Global prices of agricultural land soared by 12 percent annually for the last 16 years

In Western Europe the price of land went up in this period by nearly 6 percent, whereas Romanian agricultural land recorded a 40-percent price increase. Regions with the highest price surges are Eastern Europe and South America. The largest increase was recorded in the 5-year period between 2002 and 2007, when land prices gained 28 percent annually. In the next 5 years the increase waned to nearly 11 per annum.

Recently the increase in land prices has significantly slowed. Savillis reports that after the banking crisis of 2008 the global agricultural inflation dropped to slightly below 1 percent.

However, the increase pattern differs significantly in individual countries and is contingent upon a number of factors. According to Savills, in a longer term the value of arable land exceeded that of goods, and in times of recession investors tend to hedge against inflation.

Given the global increase in population and a dire need of climatic changes in some developed countries, the long-term significance of food and energy security is not bound to decrease. In view of that analysts all over the world forecast a further increase in demand for productive arable land.

In Western Europe after a period of a dynamic increase in arable land value, in the last five years the prices dropped. The only exception is Germany with an annual price increase of 5.4 percent. The largest price decline was recorded in Great Britain and Ireland (-3.0 percent), Denmark (-2.9 percent) and France (-1.5 percent).

However, Savills still positively assesses the price potential in Western Europe. This is due to a sound infrastructure and a well-developed transport network as well as a convenient access to farms and markets. Moreover, there is a lower political risk and less restrictions as regards foreign investments in arable land.

Nevertheless, returns for potential investors or buyers are lower and there is less potential for “profit maximisation” as the agricultural system is already well developed.

Hungary, Poland and Romania followed the global pattern of rapid price increases in 2000, but inflation declined to 5.6 percent on average within the last five years as compared to the average increase in agricultural land prices of 17.6 percent in the last 16 years.

A relative investment risk in Eastern European countries is slightly higher than in those of Western Europe. Rules pertaining to foreign investors intending to purchase arable land in Hungary and a new law in Poland that came into force in 2016 limits the area of farms to 300 ha.

According to a research conducted by the European Parliament, ca. 40 percent of agricultural land in Romania is currently owned by foreigners. There are reasons to believe that the Romanian government will limit future investments in agricultural land.

The arable land prices in North America have increased incessantly for the last 16 years. However, in the last five years this trend slowed down. Canada recorded an average annual increase in prices of agricultural land by 9.2 percent in the last 16 years and of 2.4 percent in the last 5 years.

In the USA prices of agricultural land gained 6.1 percent in the last 16 years and 1.6 percent in the last 5 years. However, according to Savills, USA and Canada are highly valued by investors and enjoy favourable farming conditions. In Canada there are certain restrictions pertaining to foreign purchasers of arable land, and in some US states legal regulations prohibit foreigners from owning or using arable land.

The Global Farmland Index for 2019 shows that limiting foreign investments in arable land plays an increasing role in the process of shaping land prices. Although in the opinion of analysts the demand stays high, investments are affected by new environmental and social regulations.

Investors already active on the arable land market may focus on alternative markets or solving food security problems, among others with new agricultural technologies.

Savills suspects that demand for agricultural resources, changes in dietary habits, amounts of wasted food and a dire need for changes in environmental management will also bring about new developments on agricultural markets.

See also!

As from 1st November 2019 legal regulations on the split payment method, i.e. a divided VAT payment model, came into force. Find out who must apply it and which groups of goods and services are obligatorily covered by it in agriculture.