Extending your portfolio overseas

Investment in global farmland provides the opportunity for significant returns, but an in-depth understanding of the market is essential.

3 April 2014, Words by Hugh Coghill

 

Welcome to our latest ‘International Farmland Focus’. Across the world farmland values continue to grow and farmland remains a top performing asset. Our Global Farmland Index shows an average global annualised growth since 2002 of 20% – with the highest growth recorded in the emerging markets.

Many investors are seeking to de-risk portfolios leading to a wholesale re-evaluation of asset classes in an attempt to identify real and sustainable values. This drive towards safer investment is clearly illustrated by the substantial interest shown in the prime London residential sector, which now attracts investment from around the globe, the GB farmland market and of course the forestry sector.

The proof is in the numbers. Over the past 10 years, average values in the prime London residential market have increased by 135%, GB farmland by 270% and the UPM Tilhill/Savills Forestry Index by almost 325%.

At the same time the rule book of financial ‘norms’ has in part been rewritten with an understanding by investors, governments and not least the media of the fundamentals and value of prime assets such as agriculture and forestry. This has been driven, as we all know, by a global acknowledgement of the need for sovereign food and energy security driven by population growth and climate change.

All of this is assisted, of course, hugely by the accessibility of global markets, together with the ability to move management skills and technical knowledge, as well as capital, to what are effectively under-developed areas.

Therefore, extending a portfolio into farmland across the world provides access to land and an opportunity for substantial capital growth. As in any case, the rewards depend on the appetite for risk, but an awareness of historical trends and the right choice of location can go a long way towards ameliorating them.

Knowledge is crucial

The global farmland markets are an active and diverse marketplace; we are involved in transactions for farms that grow rice to others with substantial livestock enterprises. We are also actively involved on an advisory level including consulting corporates and funds on valuations for audit and funding purposes.

To the buyer looking to acquire agricultural land overseas, knowledge and understanding of the restrictions and policy on foreign ownership and investment is crucial.

The regulatory environment for foreign investment of farmland is not only complex but varies by country. It will determine both the entry and exit strategy. This publication touches on some of the key issues and current variations that exist around the world.

On the strength of Savills professional global real estate presence and the dominance of London as a global financial centre, we talk to a lot of people around the world and are always interested in extending our network.

In this issue we are grateful to Ülo Adamson, CEO of Trigon Agri for providing us with a brief overview of their business. Trigon Agri is a listed company in Stockholm which was launched in 2006. The company has gone on to acquire farms in Ukraine, Russia and Estonia with 167,000 hectares of commercial cereal operations and two large dairy farms.

I leave you with this final message. Investment in global agriculture, and to a degree in global forestry, has only been on the agenda since about 2005. The markets of the world are immature with little reliable comparative data from which to draw direct conclusions.

The range of opportunities for investors is enormous from what I would describe as the pioneer countries of sub-Saharan Africa, where substantial investment in development and infrastructure is needed, to the more mature markets of Western Australia, New Zealand and Western Europe. Central Europe and the Baltic States fall somewhere in between with great opportunities for delivering large scale agriculture at globally competitive prices within a secure European trading market, but some are vulnerable to political risk as recently seen in Ukraine.

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Hugh Coghill

Hugh Coghill

Director
International Farmland

Savills Margaret Street

+44 (0) 20 7016 3818

 

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