Why is the price of agricultural land growing?


Photo: CBS International

Author: SLOBODAN REPIJA, Senior Consultant at Valuation and Development Advisory Department of the leading real estate consultancy CBS International, part of Cushman and Wakefield Group

The growth in population that is not accompanied by an increase in arable land will cause a higher price of food and consequently an increase in agricultural land prices in the years ahead.

Favourable climate conditions, geographical position, as well as the quality and fertility of the land, are the most common reasons why Serbia is considered an exceptional location for investments in agriculture. Vojvodina holds the most prominent position when it comes to traditional agricultural areas and it has played an important regional role for hundreds of years. The agricultural land market is still in the stage of development and transition. The process of privatization and restitution has not been fully completed, and in addition to that, the agriculture of Vojvodina is characterized by high extensiveness, small possessions and a higher share in total employment compared to developed countries. Nevertheless, the most important thing is that the country is becoming more and more attractive for investments of international and domestic investors. We can discuss the agricultural land market primarily through the prism of Vojvodina, which is definitely becoming very interesting for investors. Domestic companies such as Delta, IM Matijevic and MK own over 55,000 hectares of first-class agricultural land and there are also some smaller landowners who are actively purchasing and increasing their estates in Vojvodina. The presence of large landowners with vertically integrated production is particularly important for one small country, as the effects of economy of scale and stronger position in international markets are thus achieved.

In addition to domestic companies, our country also attracts foreign investors, e.g., the Irish fund Baltic Property Investment, as well as Al Dahra company, which recognized our country as a suitable investment destination and they own around 30,000 hectares. Foreign investors have different motives, therefore they purchase land in order to cultivate it but also as an investment property, with a hint of speculative expectations.

With the process of EU accession, it is realistic to expect the continuation of this trend, while investors will count not only on yields but also on greater certainty in terms of subsidies that are guaranteed in this case. Countries of the former Eastern Bloc embarked on a similar road after 2004.

For this reason, an increase in prices in this segment is expected. Growing land prices are definitely a result of modernization and greater investments, as well as the perception of investors due to the process of the country’s EU integration where the agricultural policy is highly protective. It should definitely not be assumed that the prices of agricultural land in Serbia and the most developed countries of the EU will be equal, nor that our country can reach the levels of the countries with the most developed agriculture. The price of land depends on several factors – the quality of the land itself and the climate conditions, national regulations and limitations, availability of resources, geographical position, but also the ability to achieve greater recognition and price premium through the final product. This is why prices remain different 75 years after the formation of the EU.

From a global perspective, it is realistic to expect price growth in the future, with certain cyclical shifts, primarily due to the growth in the global population which is not accompanied by the corresponding increase in arable land, which means that the result will be higher food prices, as well as higher prices of the basic resource – land. Modern trends in agriculture, such as increased estates, subsidies, improved marketing, scientific training, lobbying and political influence, have significantly improved agriculture and made it more efficient, which is also another reason for the expected price increase.

Source: BIZLife

Photo: CBS International