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Savills ResearchRral

INTERNATIONALfARmLANdFocus2012

Globalsnapshot

Average farmlandvale ar

the glbe

Risk appraisal

Focus on: Australia

Investment performance

savills.co.uk/research

Going with the grainWhy internatinal farmlandi beming an inreainglyght after invetment


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svlls.c.uk/sc 03

2012

Farmland has proved to be an attractiveinvestment on a global scale, but a knowledgeof the risks involved is still essential

Forewordgoing with

the grain

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Early on in this phase o the cycle,

the evidence was presented by the

soaring price o gold, and has since

moved into global cities including

Prime Central London and, o course,

into agricultural commodities and

armland markets.

No sector has been more aected by

this phenomenon than agriculture. It isseen as a sae haven or capital and a

hedge against ination, as well as the

means by which to secure the supply o

ood to eed a burgeoning population,

that in part has an increasing appetite

or the western style o protein based

diets. It is not surprising that Sovereign

Wealth Funds, amily ofces, corporate

and private investors remain active

players in this marketplace.

glbl dsIn this publication we have drawn

together the strands we believe arecrucial to armland investment on a

world scale. We launch our Global

Farmland Index which tracks the

movement o capital value in the key

global markets over the past decade.

Our research team has also

looked at eective production and

or the frst time has charted the

Cost o Land per Tonne o Wheat

Production. The outstanding

investment perormance o armland

is illustrated by our comparable

analysis against alternative assets.

In the UK, where supply has been

decreasing by more than 2% per year

since the mid-1970s to around 160,000

acres in 2011, we have witnessed a

trebling o armland values since 2003.

Strong capital growth has also

been recorded in many places over

the same period, and in the US the

value o non-irrigated wheat, cattle

and corn cropland in the Plains in

the frst quarter o 2012 rose some

25% year on year. In addition, high

commodity prices in recent years have

strengthened income yields.

Mk cmpsKnowledge o the risks o an

investment is important and no more

so or agriculture, where product and

operational diversity are wide. For

example, the movement o capital

around the world has led countries

such as Canada, Brazil, Argentina,

Australia and others to consider, and in

some cases, restrict oreign ownership.

We take a detailed look at the risks and

returns, giving an indicative score o

the balance.

Our research extends across themature markets o the UK, North

America, Australia, New Zealand and

western Europe and the emerging

markets o South America, Central

Europe and Arica. As part o this

process, we have weighed up the

risks o currency, politics and other

inuencing actors, which the investor

can more readily take on board as

opposed to the more uncontrollable

risks such as weather.

hu Cll

Director International

Land Markets

+44 (0)20 7016 3818

[email protected]

Contents

04 Global Farmland Index

06 Investment perormance

08 Global snapshot: World map

10 Case study: Australia

12 Risk appraisal

14 Global outlook

We are grateul to Richard Price o

Price Sevenson, Perth, Australia, who

has contributed a valuable insight into

his marketplace, which we believe has

the potential or exciting returns in a

very mature and stable political and

economic environment.

So why consider international

investment in land? Agricultural

commodities operate in a global market

with similar product and input costs and

where the biggest variables are the cost

o land and labour. Opportunities exist

across the world or large scale arming

operations with the ability to enhance

returns by eective capital investment,

delivery and management.

Income yields o 5% to 8% are

not unusual and in places there is

undoubted opportunity or enhanced

capital growth as the emerging markets

move more orceully to challenge

their competitors. Furthermore, thetax benefts o Business Property

Relie, and in the EU, Agricultural

Property Relie, add another

dimension to owning armland.

O course, there are always risks

but these are manageable providing

any investment is supported by local

knowledge and delivery. We hope this

publication gives you a avour o our

enthusiasm as well as an inormative

guide to this marketplace. n

Opportunities exist across the world forlarge scale farming operations Hugh Coghill


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04

Intnatinal Faland F

Global Farmland Index

A New meAsure

oF perFormANce

In thi i f th

Intnatinal FalandF lanh th

savill Glbal Faland

Indx. Th Indx i badn data f 14 ky faland

akt and ai t vid aaativ indiatin f faland

val tnd and th glb.

The Index conrms that the general

trend or armland values over thepast decade has been positive,

with the most signicant increasesrecorded in the emerging markets,

notably in South America and CentralEurope (CE). However, as we discuss

on page 12, strong capital growthdoes not come without its risks.

It should be noted that withinindividual countries and specic

regions, values can vary signicantly

depending on actors such asclimate, accessibility (inrastructure),

topography, soil types and landavailability especially or large scale

arming operations. The diversityin values is illustrated on pages 10

and 11 where Richard Price, o PriceSevenson, provides a snapshot o

the Australian market.

Alratd growthSavills Global Farmland Index showsthat the more immature markets o

Romania, Hungary, Brazil, Argentinaand Poland recorded the highest

percentage increases in armlandvalues between 2002 and 2010.

The primary reason or the

accelerated growth withinCentral European countries was

their entry into the EuropeanUnion (EU) in 2004 or most o

the countries with Bulgaria andRomania ollowing in 2007.

Although restrictions in terms ooreign investment into armland still

apply in many o these countries,since their entry into the EU the

markets have begun to open up,

which has supported values.In addition, urther support

or the agricultural sector in theorm o EU arm payments and

capital improvement projects

or armers have contributedto this rise in values.

Graph 1.2 shows land values

in Romania increased by 1817%(US$ per hectare) between 2002

and 2010 with growth o 172%

since accession to the EU in 2007.Despite this signicant increase in

values, Romania still has some othe cheapest armland in the EU.

Farmland values in SouthAmerican countries have also

strengthened signicantly overthe past decade albeit rom a

relatively low base. At the start othe millennium around 800 US$could buy a hectare o land in Brazil

compared to over 5,200 US$ in 2010.

The Savills Global Farmland Indexhighlights armland trends, showingpositive growth in many establishedand emerging markets

GRAPH 1.1

Global farland valu

Graph source: USDA, Eurostat and various data estimates

South America North America Western Europe Australasia

Central Europe Global Index Average

2002 2003 2004 2005 2006 2007 2008 2009 2010

Index

2002

=1

00

800

700

600

500

400

300

200

100

0

The Index confrms the generaltrend or armland values overthe past decade has beenpositive Ian Bailey, Savills Research

The Index is derived rom averagevalues o crop/arable land in

domestic currency converted to US$per hectare. Although converting to

US$ per hectare can have an eecton annual growth rates in terms o

domestic currency, it does allowpotential investors a good starting

point or comparable analysis. Itis a common denominator, which

corresponds to the main currency

o global commodity markets.The values are represented as

an Index relative to values inthe year 2002 (2002 = 100).

Obtaining robust armland valuedata in some countries, especially

the emerging markets, is challengingand there is oten a signicant time

lag beore it is published. The Indexwill be updated and revised as data

becomes available. However, we

believe the Index represents a goodindication in terms o the overall

direction o armland values andgives a clear comparison between

the main country groups as illustratedin Graph 1.1.


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avill..k/ah 05

2012

The pattern has been similar

in Argentina. Legislation relatingto oreign investment in both

countries has, to some degree,dampened this growth in recent

years, although values continue torise more moderately and oreign

investment opportunities remain.

matur arktIn contrast, the mature marketsaround the globe have been

under some pressure during thesame time rame, with some

recording little or negativegrowth in the global currency.

In western Europe or example,average armland values have

fuctuated recently with a periodo accelerated growth ollowed by

a correction in values in Northern

Ireland, Ireland and Denmark. TheUK appears to be an exception,

reporting a signicant growth invalues between 2007 and 2011.

Between 2002 and 2010, averagecropland values in the United

States o America increased byaround 75% albeit at varying annual

rates. Average arable values (US$per hectare) in the UK trebled

during the same period. Growth

has continued in both areas witha urther 9.4% recorded in the

US and 11% in the UK in 2011.The Index shows the rate o growth

in both Australia (300%) and NewZealand (262%) have outperormed

the US and UK between 2002 and2010 with armland here proving

to be a strong investment choice

(see more detail on page 6).Less developed countries,

including Arica, are also signicantlyaected by the international interest

in armland. When we can source

reliable data we will include Aricain our Global Farmland Index.

cot of what produtionAn innovative way o assessinginvestment spend relative to output

is to determine the cost o acquiringland in order to grow a tonne o

wheat. Our land cost to wheatproduction league (Graph 1.3) takes

the average value o crop land in2010 and divides it by the average

harvest wheat yield over seven years

(2005 to 2011). By taking a seven

year period it allows or any weatherfuctuations to be accounted or.

With the world wheat trade

orecast to double by 2050 to 240million tonnes, this analysis gives

GRAPH 1.2

Global indx (% inra 2002 to 2010)

GRAPH 1.3

cot of land pr tonn of what prodution



Geman

y

Gemany

Fane

Fane

Denm

ak

Denm

ak

Ieland

Ieland

canada

can

ada

New

Zealand

New

Zealand

Atalia

Atalia

poland

poland

Age

ntina

Age

ntina

Bazil

Bazil

Hng

ay

Hng

ay

romania

romania

GlobalInd

exed

Aveageun

ited

King

dom

unite

d

King

dom

unite

d

state

unite

d

state

2000%

1800%1600%

1400%

1200%

1000%

800%

600%

400%

200%

0%

$4,500

$4,000

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0

a clear picture o the areas, which

potentially represent good investmentvalue.

This is a good place to startbut does not replace detailed due

diligence in order to identiy theright property and exact location,

taking into account all relevant

market actors (see page 12 ormore on Risk Appraisal). The keyto uture investment perormance

is the potential to increase output

and capital value balanced with areasonable risk prole.

Our research illustrates that inDenmark, Ireland, New Zealand,

Brazil, the UK and the US, a landcost o more than $2,000 will be

required to produce a tonne o wheatwhereas in Australia and Hungary

the same output will incur a landcost o well below $1,000. n

From the data available, the general trend in values in

2011 in US$ (USD) per hectare was:

neurop. Average UK values were up 11% at $22,264

per hectare in 2011, but following a correction in prices,

Denmark witnessed a fall from $27,853 in 2010 to$26,346 in 2011.

ncntral europ. Although statistical data is not

available, farmland values in Romania and Polandreportedly continued to strengthen throughout 2011.

n Autralaia. Average farmland values rose by 15%

in New South Wales and 11% in Western Australia to anaverage value of $1,606 per hectare in 2011.

New Zealand witnessed a 29% increase in averagevalues to $24,488 per hectare.

nsouth Aria. Argentina reported a 24% rise inaverage land values to $6,508 per hectare.

nNorth Aria. The US witnessed a 9% rise in

average farmland values to $7,487 per hectare.

Faland val in 2011


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06

Iaioa Fama Fous

Investment performance

A credItAble

AlternAtIve

With an increasing interest in thissafe haven sector, farmland valueson a global scale continue tooutperform many other assets

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pfoma of

fama oius

o ousip ha of

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Investors include Sovereign WealthFunds (National governments),institutions (both public and private),private amily oces, individuals,investment unds and corporate/

the landowner accrued by rentingthe land. Graphs 2.1 and 2.2however, illustrate the outstandingperormance o rural property assetsin the UK and US respectivelyand conrm that excellent returnscan still be achieved in thesemature armland markets.

In the UK, the investmentperormance o armland (in handarming and let land) and orestryhas outperormed most otherassets over the past 10 yearsand has been comparable withalternative assets over the past30 years, with the exception oresidential property (see Graph2.1). This trend continued through2011 with only gilts recording asimilar perormance to armland.

In the US, a similar picture hasemerged (see Graph 2.2), witharmland outperorming all otherasset classes over the past 15years with the exception o last yearwhen all asset classes perormedwell and orestry topped theinvestment perormance league.

Total return data is not readilyavailable or many countries.However, analysis o the capitalgrowth since 2002 o the three

core property assets, armland,commercial (all property) andresidential, clearly shows thatarmland has consistentlybeen the top perormer.

Our research looked at theannualised capital growth othese assets between 2002and 2011, where data couldbe sourced or the countriesincluded in our Global Index.

In several countries, includingthe UK and Australia, armlandsignicantly outperormed the

other assets. France was theexception, where land valuesremained relatively stable comparedto its neighbours. In France, theorganisation SAFER approves allland acquisitions and encouragessales to local armers making itmore dicult, but not impossible,or investors to purchase.

Agiuua isiyPension unds, although comingrom a very low base, tend to bethe largest institutional investors in

many industrialised economies andthey increasingly make agriculturalinvestments in locations, wherethere are large tracts o armlandavailable and stable land rights,

pension unds, all o which regardarmland as a positive additionto a diversied portolio.

While income return and capitalappreciation are key componentsto overall perormance. Historically,capital appreciation has been themain reward or investors, butwith higher commodity prices andthe opportunity to invest in areaswhere arming has underperormed,the income return is potentiallyhigher. Unsurprisingly, like anyinvestment the best returns otencome with the highest risks.

top pfomsHigher, but more volatile returns aretypically achieved rom exposureto hands-on operational armingas opposed to the oten lower,less risky, more stable returns to

In the UK, the investment performance of farmlandand forestry has outperformed all other assets overthe past 10 years Ian Bailey, Savills Research


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sais.o.uk/sah 07

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GRAPH 2.1

UK Investment Performane

GRAPH 2.2

USA Investment Performane

GRAPH 2.3

Global capital Growth (Annualised 2002-2010)

Graph source: IPD/Savills Research to Dec 2011 (The IPD UK Forestry Index sample is predominantly Sitka spruce)

Graph source: NCREIF

Graph source: Savills analysis using IPD, USDA, Eurostat and various data estimates

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3 yas

3 yas

Fa dmak Ia caaa UiKigom

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5 yas

5 yas

10 yas

10 yas

15 yas

15 yas

35%

30%

25%

20%

15%

10%

5%

0%

-5%

-10%

20%

15%

10%

5%

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-5%

20%

15%

10%

5%

0%

-5%

such as Australia and New Zealand.As a result, agriculture accounts

or a small but growing share opension und activity. According to2011 gures, o the US$32 trilliono assets managed by pensionunds, between US$5 billion andUS$15 billion already goes directlyinto armland investments.

Recent research conductedby the Land Matrix Partnership(LMP) reveals that the interest bypension unds is in both ood andnon-ood crops. LMP reports thatood production accounts or 34%o investments, non-ood cropsor 26%, fex crops or 23% andmultiple uses 17%. This illustratesthe diversity o opportunities, whichattract investors to armland.

Maximisig pfomaMaximising the perormance oarmland as an asset is closelylinked to a well timed purchaseand disposal. The question iswhen and in which country toinvest? The emerging markets oCentral Europe, South Americaand Arica are increasinglybecoming the target o investors.

The main reason being, the

most signicant increases inincome returns are most likely tobe in areas where there is availableland, entry values are lower andoten agricultural production iscurrently underperorming.

However, there is oten a greaterrisk investing in these emergingmarkets (see page 12 or moredetails) due to political and economicuncertainty. In addition, the termland grabbing is now used morerequently and there has beenincreased pressure rom individuals,

non-governmental organisationsand environmental activists, whopromote the negative social andenvironmental issues surroundingglobal armland investment.

This has resulted in a group opension unds launching a seto Principles or ResponsibleInvestment in Farmland (PRIWorking Farmland Group).

The World Bank calls orincreased transparency andmonitoring, arguing that in somecountries, where demand or land

has recently boomed, there hasoten been limited screening oproposals, lack o due diligenceand weak contracts, combined withan overriding air o secrecy. n

n Let Land n Farming Top 25% n Forestry n Let Residential n Commercial All n Equities n Gilts

n Commercial Property n Open End Diversifed Fund n Private Equity Real Estate n Farmland n Timberland

n Commercial/All Property n Residential n Farmland

Annualisedtotalreturn

Annualisedto

talreturn

Annualisedcapitalgrowth


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08

Ieaia Fama Fcs

Global snapshot

A World oF

opportunItyAs our map illustrates the valueo armland varies signifcantlybetween locations acrossthe globe

* The Land Matrix project records transactions that entail a transer o rights to use, control or own land through sale, lease or concession.

ArGEntInA6,508

unItEd StAtES

7,487

CAnAdA

3,661

BrAZIl5,245

Ameica Aveage Vaes

Baziia c aeais orecast to expand

rom 62 million hectares

in 2010/11 to 68 million

hectares by 2020/21

Source: Brazilian Government reported by USDA

AicaSince 2000, 62% o the

large-scale land acquisitions

were located in Arica

Source: The Land Matrix Partnership *

CaaaAverage armland values by province

Graph source: Statistics Canada

US$

perhectare

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

Sask

atch

ewa

Ma

itba

Abe

rta

Caa

aavg

new

Br

swic

k

nva

Sc

tia

pri

ceEw

arIs

a

new

a

Qeb

ec

Briti

shC

mbi

a

ota

ri

nesThe boxes show the

amount o housing in

each region; its value,

how that has changed

over fve years, the

value o housing sales

in the year to the end o

September 2011; how

this compares to the

value o house sales at

the peak o the market

in the 12 months to

September 2007 andfnally our house price

growth orecasts or the

next fve years.

uSAverage cropland values

Graph source: USDA

US$

perhectare

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

Sth

erp

ais

M

tai

nrthe

rpa

is

deta

uite

Stat

esavg

lake

A

aac

hia

Sthe

ast

Cr

Bet

paci

fc

nrth

east


8/14

savis.c.k/eseac 09

2012

MAurItIuS

35,000

South AFrICA

2,989

BotSWAnA

1,200

ZAMBIA

800

tAnZAnIA

1,900

MoZAMBIQuE

800

SWAZIlAnd

1,100

nAMIBIA

1,100

GhAnA

100

KeLatest Average Values Available

All values USD per Hectare

Aica Aveage Vaes

Ee Aveage Vaes

AuStrAlIA(new S Waes)

1,409

AuStrAlIA(Wese Asaia)

1,802

nEW ZEAlAnd

24,488

Asaia & oceaiaAveage Vaes

CZECh rEpuBlIC

3,129

hunGAry

3,859

MoldoVA

1,722

dEnMArK

26,346

GErMAny

15,173

polAnd

5,685

unItEd KInGdoM

22,264

IrElAnd

29,918

ruSSIA

1,140

SpAIn

16,079

FrAnCE

6,919

roMAnIA

5,030

SWEdEn

5,213

SloVAKIA

1,748

BulGArIA

2,112

lIthuAnIA

1,351

nEthErlAndS

65,449

uKrAInE

1,152

lAtVIA

1,411

Asaia i fges

Average armland values grew by352% between 2002 and 2011

Source: NSW Government

IiaIndia is orecast to become

the worlds leading bee

exporter in 2012

Source: USDA

Ee t 5 (USD per ha)1. Netherlands 65,449

2. Ireland 29,918

3. Denmark 26,346

4. United Kingdom 22,264

5. Spain 16,079

Source: Savills Research and various data sources


9/14

10

Iaia Faa Fc

Case studyAustrAlIA remAIns

A lAnd oF potentIAl

the major cities, Australia still oers

a rural land investment environmentwhere land values are supported by

their respective earnings potential ina sae environment relative to todays

political and economic turmoil.Another dierentiator in Australia

is that, unlike most o the developedworld, where land or agricultural

production is increasingly coming

under other land-use pressures, newvirgin productive irrigated agricultural

land is being opened up, developedand released to the public by the

Australian Government.Australias proximity to Asia is

also set to drive uture growth. Itis predicted that within eight years

there will be our billion peopleacross Asia, equating to hal o the

worlds population, who will enjoy

economic growth orecasted ataround 10% per year.

Proximity to Asia, signifcantgovernment investment, availabilityo new land and a strong record ovalue growth makes Australia anattractive prospect

TABLE 4.1

Au$ capital cost (approximate) to acquire onetonne of grain production in different regionsof Australia.

Table source: Price Sevenson

Caia mt f Gai A$

nw sh Wa, Wagga $900 - $1000

nw sh Wa, Moree $1250 +

Vicia, Southern Wimmera $1000 - $1200

Vicia, Western District $1250 +

sh Aaia, Yorke Peninsula $1500 - $1700

W Aaia, Esperance $950 - $1000

W Aaia, Jerramungup $750 - $850

W Aaia, Wongan Hills $1200 - $1300

W Aaia, Geraldton $850 - $1150

n 417.3 million hectares o

land managed by agriculturalbusinesses

n 134,000 arm businesses,

99% o which are amilyowned and operated. Owning,

managing and caring or 61%

o Australias land mass

n Agriculture has reducedgreenhouse gas emissions by

40% between 1990-2006. TheAustralian Government spends

over $3.5 billion annually on

natural resource management

n 19 million hectares o arable

armland nationally cropped

using zero-till technologies

n Each armer produces enoughood to eed 600 people, 150

at home and 450 overseas

n Australian armers producealmost 93% o Australias

daily domestic ood supply

n Domestic expenditure on oodand liquor grew 6% in 2009-10, to around $125 billion

n Australian armers export

around 60% o what they growand produced export earnings

o $32.5 billion in 2010-11

n There are 307,000 peopleemployed in Australian agriculture

with the entire value chainproviding over 1.6 million jobs

to the Australian economy(accounting or 17.2% o

the nations labour orce)

n Farm-gate agriculture

contributes 3% to Australias

total gross domestic product(GDP), approximately 12% whenincluding the entire value chain

n Gross value o Australian

arm production in 2010-11 was$48.7 billion and $155 billion

or the entire value chain

n Productivity growth, $1.5 billion

annual spend on agricultural andrural research and development,

driving 2.8% growth per annumover the past three decades

n Current exchange rate (July 16)AU$ 1 : 1.02 US$

AU$ 1 : 0.66 UK

Aaia faig i civ

Fast acts

richard price, of price

sevenon, rovide

an overview of the

Autralian farmland

market.

Agricultural land values in many

regions o the developed world,where it is considered politically

and economically sae to invest,bear little to no relationship with

productive earnings capacity. This

can not be said o Australia. With theexception o arms located close to

($ shown as Au$, data source: National Farmers Federation)


10/14

avi.c.k/ach 11

2012

Au$/Ha

effctiv

Ha

(xcluding

buildings)

3000

2500

2000

1500

1000

500

0

Australia takesagriculturalproductivity growthseriously, spendingapproximately

Au$1.5 billionannually Richard Price,Price Sevenson

GRAPH 4.1

Western Australia broadacre farmland value trends by decade Au$/ha

Graph source: LandGate Rural Watch to June 30, 2011 and Price Sevenson

High Rainfall Medium Rainfall Low Rainfall

With the world wheat trade orecast to

double by 2050 to 240 million tonnes

(MT), Western Australias commercialwheat belt is worthy o a closer lookwhen considering where to acquire land

internationally or the ollowing reasons:

it is near to Asia, has an export-orientated(90% o grain production exported) highly

efcient arable sector, has a relatively lowcost o acquisition to produce a tonne

o grain in comparison to other grainproducing regions globally and a strong

historic economic track record.Western Australias wheat belt stretches

or approximately 1000km rom Geraldton

in the north to Esperance in the south o

the state and is comparable in landmassto the UK.

Last year, Western Australia produced its

record grain crop with growers delivering

approximately 14.6MT o grain.Land values are driven primarily by

rainall, yield and reliability o annual

yield, proximity to regional centres

and civic inrastructure. Land is zonedaccording to its annual rainall; low (up

to 325mm), medium (325 to 450mm)and high (above 450 to 750mm).

Current commercial land values rangerom approximately Au$500/ha in the

more remote, lower rainall regions toAu$3000/ha in the high rainall, more

reliable areas. Land values may alsorange considerably outside o these

parameters based on proximity toinrastructure, soil type and local demand.

Return on capital (land value) in the top

25% o Western Australias broadacre

arms or the medium and high rainallregions has been a respectable 10.5%average over the past 11 years with an

annual range o 4.2% to 20.1%.Land values over the same period in

many regions have doubled and in some

regions trebled.Land values are currently showing

signs o coming o their recent highs,which may encourage investment in

economic, productive amily armsand large scale aggregations.

Fc : W Aaia

The regions growers produced record grain crop fgures in 2011

This rapidly growing, afuent

population throughout the regionis associated with an increasing

appetite or higher protein content inthe diet.

Australia takes agriculturalproductivity growth seriously,

spending approximately Au$1.5billion on agriculture and rural

research and development annually.This has driven a 2.8% annual

productivity growth over the past

three decades.All this adds up to unprecedented

new arming and land ownershipopportunities in a nation predicting

over 4.5% GDP growth in 2012 andlocated on the doorstep o Asias

growing demand. n

1970 1980 1990 2000 2010


11/14

12

Intnational Famlan Focus

Risk appraisal

A deeper

UNderSTANdING

actors and include a measurement o

our own exerience and knowledge.

The scores given are an indication o

the relative risks in and between each

country and should only be regarded

as such. The basket o countries used

in the matrix is the same as that used

in the Global Farmland Index (see

age 4) which has countries in both

mature and emerging markets in order

to illustrate the diversity o risk.

The range o armland investment

oortunities in the global market

lace is now lentiul. Although the

tyes o risk may be similar, there

are signicant dierences in the

weightings or actors such as climate

and inrastructure, between regions

within countries.

political isk. Successul investments

must include robust entry and exit

strategies. The score or this risk

includes the ollowing actors:

International farmland investmentsrequire careful data analysis andexperienced judgement to assessdifferent investment opportunities

Asuccssful

invstmnt cision

quis a tooug

unstaning of t

cosn makt, an

an aaisal of t isks lativ

to t otntial tuns. Savills

rsac as vlo a risk an

rtun Matix to intify t lativ

county scos in tms of famlan

invstmnt. Bif nots a givn on

ac of t main isks.

The scores are derived rom several

The rISK SCOre (the lower the better) is

derived rom a matrix, which araises a

range o otential risks. To some degree,

these can be categorised into thosewhere the investor has no control, such as

olitical/economic stability and weather,

and those where some control might be

ossible to alleviate the extent o the risk.

This, or examle, could include

location, which takes advantage

o the current inrastructure.

The BeNeFIT SCOre (the higher the

better) is derived rom a matrix o actors,

which identiy otential agronomic

advantage and investment returns.

The SCOre BALANCe (the higher the

better) is calculated by subtracting the

Risk Score rom the Benet Score. Grah

5.1 illustrates the three comonentswith the Score Balance showing the

otentially best oortunities ranked low

to high rom the let side o the grah.

Assssing t isk

risk Matix data Soucs: Freedom House, Control Risks, World Bank, Food and Agriculture Organisation o the United Nations (FAO), Bank o England (BoE),

Datault, World Economic Forum (WEF), International Land Coalition (ILC), Organisation or Economic Co-oeration and Develoment (OECD)

GRApH 5.1

risk Matix

Grah source: Savills. Various reorts and data sources (listed below) were used to lay the oundations o the matrix but this was overlaid with our exerience and knowledge to ensure the naloverall scoring/ranking or each country is realistic and current.

Score

denmak

Ielan

Fance

hu

ngay

Agentina

Gemany

Canaa

NewZ

ealan

p

olan

Bu

lgaia

romania

Austalia

Bazil

USA

UK

6.5

6.0

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

n Risk Score n Beneft Score Score Balance


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savills.co.uk/sac 13

2012

n political and Civil Rights

n political and Security Rating

n Foreign Ownershi Restrictions

Cuncy volatilityagainst the

US dollar will have an eect on

the oortunities and benets o

overseas trade.

Climat is critical or agriculture and

aects the growth and maturity o

cros and livestock. It must be noted

that there can be signicant variations

between regions within a country,

which will determine the most suitable

enterrise and cro tyes. Weather

conditions will fuctuate rom year to

year making an understanding o the

average, the range o rainall and the

requency o drought essential.

Fiscal policy, including, taxation will

have a undamental eect on any

investment. Our research includes

inormation/indices on the areas

listed below:

n Country Credit Rating

n policy making transarency

n Extent and Eect o Taxation

n prevalence o Trade Barriers

n Loan accessibility

Gdp Gowt annualised over 5, 10

and 20 years gives a measure o the

historic short and long-term economic

wellbeing o the country roviding a

useul indication or uture economic

sustainability.

Brazil and Australia to the table or

investment oortunities. The oortunity

or large scale arming is a key driver inboth countries, but location is critical,

with the best oortunities requiring

adequate rainall/water, good soils and

inrastructure. Australia also scores well

olitically, economically and the liquidity

o the armland market is good.

Although Argentina and Brazil show

similar benet scores, the Rural Land

Law assed in Argentina in late 2011

has severely limited oreign ownershi

in the country. In Brazil, there have

been similar calls to limit oreign

ownershi and in August 2010 sales

to oreign investors were susendedwhile the law was reviewed. However,

the government in Brazil is exected to

arove a less restrictive roosal or

armland ownershi by oreigners.

The Central Euroean countriessurveyed, with the excetion o Hungary,

have a good balance score driven by strong

otential returns rom good agronomic

erormance and the oortunity or

large scale arming. The score balance

is slightly damened by olitical/

economic uncertainty and the current

restrictions on oreign ownershi, many

o which will exire once the accession

deregulation eriods come to an end.

The UK sits roughly in the middle

o the table and still reresents a good

lace or armland investment, although

it alls down in terms o arm scale anda low turnover in the armland market.

Although olitical and economic

uncertainty is low across Western Euroe,

the markets in Denmark and France are

still restrictive to oreign ownershi, and inIreland, large scale arming oortunities

are rare, hence these countries eature

at the bottom end o the scale.

There is a reasonable amount o

acquisitive activity in Arica but a lack o

comlete data has recluded us rom

including Arican countries in our matrix.

The available evidence does suggest this

is a continent with high growth otential

in the agricultural sector, where long-

term under-investment oers exciting

oortunities. However, the risks and

challenges are high, with otential

investors seen as land grabbers. Ata ractical level the risks include land

tenure and oor inrastructure.

Summay of sults

Liquiityo the armland market

is essential or both entry and exit.

An active market o large-scale

arms, where the advantages o

economies o scale can be taed

into and income returns maximised,

is not available in every country. Our

exertise and local knowledge, along

with an understanding o average lot

size and overall transaction levels,

eeds into this score.

Infastuctu is o aramount

imortance or access to arms and

to transort oututs to markets

economically. In addition, an araisal

o the availability and rovision

o utilities and services including

electricity and telecoms is essential.

Subsiisation o agriculture has, in

several arts o the world, become

an integral art o arm incomes. The

current and long-term agricultural

olicy is hugely infuential.

rsac an dvlomnt

activity is a useul area to consider

as art o the longer term investment

strategy. This is to have a gras o

the willingness o governments and

industry to embrace new technology.

Agonomic otntial o any

investment is robably the most

imortant area to understand as

the success o the whole investment

will hinge on the land being managed

by a successul arm business.

However, it is a comlex subject and

requires local agribusiness exertise

and exerience. In many cases, the

highest agronomic otential is in

areas where the risk score is highest.

Our Benet Scoring attemts to

indicate the relative oortunities

between countries and actors in:

nScalability the oortunity

to arm large-scale holdings,

maximising economies o scale

nSoil quality but care should be

taken in the nal due diligence as

this varies across countries

npotntial fo yil/outut

incass but will require to

quality management with the correct

resources to maximise

nWat availability either natural

sources or the otential or irrigation

nSustainability this is high on the

agenda o consumers and retailers

across the world, who will ultimately

be the urchasers o arm oututs. n

The agronomic potential of anyinvestment is probably the most importantsingle factor to understandIan Bailey, Savills Research


13/14

14

Iio F Focu

The future of farmland as an international investmentremains positive as it continues to outperform other markets

Ou ch

iu h og

foc of

gicuu

gob v. W

biv h h ovchig

i h icio of ci gowh

co wo f k wi

b oiiv.

Agricuture wi be undamenta toeeding growing popuations and the

prime asset, aong with water, is andand each hectare wi need to continue

to produce ood or more peope (seeTabe 6.1).

It is cear that this wi have to donein a sustainabe way, protecting the

words key resources o and, water,

mineras and biodiversity.Farmand and agricuture, more

than most aternative investments, arediverse and requires a thorough and

detaied understanding o the industry.The issues extend we beyond

those that impact directy on thearming operation to encompass the

poitica and economic andscapes,which can sometimes change without

much warning.

Global outlook

land remaIns

a prIme asset

The key points o our anaysis incude:

nOur Goba Farmand Index (in US$per hectare) shows that armand

vaues across the gobe have increasedupto 1,800% during the past decade,

with the highest growth recorded in theemerging markets. Athough capita

appreciation, especiay in the more

restricted western European markets,has sowed in the past two years.

n Scae is crucia or maximising

perormance. Austraia, where scaeis obtainabe and vaues reect

agricutura productivity, scores wewhen the cost o and per tonne o

wheat production is benchmarked.

Its proximity to Asian markets addsan extra dimension.

n Farmand continues to outperorm

residentia and commercia propertyinvestments in many paces across the

gobe, and in mature markets,has a good track record o being a

sae and reiabe investment overthe past 30 years, with exceent

perormance in recent years.

We expect recent perormanceeves to be maintained.

n Farmand is a product where

income and capita vaue, dependingon ocation, can be maximised across

a diverse range o uses. Principayor ood production but incuding

energy production, and nonagricutura deveopment.

n Risk appraisa and due diigenceare essentia or underpinning any

investment strategy. Our Risk andReturn Matrix indicates the reative

positions o the opportunities at acountry eve. It shoud be noted that,

or many actors such as soi type,raina and inrastructure, there are

signifcant dierences within countries

at regiona and oca eves. Fuassessment requires experienced

oca knowedge.

n As with most investmentopportunities, the highest potentia

returns are those which potentiaycarry the highest risk. These returns

are highest where there is theopportunity to maximise scae and

increase output through the eectiveuse o resources. The matrix scores

the baance between risk and return.

n Brazi and Austraia top theeague or investment opportunities.Centra Europe scores we in severa

cases but we expect their positionto improve once the accession

dereguation periods come to an end.

n Athough the UK represents a

good pace to invest, it sits in themidde o the tabe as scae and

product are imited.

n The key to success wibe identiying, acquiring and

managing the correct investment tomaximise the investors criteria and

expectations. n

Y nub of o avgGob ab Hc F

1960 2.4

2005 4.5

2050

TABlE 6.1

nub uo by ig gob hc

Tabe source: Savis Research

Wi need to support 6.1 to 6.5 (est.)


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i k/ h 015

Date

svi Iio ru

Please contact us for further information

svi cSavis is a eading goba rea estate service provider isted on the london StockExchange. The company estabished in 1855, has a rich heritage with unrivaed growth. Itis a company that eads rather than oows, and now has over 200 ofces and associatesthroughout the Americas, Europe, Asia Pacifc, Arica and the Midde East.

Price Sevenson Pty ltd has a t rack record o successuy pacing and managingsubstantia investments into armand.

This report is or genera inormative purposes ony. It may not be pubished, reproduced

or quoted in part or in whoe, nor may it be used as a basis or any contract, prospectus,agreement or other document without prior consent. Whist every eort has been made toensure its accuracy, Savis accepts no iabiity whatsoever or any direct or consequentiaoss arising rom its use. The content is stricty copyright and reproduction o the whoe orpart o it in any orm is prohibited without written permission rom Savis Research.

I Biy

Head o Rura Research

+44 (0)1797 230 [email protected]

rich pic

Price Sevenson Pty ltd

+61 (0)400 396 035

[email protected]

Hy Wik

CEO, InvestAg Savis

+44 (0)20 7016 3752

[email protected]

K Jo

Director Internationaland Markets

+44 (0)20 7016 [email protected]

Hugh Coghi

Director Internationa

land Markets+44 (0)20 7016 3818

[email protected]

nico Buckigh

Research Anayst+44 (0)1398 332 170

[email protected]

Evolutia Pretului Terenurilor Agricole in Lume

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