Farmland worldwide – what’s up, what’s down and why

UK land prices per tonne of wheat are some of the highest in the world, but farmland values are affected by multiple factors. We take a look at key influences

Average seven-year global wheat yields have increased 7% over the past five years, while land prices have risen 13%.

As a result, the average cost of land per tonne of wheat has risen 8.6% globally since 2010 (see map).

Land values worldwide have grown 14.8% since 2002, according to Savills Global Farmland Index, although this has slowed over the past five years.

See also: Land prices to fall as farmers wait for certainty

Increased food production in less-developed countries has driven this up, while competition for land use and changing government policies is having a significant effect in the short term.

But cheaper farmland in emerging countries continues to present opportunities for farmers who want to start out, grow their business or spread risk.

“Emerging markets have done well,” says Ian Bailey, head of rural research at Savills.

“Central Europe and South America started from a lower base, but from a situation where it’s much easier to put capital and resources in to improve values.

“Mature markets such as the UK, US and Australia tend to use the highest level of technology, so improvements are harder to make, but they are a less risky investment proposition.”

Owning a diverse range of farming operations in different countries is also a buffer to commodity price volatility, says Mr Bailey.

“Those who are successful have farms in different regions in different enterprises to reduce the risk of their agricultural portfolio.

They might have a wheat farm in the US, a beef farm in Australia and a dairy farm in New Zealand – that’s what you have to do if you are going to get into it in a big way,” says Mr Bailey.

“Due diligence is essential to understanding global markets, especially with a range of cultures, political administrations and foreign investment regulations.”

Influences on land prices globally

Politics, exchange rates and commodity prices are the biggest drivers affecting land prices globally.

In the past three years, policy changes around foreign direct investment (FDI) have caused uncertainty for many prospective purchasers and even blocked sales.

Fears about “land grabbing” by international buyers – prevalent in Australia, New Zealand and across Africa – has spread to some European countries too, prompting governments to limit or stop sales to foreign investors.

Hungary and Romania are two countries affected and have recorded static or decreasing values for the past two years.

Denmark – one to watch?

Denmark has a strong reputation across the world for its farming. Agriculture is strictly governed by environmental policy – mainly to protect its long coastline from leaching and pollution.

Legislation has been in place since the 1980s to reduce nitrogen and phosphorus loading, but a steady relaxation of the rules could mean it is a country to watch.

Matt Sheldon, from the Savills international farmland investment team, says: “Denmark is a mature market in one sense, but it has had quite restrictive farming policies.

“It has shown one of the greatest decreases in the cost of land per tonne of wheat and restrictions are going to be lifted year on year.

“Some hypothesise that in the next five years it could be totally unrestricted and it could apply everything efficiently on a farm-by-farm basis, rather than forcing every farm to be run in the same way.

“We know the Danes are good farmers and profitability per acre could rise significantly.”

See also: International farmland: Guide to the global land market

Adding value to land

Many countries are starting from a much lower base than mature markets such as the UK and Australia. These emerging agricultural forces have only recently taken advantage of better science and infrastructure to increase productivity.

In Europe, countries such as Poland, Romania and Hungary are part of a central European region that has recorded 20.4% annualised growth since 2002, predominantly by increasing output.

“Immature markets in central Europe have a lot of scope for land values to go up just by increasing productivity,” says Mr Bailey.

“The same is true of Latin America and the US, where there are farms that have been farmed poorly and buyers can increase productivity and increase land values.”

UK farmer-buyers

British buyers of foreign farmland largely fit into two categories, explains Mr Sheldon – expanding family businesses looking for value abroad and investors spreading their portfolio.

“We have always had a lot of interest from UK farmers in France because it’s close and it suits a farmer with two children – one can stay at home and one can go elsewhere. It’s also affordable to do so,” he says.

Since the EU referendum, however, he says most UK interest has walked away.

“We have seen that interest disappear in the past weeks as people wait to see what the new format of the EU is.

“The UK investor is not interested in [the rest of] Europe either – most interest in European land is from other European countries or from the US.”