Investing in Farmland: Differences Across EU Countries
Private investment is essential if agriculture is to fulfil its vital function of contributing to economic development, poverty reduction and food security.
Despite the above quote by the OECD, buying, selling, and investing in farmland is widely different in different EU countries.
This article explores these differences and what they mean for investors.
1. Different Law
Each European country has a different law when it comes to buying farmland.
It’s easy to understand why. Farmland is a very sensitive asset. In the least developed countries, farmland is what enables most people to live and make an income.
Of course in the EU, where all countries are reasonably developed, farmland does not play as much of a role in the GDP as it does in the rural region of poorer countries.
However, there are clear differences across countries when it comes to buying and selling farmland, and who gets to do so.
For example, foreigners are not allowed to buy land in Bulgaria. Foreigners are not allowed to buy real estate if the property is located on a piece of land either.
The restrictions regarding the purchase of land in Bulgaria are extremely severe to prevent foreign speculation.
The same is true in Poland. While the law is a little bit more relaxed, it is extremely difficult for foreign companies and individuals to buy agricultural land in Poland, for the same reasons as for Bulgaria.
The situation is a little bit different in France. While there aren’t any limits to the purchase of agricultural land in France by French or foreigners, a public agency called SAFER has the right to buy any rural property bigger than two hectares to lease it to local farmers.
The SAFER’s job is to manage the rural development of France. As a result, they benefit from special rights.
Spain, Portugal, Belgium, and the Netherlands know no restrictions to the buying of farmland on their territory.
This has been revealed to be a problem for the Netherlands whose farmland has reached a price of up to €70 000 per hectare, while it remained stuck at €10 000 in France.
The Netherlands is one of the most productive countries when it comes to the production of agricultural goods. Unfortunately, the lack of space the country is suffering from has led to a rise in real estate prices, whichever its nature (apartment, house, etc).
In the Baltics, Estonia is the most forward-thinking when it comes to buying agricultural land. The land must be bought by an agricultural company that has been in the agriculture business for at least three years.
In Latvia, it is much harder. Anyone can own up to 10 hectares of land without any problems. After that, the city council and the public agency called “the land fund” need to give the authorisation to the buyer to buy or not.
There is also a priority list. The tenant has priority over anyone else. Landowners around the land also have priority.
The buyer must guarantee that they will keep the land for agriculture and not use it for any other purpose. The manager of the land needs to be Latvian. Finally, no entity can own more than 2000 hectares of agricultural land.
2. Different Prices
Farmland prices widely differ in Europe.
We can clearly see the difference between post-Soviet countries on one hand, and Western European countries on the other.
The most expensive farmland in Europe is in the Netherlands (€60 000/hectare). There are wide differences in Italy, where one hectare can cost €15 000 in the south, and €60 000 in the north.
In Belgium, the price reached €57 000 in 2021.
Meanwhile in Poland, one hectare costs on average €10 000, €8 000 in Estonia, €9 000 in the Czech Republic, or €6000 in Latvia.
What explains those differences?
Yield is the first reason. The Danish, Belgian, and Dutch farmers are among the most productive farmers in Europe due on one hand to the productivity of the land, and due to the highly advanced character of their farming method on the other.
The weather also plays an obvious role. It’s harder to grow in Estonia where the soil is frozen for at least four months per year.
The cost of living is the second reason. It’s cheaper to live in Poland, the Czech Republic, or the Baltics than it is to live in Belgium, the Netherlands, or Denmark.
Finally, supply and demand explain the difference in prices. It’s free to buy land in Belgium and the Netherlands, while it is much more complicated to do so in post-Soviet countries.
As a result, demand for land from investors will be higher in the West than in the East.
The lack of uniformity in the farmland market in Europe means that there are many arbitrage opportunities for investors that want to invest in farmland.
However, the strong laws established in most Eastern countries preventing speculation also means that these opportunities are not easy to take advantage of.
The issue of farmland is extremely sensitive in post-Soviet countries that saw the collectivisation of farms.
As a result, Eastern governments are much more careful regarding who gets to buy and use the land, than Western governments are.