R. Manolov, ‘ A smooth and sustained growth in agricultural land price in the coming years.

Mark Twain once said, “Buy land, they aren’t making it anymore.” It is more than easy to follow this advice if an investment in a special financial vehicle corporation (FVC) specializing in agricultural land, is made.

Thus, on the one hand one will avoid all problems and additional charges related to the purchase of land (physical plots) and all problems related to the consolidation of parcels and their managing, on the other- one will benefit from the economy of scale, the possibility for the purchased large plots to carry a better annuity, as well as earning from the higher ratings of larger agricultural plots. In addition, one will be able to invest whatever amount they have and most importantly-their investment (as opposed to the physical land bought) will be liquid-that is, fast, easy and loss free, one will be able to cash it whenever they would like to do so.

But is the current moment suitable for investments in agricultural land and what are the future prospects for the sector? To answer these questions, we turned to Radoslav Manolov-executive director of Advance Terrafund REIT, one of the largest components (by weight) of the SOFIX Blue chip index. Mr. Manolov was kind enough to answer our questions.

Where is Bulgarian Agriculture heading to- to consolidation of the land or is it retaining the fragmented fields ownership?

– For any arable farming in order to achieve higher efficiency, there is the need for consolidated, sustainable and permanent use of agricultural areas. In Bulgaria, the problem of land fragmentation, due to restitution policy, is dealt with by signing annual agreements between land users. The questions arise as to how effective they are and how they stimulate farming activity in our country. Large part of the farmers though believe that this only provides temporary and short-term solutions. There are many factors influencing agriculture globally, but I would like to address some of the more important ones. I will start by the fact that farmland is declining globally because of infrastructure projects, urbanisation, erosion, climate and others. That’s 100 million. acres per year. At the same time, the population of the planet is increasing, which is very visible in the economically underdeveloped countries, and is one of the reasons for migration, unprecedented population growth of big cities, lack of adequate nutrition and access to inexpensive food.

Another important trend that has been visible in recent years is the wish of people to live healthily – without GMOS, without pesticides, i.e. organic farming. This could only be achieved by sustainable use of the same agricultural territory and new technologies of land cultivation.

It is evident that this special asset – agricultural land is shrinking, there is an increased demand for it and it tends to be permanently used, which  specifies the future of Bulgarian agriculture, namely, consolidation.

Six years ago, the mark-up for the agricultural plots was over 50%, compared to the purchase price of agricultural land at retail level. What is the situation at the moment and how has the price of farmland been fluctuating since the beginning of the year? What are the trends?

-There is no fixed overcharge when selling concentrated property in a given land plot, rather, it is a matter of economic logic. Taking into account the activity of land selection with the appropriate climatic and soil characteristics, the risk of loss resulting from malicious acts by third parties, covering administrative costs and betting on a  reasonable profit, the sale of such lands with an overcharge below 50% is unacceptable for Advance Terrafund. In the current year, we tend to refrain from selling, given the rapid increase in the prices of unit properties, which we know from experience, signals an increase in consolidated land prices.

We expect 2018 to be the year defined as a net buyer of land, i.e. more land will be bought. Regarding the value of the land in the regions where we buy, prices have already reached above 1000 lev/dka, which is more than 15% growth compared to the previous year. Our expectations are for prices to stabilise until the EU’s Common Agricultural Policy has clarified and given new impetus to the development of Agriculture in the EU, which will become clear in the middle of 2019.

Which are the most desired areas for buying agricultural land and where does Advance Terrafund invest mostly at the moment?

 – In Bulgaria the land is fertile and suitable for different types of crops or forms of agriculture. Advance Terrafund buys as well as rents its land and therefore needs land plots in large agricultural areas with well-developed lease relations, good soil indicators and climate conditions. At the moment, we are investing in northwestern Bulgaria, but if good opportunity arises, we will also do it in other regions of the country.

What are the trends in the annuities and what profitability can the owners of agricultural land expect?

– Over the past few years, because of the changes in the policy of subsidising and the unfavourable climate in the country, we observe a retention of the levels of annuities from 46 BGN/dka on average for the country for 2017. There is no expectation of a fall in rent payments this year. It turns out that agricultural land, besides being secure, continues to be a highly desired form of investment on the market.

What do the forecasts of Advance Terrafund indicate about the price of farmland during this and the next few years?

-Market factors influencing the value of farmland make us expect a smooth and sustained price increase over the next few years.

A report shows that in 2012 Advance Terrafund owned about 250 000 acres of land, and by the end of February this year it possesses nearly 220 000 acres. What are your plans regarding the size of owned farm lands?

-The company manages and has actively been trading agricultural land in Bulgaria in the past ten years. The REIT law restricts the reinvestment of profits of the company and obliges us to distribute at least 90% of it in the form of dividends. Up to financial year 2016, Advance Terrafund always allocated 100% of the profit realised in the form of dividends to its shareholders. Regarding the plans relating to the size of the land possessed, it is good to know that the company has a fixed financial resource at an annual increasing price of investment property. This leads to reduced purchasing power, respectively a smaller number of acres that it can acquire.