11.02.2022
IS IT WORTH INVESTING IN AGRICULTURAL LAND?
Investments in this sector not only complement the rich palette of security opportunities and savings growth, there are also a number of advantages.
The pandemic of the last two years has triggered a series of crises that have had a serious impact on economic life and financial flows. Global supply problems, economic recovery in 2021, rising energy prices have awakened the monster of inflation. However, all this comes at a time when the savings of companies and individuals are growing once again, banks have huge reserves, at least at the beginning of the new year continue to give low-interest loans, but also increase fees for account maintenance and deposits. These accumulations affect savings, create worries about where and how to save them until this perfect storm passes. Some of this capital was invested in the real estate market, which led to its strong dynamics and rising prices, and others were invested in cryptocurrencies. Many investors used their money to buy shares in companies traded on stock exchanges, thus providing a temporary haven for their funds.
Avalanche growth
While high-risk dynamics are emerging in other markets, agricultural land and the agricultural business are proving to be an undervalued asset. In recent years, investment here has grown exponentially. Agricultural land is bought not only for the production of various crops, which are sold at a profit on world markets. But it also has sustainable and predictable potential for development.
According to data from the National Statistical Institute for the period from 2010 to 2020 (there are still no statistics for 2021) the fields in Bulgaria have risen almost four times - from BGN 279 average price per decare to BGN 1,042. In Northeastern Bulgaria black earth even reaches prices of BGN 1,470 per decare. The pandemic does not directly reflect on the land market and according to preliminary estimates of the Bulgarian Association of Agricultural Landowners (BAAL), the persistent trend of rising prices continues last year.
Hidden benefits
Investing in agricultural land and agricultural business not only complements the rich palette of opportunities for security and growth of savings and financial capital. But there are a number of advantages. After Bulgaria's accession to the EU, investments in this market have proven to be one of the most stable. In addition to profits from rising land prices, but also cash flows from rents and subsidies from EU funds. For rent alone, for example, for the period from 2018 to 2021, revenues have increased from BGN 49 to BGN 57 per decare, according to BAAL data.
Land users - due to political and economic uncertainty and probably for purely savings reasons, are increasingly resorting to buying land. This creates a constant demand, but with a shortage of supply, which turns this real estate into a valuable asset.
European subsidies, access to technology, information and education have created a rich stratum of farmers that is a worldwide phenomenon. In addition, there is predictability and self-regulation in the agricultural land market among business organizations that maintain a high professional standard. There are active branch organizations in Bulgaria that protect the interests of investors before the institutions.
Opportunities
If someone is interested in buying agricultural land, but does not have enough time, money and knowledge, here is a working solution - shares or stakes in companies that invest in agricultural land. It is important that they are traded on a regulated market (stock exchange) and are as transparent as possible to ensure the peace of mind of depositors.
Another opportunity is to start an agricultural business and become one of the successful farmers. However, for this you need to find the right place and location, consolidated territory. And to gain the trust of people who have land and are willing to sell or rent it for a long enough period of time. In some western countries there are programs for early retirement of farmers, with which the state buys farms and resells them to those wishing to engage in agricultural business. In Bulgaria, however, you have to do it yourself.
What are the advantages of the agricultural business?
You can produce products that are always in demand and supported by European funds and the state. You also own real estate that you can sell at a profit at any time. According to national statistics in Bulgaria, the average increase in the price of agricultural land in the last decade is over 10% per year.
What are the disadvantages?
Owning an "open-air factory" and being dependent on climatic conditions and change is hardly the safest investment. But there is a solution for this and successful farmers are proving it. Probably the most difficult part is entering the agricultural business. How can the people you rely on trust you to rent you their land if you do not have a history and experience as a farmer. How do you persuade older people, for whom the earth is valuable, to let you manage it? The solution is to buy an agricultural business and secure a history, rented land, and why not own land. However, there is no ready solution for this endeavor either. Some begin to search through acquaintances, friends and find. Here, however, you are also facing the competition of large farmers and landowners who are constantly growing their business.
Profits with prospects
Like any economic sector, this one has peculiarities, and its players have a distinctive behavior and profile. There are several types of sellers of agricultural business:
In any case, you need to be prepared and react quickly if you want to invest in the agricultural business, because interest is growing. The profit realized by some farmers per decare of land can be from BGN 50/decare to over BGN 100/decare, depending on their ingenuity, knowledge and skills. Farmers who work with 100,000 decares of land can earn between BGN 5 million and over BGN 10 million a year. And this perspective gives a wide range and opportunities for the price of owning such a business.
Source: Manager magazine
