging markets exist in parts of Central and Eastern
n Direct investment Europe (CEE) and South America. Opportunities in the
n Managed fund frontier markets include sub-Sahara Africa.
n Operational farming (on owned or leased land) or:
n Pure land ownership with land leased to The opportunity to capitalise on increasing income by
farm operators injecting funds and skilled management, as well as
other factors (e.g. recent EU membership in Central and
Which geographical areas are of interest and what Eastern Europe) could be an additional attraction.
are the most suitable enterprises, including their
environmental impact? One thing that is common to all
of the above is that agriculture land should be
considered as a medium to long-term investment.

Land market fundamentals

Land prices vary significantly between regions and
within countries. For example, in Brazil similar land with
the same productive capacity can be four times more
expensive in one region compared with another. In the
EU prices for similar quality land can vary by a multiple Diagram 1.
of ten across the region. So why are there these large Why invest in farmland?
variations?

Global – At a global, level the strongest driver of land Strong Demand for land and soft commodities
prices is productive capacity, with the anticipated supply fundamentals driven by several strong macro trends
and demand of agricultural commodities impacting on
stocks and therefore price. Stability Stable returns in recessionary times

National – At a national level, the impact is on net prices

Historically a tested store of value in
and production costs. This is affected by the amount of Inflation hedge
inflationary environments
usable land and farm sizes, land ownership restrictions,
subsidies, taxes, availability of finance and the strength Low correlation to Outperformed traditional asset
of the economy. Foreign ownership of land is an emotive other asset classes classes long term

issue and there is an increasing concern by some

governments about the foreign ownership of land, with Farmland is an underinvested asset class
Under-owned asset
because access and execution are difficult
tighter restrictions or approval procedures being put in

Page 3
 Research | International Farmland Market Bulletin 2011

Investment returns
Financial investors, as opposed to investors seeking food
security, are motivated by both the potential for capital
appreciation and increased income returns; their focus is
a carefully timed purchase and subsequent disposal.

Higher, but more volatile returns are typically achieved

from exposure to operational farming business. Whilst
the returns to the landowner from cash rents are normally
lower, but more stable. As you would expect, annual
returns in the most mature markets are lower than those
in emerging markets.

Agricultural investment funds which, own rather than

lease land around the world (Australia, Central and
Eastern Europe, New Zealand, South America and the
US), are typically forecasting cash-on-cash returns in the
range of 3-8% + p.a. and Internal Rates of Return (IRR)
of 10-18%, after fees.

In the UK, over the past 30 years the investment

performance of farmland has been similar to many
other assets, the main exception being residential
property and equities (see Graph 1). However, in more
recent times (the past 15 years) and again illustrated in
Graph 1, farmland (let and farmed in-hand) has actually
outperformed all assets except residential property.

Over the past three years, farming and forestry have recession proof. The trends highlighted have generally
topped the investment performance league in the UK. been replicated in many markets around the world.
In the USA where there is a developed land investment
market, with considerable institutional and private We expect strong investment performance to continue
investment in let land, the trend has been similar as across the world as fundamentals of food production,
illustrated in Graph 2. security and renewable energy all impact on the finite
area of global farmland.
Agricultural land has shown it is a tested store of value
in inflationary environments. In addition, the returns Although the straight line trend is still positive, the
from agricultural investments have a weak correlation worldwide recession has put some pressure on farmland
with mainstream investments, which means agricultural value growth in a few mature markets within Europe
property performs well when other assets show poor where values were the highest e.g. Ireland, Denmark and
returns. This is an argument for including agricultural the Netherlands.
property in a mixed portfolio, to reduce risk and also
boost overall portfolio performance. Our commentary (see overleaf) provides an overview of
the various international farmland markets. As you will
The stable returns of agricultural property during the notice, there are significant variations between regions
past few years, also indicates that this asset is largely and within countries.

Graph 1. Graph 2.
UK Investment Performance – Risk and Return US Investment Performance – Risk and Return

16 12
Let residential (30yrs)
14 Let land (15yrs)
Let residential (15yrs) Equities
10
Timber (NCREIF)
(30yrs) Illinois cropland Russell 2000
12
Arable farming
Investment return %

Investment return %

US Farmland (NCREIF) S&P 500

Gilts (30yrs) top 25% (15yrs) 8
10 Arable farming
Commercial – all (30yrs)
top 25% (30yrs)
Let land (30yrs)
8 Gilts (15yrs) Commercial 6 LT corporate bonds Gold
– all (15yrs) Equities (15yrs)

6 Forestry (15yrs) Commercial RE (NCREIF) GSCI

4
4
2
2
10 yr treasuries

0 0
0 2 4 6 8 10 12 14 16 18 20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Volatility % (standard deviation) Volatility % (standard deviation)
Source: IPD/Savills Research Source: HighQuest Partners, NCREIF (1991–2009)

Page 4
 Research | International Farmland Market Bulletin 2011

An overview of international values

Understandably the rate of growth in farmland values across the globe can
vary significantly between locations. Here is our guide to national markets
Western Europe Central and Eastern Europe – EU
During the past few years the general trend for value Looking at the Central and Eastern European (CEE)
growth across Europe has been upward, but the countries within the European Union (EU), see Graph
recession has dampened the fast growth rates recorded 4, we can see that the general trend in values has been
between 2005 and 2008. positive, especially following accession into the EU
of most of these countries in 2004, with Bulgaria and
Our Farmland Value Survey shows the average value of Romania following in 2007.
Grade 3 arable land across Great Britain rose by 3.5%
during the third quarter of 2010 to £5,180 per acre. This The key reasons for this upward trend are the introduction
puts the cumulative growth for the first three quarters of of CAP subsidies and an improvement in their economies
2010 at 9.7%, compared with the 6.7% growth recorded following entry into the EU. In addition, although with
for the whole of last year. Average values are now higher restrictions, entry into the EU opened up their farmland
than at their previous peak of June 2008 (£4,895 per acre). markets to foreign investment. By 2008 Polish values had
risen to levels similar to France, Sweden and Finland.
The highest land values are still recorded in Northern
Ireland, Ireland, Denmark and the Netherlands, although it Across the CEE, there are restrictions in place on
is across these countries where significant correction has the foreign ownership of farmland for set derogation
been witnessed during the past two years and anecdotal periods post EU membership. For example, in Poland
evidence suggests this has continued into 2010. twelve years and Hungary seven years, with a possible
extension of three years.
In contrast, values have been relatively stable in
some other countries. In France this has been particularly However, in most cases local CEEC companies owned
so, as a result of the organisation SAFER having to 100% by foreigners can buy land with some exceptions
approve all land acquisitions. SAFER encourages including Hungary. Values in Hungary have been slower
sales to local farmers, making it more difficult, but not to grow compared to some other CEEC markets, due to
impossible, for outside investors and non farmers to the general heavier ownership restrictions imposed on
purchase land, which in turn dampens land value growth. this market.

We expect to witness further consistent growth in

values across the CEECs. They are large countries
with rich agricultural soils. With the correct investment
in resources and infrastructure (roads, ports and
processors), they are ideally positioned to capitalise on
“During the past few years the trend for the effects of rising global populations, increased wealth
value growth has been upward but the and the demand for renewable energy, all leading to
increased profitability.
recession has dampened the fast growth
rates recorded between 2005 and 2008.”

Graph 3.
European Values including CEEC
 2007  2008  2009 (where robust data)
50,000
45,000
40,000
35,000
30,000
€ per ha

25,000
20,000
15,000
10,000
5,000
0
Lithuania

Slovakia

Bulgaria*

Romania*

Czech

Latvia

Hungary

Sweden

Greece

Poland*

France*

Finland

Scotland

Spain

Wales

Germany

Greece**

England

Italy

Belgium*

Denmark

N. Ireland

Spain**

Netherlands*

Ireland

* arable land only

** irrigated land only
Source: Savills Research using Eurostat & various data/estimates

Page 5
 Research | International Farmland Market Bulletin 2011

Australia and New Zealand

In New South Wales, Australia farmland values remained
relatively static in 2009 (see Graph 5). The average value
of wheat properties increased just 2% to AUD 1,275 per
ha and the premium grazing land by 4% to around AUD
2,700 per ha for tablelands grazing and AUD 2,966 per
ha for coastal grazing.

Australian agriculture is fundamentally based on

extensive pastoral and cropping activities. However,
diversification into intensive livestock and horticultural
enterprises is increasing.

Australian agriculture is seen by many large local and

international investors as a ‘safe’ place to invest and this
is enhanced by the increasing wealth of Asian countries
which are major agricultural export trade partners. In
Eastern Europe – Russia and Ukraine addition, the Australian economy is strong and the
Land values in Russia are difficult to reliably ascertain political risk is low.
and leasing land is often the easiest route to farming
there. There is some evidence to show that current In 2009 the value of farmland in New Zealand came
land values are around US$250 to US$800 per ha, under pressure in the pasture sectors (see Graph 5).
depending on the completeness of registration and the The average value of dairy farms fell by -8% in 2009 to
accompanying infrastructure. The recent drought and NZD 31,300 per ha. The average value of fattening and
difficult weather conditions, has put downward pressures grazing farms fell -10% and -13% respectively.
on land values.
This reduction was primarily due to the drop in milk prices
In Russia, 49-year leases are common. Foreigners can own in 2008/2009. Although milk prices have recovered the
companies that own land through cross share ownership, growth in land values has been stifled by the continuing
but land ownership can be a difficult process, often taking tight credit conditions. These factors created a situation
more than a year to achieve land registration. However, this that had an immediate impact on asset values, because
can more than double the value of the investment. in much of New Zealand asset prices are underpinned by
the performance of the dairy sector.
In the Ukraine only leases are available for farmland.
These are typically 15 years. Key money for securing In contrast, the average value of arable farms in New
tenancies has seen downward pressure as a result of Zealand increased 7% to almost NZD 34,000 per ha.
the recession and drought.
The Government has recently put in tighter approvals
procedure for foreign acquisitions of land, to ensure it
is in the national interest. This may dampen any future
strength in the market.
“New Zealand has the advantage over
many areas in that water is abundant
due to reliable rainfall, and a good
irrigation infrastructure…”

Graph 4. Graph 5.
CEECs Australia and New Zealand Values
Poland (arable) Bulgaria (arable) Romania (arable) Hungary  2007  2008  2009
35,000
6,000
30,000
5,000
25,000

4,000 20,000
$ per ha
€ per ha

3,000 15,000

10,000
2,000

5,000
1,000
0
Western Wheat Tablelands Coastal Dairy Fattening Grazing Arable
0 grazing properties grazing grazing
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Australia – New South Wales (AUD) New Zealand (NZD)
Source: Savills Research using Eurostat & various data/estimates Source: NSW Lands Department & Quotable Value

Page 6
 Research | International Farmland Market Bulletin 2011

USA and Canada Brazil

In 2009 average farmland values across the USA The average value of farmland across Brazil increased
increased by 1.4% although they are still -1.4%, lower 5% in the year to December 2009 to R$ 4,600 per ha,
than the peak of $5,362 per ha in 2008 (Graph 6), caused 350% since 2000 and 40% since December 2006 (see
by the commodity price spike. This pattern applied Graph 7). The annual rate of growth has now tempered.
to average values for both cropland and pastureland. The rise in land values has been driven by food security
Favourable tax and interest rates, farm programmes, and foreign investors, as well as local investors driven by
a lack of alternative investments and short supply all the success of the Brazilian capital markets on the back
contributed to the strengthening of values in 2009. of the strength of its economy.

However, there are some ownership restrictions in the Graph 7 also shows that the farmland with highest
USA, for example there are some areas of the Midwest average values is located in the southern regions of
where companies and foreigners can not buy land, which Brazil, with average values reaching almost R$ 9,500
is one reason, in addition to the lower population density, per ha due to the best soils, infrastructure and access to
why the US land values look relatively good value, markets. Tighter supply is also a feature of the market in
compared to those in Western Europe. these regions.

In Canada average values have continued to rise steadily It is expected that new infrastructure projects will give
(see Graph 6) with average values increasing 4.6% in a boost to land values in other regions. For example, a
2009 to $3,160 per ha. new railway being built through the centre of the country,
including the Maranhao and Tocantins states, should
In western Canada, states such as Saskatchewan do help improve logistics and increase land values here in
not permit foreign ownership of agricultural land, whilst the future.
in some other states foreigners can own up to 49% of
the shares of a company which owns land. In eastern Agricultural land and commodities are major investment
Canada however, there are no restrictions and this is topics in Brazil. Brazil has many natural advantages
reflected in the higher land values. including fertile soil, an unlimited supply of water and
an abundance of land. With 19% of the world’s arable
land, Brazil is one of the world’s top eight producers
of 28 different agricultural commodities. Brazil is the
world’s biggest exporter of soya beans, coffee, sugar
cane and oranges.

The Government has introduced laws making land

ownership by foreigners more restrictive. We believe
this will only affect those investors looking to deploy
significant amounts of money or in areas where there
already has been a large amount of foreign investment.

“A lack of alternative investments

and short supply contributed to a
strengthening of US values in 2009.”

Graph 6. Graph 7.
USA and Canada Brazil
 Canada average  US average farm (all land and buildings)  Dec-06  Dec-08  Dec-09

6,000 10,000

9,000
5,000
8,000

7,000
4,000
6,000
R$ per ha
$ per ha

3,000 5,000

4,000
2,000
3,000

2,000
1,000
1,000

0 0
Centre- Northeast Northeast Southeast South BRAZIL
1997 1999 2001 2003 2005 2007 2009 west
Source: Statistics Canada, USDA Source: Savills Research from Brazil Agrianual 2010

Page 7
 Research | International Farmland Market Bulletin 2011

Argentina/Uruguay Africa
First quality agricultural land values in Argentina have African farmland is receiving an increased level of
increased by two and a half times since 2003 and almost attention, especially from sovereign wealth funds in
four times for second quality agricultural land, reflecting countries which are keen to secure land to grow food
the demand from foreign investors who are attracted to for their own populations.
Argentina and the rest of South America (see Graph 8).
Many of the countries in sub-Saharan Africa do not allow
The average value of first quality arable land is estimated land ownership but land is generally available on long
to have increased 33% during 2010 to around US$14,000 term leases. Graph 9 gives a flavour of average land
per ha after falling -11% in 2009 due to pressure from the values across Africa where land ownership is permitted
fall in commodity prices after the 2007/08 spike. However, and therefore a market exists.
there has been surprisingly few farms available to buy, as
the current owners cannot find another asset class which Graph 9 illustrates the benefit of irrigation, although there
is denominated in US$ and also provides an inflation/ are no clear boundaries between either irrigated or dry
recession hedge. land. This is region dependent and on the amount of
water available.
Argentina is an attractive area for agricultural investment,
as there is good value quality land, the potential to farm Overall, investment in African farmland is often perceived
large areas with good legal title, sophisticated farming as fairly high risk, due to pressure on the Governments
techniques and probably the lowest production costs in to deliver against their land reform promises and other
the region despite the imposition of export taxes. political concerns. With land claims being resolved,
this is creating a more stable ownership profile. In
Generally, markets are well established and water addition, there is now a more open structure and better
availability is good. Low costs and the potential for high organisation between African governments to engage
productivity offer good investment opportunities, but directly with private investment groups.
location is critical. Some foreign investors have been put
off by the stance of the current government towards the Although crop yields, soils, weather, crime, water
farming sector. However, the Presidential elections in availability, electricity constraints and labour relations
2011 may lead to a change in attitude in the future. might be risks often highlighted in the press; they are
often manageable and increasingly positive factors
The perception of a lower political risk in Uruguay has acting as catalysts for investment.
meant that investors have seen prices rising to between
and to the point that returns are now less than in A recent FAO report claimed that out of a possible 26%
Argentina. Land values in Uruguay for good quality land of arable land in Africa, only 13% of land was cultivated,
typically range from US$3,750 to US$9,000 hectare, but leaving significant scope for large scale agricultural
farmland is not generally as good as in Argentina, with development, for those more adventurous investors with
typically more mixed farming operations and lower crop a higher reward/risk profile.
yields. Most farms would have a mix of perhaps arable,
cattle and forestry enterprises, as well as larger areas of
unusable land.
“There is now a more open structure
and better organisation between African
governments to engage directly with
private investment groups.”

Graph 8. Graph 9.
Argentina Africa
Arable 1st quality Arable 2nd quality  Irrigation  Dry land  Pastures  Grazing  Plantations
Livestock 1st quality Livestock 2nd quality
10,000
16,000
9,000
14,000
8,000
12,000
7,000
10,000 6,000
US$ per ha

R$ per ha

8,000 5,000

4,000
6,000
3,000
4,000
2,000
2,000
1,000
0 0
1977 1982 1987 1992 1997 2002 2007 2010 Botswana Mozambique Namibia South Africa Swaziland Tanzania Zambia

Source: Márgenes Agropecuarios Source: Rian Lazenbury

Page 8
 Research | International Farmland Market Bulletin 2011

Summary and outlook

 For most mainstream institutions, investment in  Farming is a detailed day to day business.
agriculture is yet to appear on the agenda, but we Investors therefore need to ensure that strong local
believe this will change over the next few years. In management teams or operators are in place to farm
the shorter term, we expect demand for agricultural the land.
investments from family offices, financial investors
and also the sovereign wealth funds to increase. This  We expect that the macro factors of commodity
interest will be fuelled by simple supply and demand supply and demand fundamentals will support a
economics supporting long-term growth projections continued trend of rising land values worldwide,
for the agricultural industry, food security, as well as although the rate of growth will vary between
the attractions of this asset class. locations. We believe, farmland as an asset will
increasingly become more prominent as a sought
 World farmland markets are becoming increasingly after asset. 
accessible with new emerging markets opening up,
creating new opportunities. However investments
should be structured sensitively to avoid concerns over
large-scale farmland acquisitions by foreign nationals.
“We expect that the macro factors
 Returns will vary in absolute terms and in terms of of commodity supply and demand
the degree of volatility, presenting a strong argument
for diversified geographical portfolios to smooth out
fundamentals will support a continued
the differences. trend of rising land values worldwide.”
 There is a merit for including farmland in a
diversified investment portfolio, due to its attractive
investment characteristics, including its low
correlation to other asset classes, stability and
inflation hedge track record.

For further information please contact:

Henry Wilkes Ian Bailey

CEO – InvestAg Savills Head of Savills Rural Research
+44 (0) 20 7016 3752 +44 (0) 1797 230156
hwilkes@investagsavills.com ibailey@savills.com

InvestAg Savills
A dedicated investment and asset management business with an ability to access and manage significant agricultural investment opportunities in many
parts of the globe, through a network of country partners and associates.
Savills plc
Savills is a leading global real estate service provider. The company established in 1855, has a rich heritage with unrivalled growth. It is a company
that leads rather than follows, and now has over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.
Savills has a 150-year agricultural history and manages or consults on over 890,000 hectares.
This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other
document without prior consent. Whilst every effort has been made to ensure its accuracy, neither InvestAg Savills nor Savills Research accept no liability whatsoever for any direct or consequential loss
arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from either InvestAg Savills or Savills Research.

Page 9