Buying farmland abroad: Prices, benefits and risks

Pros and cons to weigh up before investing in land abroad

A variety of factors play a part in shaping the risks and benefits of investing in farmland in another country. Farmers thinking of investing abroad should weigh up these factors, advises Savills’ international farmland team.  

Risks

• Politics: Political insecurity, unfavourable fiscal and tax policy, economic instability, subsidy reliance and large currency fluctuations all add to investment risk.
• Foreign ownership rules: A country’s investment rules can restrict foreign land ownership, but this can suddenly create opportunities if they are relaxed.
• Infrastructure: Does the country provide access to good, reliable infrastructure? This is vital to maximising farm profits.
• Climate: Consider that heavy rainfall, severe drought or the likelihood of major weather events will be bigger risks in some parts of the world. 
• Liquidity: Entry and exit opportunities need to be assessed.
• Agricultural R&D: A lack of willingness, or resources, of government and industry to invest in research can affect agriculture and associated sectors in that country.

Benefits

• Size and scale: Is there a chance to acquire or develop a top-performing farm or one that will maximise economies of scale?
• Soil quality: Soil type and quality elsewhere may be more suited to a particular farming operation.
• Output potential: It may be possible to increase yields or output. Consider whether the management tools and resources are available, though.  
• Water: Water may be more available, but check if there is a natural source of irrigation. 
• Supply chain: Moving up the supply chain to get closer to the consumer may enhance agricultural productivity and investment returns.
• Sustainability: Farming in another country may allow operations to be more sustainable and it is worth considering, as this is becoming increasingly important to farming’s customers and end consumers.

Expert view: Hugh Coghill, director of international farmland, Savills

Hugh Coghill © Richard Marsham

The countries that appeal most to UK investors vary, says Mr Coghill.

“With greater global and economic uncertainty, investors show more interest in known markets with currency, economic and political stability such as the US – the corn belt and delta – plus Australia and New Zealand,” he says.

Central Romania attracts the most interest in central Europe, but quality land is getting more expensive.

“Poland attracts attention historically, but investors in all these markets are slim in number,” he adds.

In terms of attracting investment, the UK’s comparatively low income yield from farmland is a limiting factor. This has traditionally been offset by free movement of capital and a relatively sound political and economic environment.

Brexit, and the associated reshaping of subsidies, may cause the UK to fall further down the league table of sound investments.

“There may be some correction [in the UK’s position], but the amount will be affected by other factors, not least tax.”

South America

Further afield, South America continues to show signs of recovery, with Argentina making moves to lift foreign direct investment restrictions.

Agriculture in the country has been hit by successive governments placing heavy tax and economic restrictions in the past eight years.

“It will take time to regain confidence in the movement of capital,” Mr Coghill said.

“I still think that selected areas and countries in Africa, if water is available, can show attractive returns.

“In central Europe I would look to areas of good land quality where infrastructure improvements will widen access to markets and the same applies to South America.”