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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
w lv
m u
cmc
d plcl
ubulc,
c s s v c ys
f cpl l cmmds
d bl sss.
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
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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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
Graph source: USDA, Eurostat and various data estimates
Graph source: USDA, Eurostat and various data estimates
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
th ism
pfoma of
fama oius
o ousip ha of
may aai
asss. As is gows i
his so, i is poig o
a ism saf ha
uig hs uai ims.
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
1 ya
1 ya
Gmay UiSas
3 yas
3 yas
Fa dmak Ia caaa UiKigom
nwZaa
Ausaia
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%
0%
-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
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savis.c.k/eseac 09
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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
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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$, data source: National Farmers Federation)
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Au$/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
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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
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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
Hy Wik
CEO, InvestAg Savis
+44 (0)20 7016 3752
K Jo
Director Internationaland Markets
+44 (0)20 7016 [email protected]
Hugh Coghi
Director Internationa
land Markets+44 (0)20 7016 3818
nico Buckigh
Research Anayst+44 (0)1398 332 170
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