"Land Grab: The Race for the World
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Investment in Farmland and Farming in Central and Eastern Europe and the Former Soviet Union Carl Atkin Head of Research, Bidwells Agribusiness, UK PowerPoint PPT Presentation


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"Land Grab: The Race for the World's Farmland". Investment in Farmland and Farming in Central and Eastern Europe and the Former Soviet Union Carl Atkin Head of Research, Bidwells Agribusiness, UK. “ Buy land, they don’t make it any more”. Mark Twain (1835 -1910). Demand pull (i) Population

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Investment in Farmland and Farming in Central and Eastern Europe and the Former Soviet Union Carl Atkin Head of Research, Bidwells Agribusiness, UK

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Buy land they don t make it any more

"Land Grab: The Race for the World's Farmland"

Investment in Farmland and Farming in Central and Eastern Europe and the Former Soviet Union

Carl Atkin

Head of Research, Bidwells Agribusiness, UK


Buy land they don t make it any more

“Buy land, they don’t make it any more”

Mark Twain (1835 -1910)


Buy land they don t make it any more

Demand pull

(i) Population

(ii) Dietary shift

(iii) Policy changes

(iv) Bioenergy

Supply Constraints

(v) Land

(vi) Water and climate change

(viii) Technology

Introduction: Drivers


Introduction types of agri investment

Commodities

Equities

Agricultural Real Estate - (EU CEECs)

Operational Farming – (EU CEECs & FSU)

The Value Chain

Introduction: Types of Agri-Investment


Buy land they don t make it any more

Productivity Potential

Water, Climate Change and Sustainability

Costs of Production

Costs to Market

 Strong drivers for CEEC and FSU

Long Term Competitiveness of Agricultural Regions


Agricultural real estate

Agricultural Real Estate


Operational farming

Operational Farming


Buy land they don t make it any more

Returns – Income and Capital

Real Estate vs Operational Farming vs Both

Operations – in hand; contract; lease

Useful Real Estate Characteristics

Support Environment – SAPS vs SPS etc.

EU Structural Funding

Supply Chain – at both ends

Culture, Management and ‘Localisms’

Why All the Investment Interest?


Buy land they don t make it any more

Output including Subsidy (A)€1,396,030

Seeds, Fertilisers and Agrochemicals (B)€ 403,500

Sundry Operating Costs(C) € 120,000

Contracting Charge to Contractor (D)€ 324,000

(for labour, machinery and management services)

Landowners Retention to Landowner (E)€ 277,500

(or “prior charge“ / “rental equivalent“)

Divisible Surplus (A – B – C – D – E) (F)€ 271,030

60% Contractor (G)€ 162,618

40% Landowner (H)€ 108,412

Total Income to Landowner = E+ H = = €385,912 (€257/ha)

Return on capital of 4.54% based on land price of €5000/ha

Total Income to Contractor = D + G = = €486,618 (€324/ha)

Contract Farming to drive returns in CEECs – e.g. 1500 ha in Czech Republic


Buy land they don t make it any more

Challenges of Agricultural Real Estate in CEECs & FSU

  • Land Reform – e.g. Romania

  • Availability – Market Depth

  • Price – imperfect markets

  • Title can be complex – e.g. FSU

  • Deployment Complex

    • Leases / Tenancies e.g. France, Poland

    • Land Locked in Corporates e.g. Germany

    • Foreign Ownership Legislation e.g. Poland

  • Management intensive

  • HR Limiting Factor


Pre parcelled land romania

Pre-Parcelled Land Romania


Post parcelled land ukraine

Post Parcelled Land - Ukraine


Current issues

Current Issues


Buy land they don t make it any more

Operational farming has inherently more risks than other real estate investments. Variables include:

Yield

Price

Land Value

Single Payment / Government Subsidy

Variable Costs

Fixed Costs

And any combination of the above

Risk is managed through:

Risk management on marketing arrangements

Operational excellence

Effective monitoring

Correct structuring of contract arrangements

Operational Farming vs Agric. Real Estate


Buy land they don t make it any more

Indicative Global Farmland Values – 2008

€/ha

Source: Bidwells Research


Other issues to consider

Parcelling and Land Banking

Land Improvement

Grants and Support / Subsidies

Cost of Capital

Risk Premiums

Other Issues to Consider


Valuation of fsu farming companies

Not CAP rates and covenants

Until 24 months ago farming companies never traded above asset value!

DCF probably most relevant technique

Need to consider:

Basis of projections – esp soft comm prices

Input prices and fixed costs

Subsidies

Management team and operational competence

Select correct mid point

Need to split out different types of return – ROC and ROWC

Valuation of FSU Farming Companies


Buy land they don t make it any more

Better suited to arable production than livestock – biosecurity issues etc.

Full landownership rights for foreigners (albeit with some complications in certain countries)

Access to Black Sea

For most countries, legal and economic stability of EU membership

Interest in Poland, Czech, Hungary, Romania

Also Baltic Countries

Bulgaria (?)

CEEC (within EU) - Overview


Buy land they don t make it any more

CEEC – Arable suitability e.g. Romania

Source: Institute of Soil Science, Bucharest (ICPA)


Buy land they don t make it any more

Cheap, underutilised land with potential to be brought into arable production

Potential to increase yields through management and increasing inputs

Large tracts of land available for purchase / lease

Access to Black Sea and Europe

Variable costs similar to UK

Fixed costs approx half of UK

Capital investment required in the supply chain intermediaries e.g. processors, storage, transport

Agriculture largely arable and vegetable although potential increase in livestock production due to low cost production of grains for feed.

Ownership of land by foreigners is limited in Kazakhstan and ownership by locals or foreigners in Russia is complicated and largely forbidden in Ukraine.

Former Soviet Union - overview


Buy land they don t make it any more

Former Soviet Union - Agroecology

Growing season

Russia

Kazakhstan

Source: FAO


Buy land they don t make it any more

Former Soviet Union - Soils

Russia


Buy land they don t make it any more

Concern over FSU especially Ukraine

‘Retreat’ to safer products within EU

CEEC land price growth slowed but convergence in EU overpowering other drivers

Output down especially in FSU as working capital restricted, especially where land is not available as collateral

Impact of ‘The Crisis’


Soft commodities agriculture just how recession proof what does history tell us

Soft Commodities & Agriculture: Just how ‘recession proof’ – what does history tell us?


Buy land they don t make it any more

Government View

National

Regional

Local

Local Community View

Supply Chain View

‘Western’ Operator and Investor View

Many got too big too quick and are now ‘consolidating’

‘Dot.com’ bubble burst

Impact of ‘The Land Grab’


Conclusion

Distinction between short term (commodities and equities) and long term (farmland, farming, value chain) investment opportunities

Farmland & Farming has high operational gearing - partners are critical

EU more about real estate and FSU about operations although often a mix of the two

Assessment of opportunities not always easy – how to measure risk premiums etc.

Plenty of ‘cars with nothing under the bonnet’ over the last 18 months – long on fundamentals and short on execution capability

Mixed experiences of agri-investment from government, local communities and investors/operators themselves

Conclusion


Buy land they don t make it any more

Carl Atkin

Partner and Head of Research

Bidwells Agribusiness

Trumpington Road

Cambridge CB2 9LD

United Kingdom

t: + 44 1223 559 539

e: [email protected]

w: www.bidwells.co.uk/agribusiness

Thank You


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