Foreign farmland ownership rises over ten per cent

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The Diplomat | March 2011

Romanian farmers, 1995 (Photo: Barry Lewis: Corbis)

Around one million hectares of Romania’s farmland are in foreign hands, and the interest in investing in agricultural plots is growing.

Report by Nicoleta Banila and Michael Bird


Multinationals and investment funds are prowling around Romania intent on investing in Romania’s arable estate.

Pieces of Romania are now owned by companies from European countries, while funds from the Middle and Far East are turning on to opportunities in southeast Europe.

According to Ministry estimates, Romania is rapidly approaching nearly a million hectares of arable land bought by non-Romanians – around 12 per cent of the country’s farming estate. Part of this land is for banking as an investment.

“In the last months, interest has come from investment funds and multinationals which have little connection directly with agriculture,” says Dana Bucur, agribusiness specialist. “It is an investment in a primary natural resource, which might have an exit tomorrow, in six months or six years.”

Other companies are looking to buy land as a basis for crop, animal-rearing and agricultural services and processing.

But in general, arable land is growing as a secure investment target.

“Romania has some of the cheapest land values in the EU,” says Ian Bailey, head of rural research, at global real estate advisor Savills London.

“We believe that - based on all other EU Accession examples - there is considerable potential for capital appreciation.”

Land values in EU countries tend to rise following EU Accession due to the bloc’s subsidy scheme for the agricultural sector and EU grant support for investment in farm equipment and buildings.

Romania is also seen as a politically stable location to invest in the long term, compared to Russia, Ukraine, the Middle East and North Africa.

“East European agriculture is popular because of good growing conditions in terms of climate and fertile soils, with the potential convergence of crop and livestock yields with those in west Europe,” adds Bailey.

There are also opportunities to implement Western management and technology for large-scale and low-cost profitable production.

In Slovakia and Romania Danish company First Farms cultivates wheat, maize, sunflower, rapeseed and barley. Active since 2007 in Romania, the firm is operating several thousand hectares of arable land close to Buzau. Per Villumsen, CEO of First Farms says Romania has a huge potential. “Arable is quite interesting due to high prices on commodities at the moment,” says Villumsen. “I foresee that we will have good prices for a while, but it is always hard to predict.”

He believes dairy farming will be a target for future investment

Trouble on the farm

However the biggest complaint from many potential buyers of land in Romania is that there are not enough consolidated pieces of land in one place.

Other problems include poor outputs and inefficient production. There is also a lack of investment in machinery, irrigation systems and storage facilities, despite EU cash available for modernisation.

Added to this is a vibrant black market, which means farmers do not declare all their incomes and the ownership status of some plots is shaky.

“Unfortunately, foreigners come with their own heritage and forget an essential thing - the local culture,” says Bucur. “Some move straight ahead and after a few years hit the reality of local opposition to new mentalities and new perspectives.”

Oil-rich funds in crop swoop

Romania could become a target for state-owned investment funds composed of the budget surplus from booming economies, who are looking to invest in secure and long-term profits.

These Sovereign Investment Funds spill over from the oil industry and are worth in the hundreds of billions of Euro – from UAE, Norway, Saudi Arabia, China, Singapore, Kuwait, Russia, Libya, Australia, Qatar and Egypt. Many are looking to arable land to secure food production for the future for their own countries. Under their radar are plots in central Africa, south America and east Europe.

“There has been a lot more talk about this than actual investments around the world,” says Ian Bailey. “We have seen very little evidence of any direct evidence by Sovereign Wealth Funds in central Europe. However there may be Sovereign Wealth soft loans that could be financing agri-investments in the region.”

Local resistance

Romanian farmers are not too happy about the rise in foreign landowners. Braila seed farmer Florin Stoian is disappointed by the authorities’ encouragement of non-Romanian investors to start businesses in agriculture.

“My ‘neighbours’ are a Spaniard and a Dane,” he says. “They are working their fields, but I also know a German who bought his field only to sell it on. He did nothing with it.”

The Romania Agricultural Producers Associations League (LAPAR) has lobbied the Government and Agriculture Ministry stating its opposition to land sales to foreign investment funds.

“We do not have anything against foreigners who establish in Romania, buy land and create farms, but this freedom encourages land speculators,” says Nicholas Sitaru, president of LAPAR.

At this stage the Government is not planning to intervene to change the law on foreign ownership. “It is a free market,” says state secretary Adrian Radulescu. “As a patriot and nationalist, I can say that the Romanians should buy, but in the context of globalisation and an integrated Europe, this is a question of progress.”

Original source: The Diplomat
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