Eastern Europe: a patchwork of opportunity

It’s not all doom and gloom in the region’s agri sector, as risks and opportunities vary wildly by country.

It’s not all doom and gloom in the region’s agri sector, as risks and opportunities vary wildly by country.

Eastern Europe has become a more difficult landscape for farmland investors in the last two years, mainly because the Ukrainian crisis and Russia’s subsequent semi-isolation from the European Union has given the region a reputation for political instability. But, as some of my recent talks with international investors suggest, there is a tendency to bundle the region’s constituent countries together, or to misunderstand the reasons for and characteristics of risk in certain locations. This is unhelpful.

For Eastern Europe offers varied agricultural and also financial landscapes. Important differences prevail between Poland, Hungary, Romania, Bulgaria and Croatia, even though all of them are members of the European Union. For a start, land prices are not homogenous at all: Romanian land costs about €2,500 to €4,000 per hectare, whereas in Poland you’re looking at anything between about €8,000 and €15,000 per hectare.

Investors, therefore, are having to be careful and selective. For example, Hungary is a country that many seem keen to avoid at the moment. As Carl Atkin, director at management consultants Terravost, recently pointed out to me: “Hungary is one of the countries in that region most hostile to foreign investment, full stop.” Last year, protests filled Budapest’s streets because the government wanted to tax the internet. New laws have devalued land holdings and made it difficult for investors to acquire agricultural land.

Another EU member state where legal and political risk is significant is Romania, although here, a specific challenge is the high degree of fragmentation of its farmland. As Agri Investor pointed out in a letter last year, investors wanting to create value must aggregate small parcels of land into larger and more efficient plots, which requires time, money and high-quality execution.

The differences between the EU countries can also be seen in the diverse nature and rationale of the subsidies they receive. While subsidies in Poland are now expected to begin to target innovation in agriculture, EU investment in Romania still concentrates on basic machinery and storage facilities.

Russia and Ukraine, meanwhile, are a different story altogether, but even they cannot simply be tied into one. Make no mistake: the conflict between them has left many agriculture investors in the lurch. Adam Oliver, a partner at Brown & Co, told me that investors in Russia and Ukraine are having a difficult time simply keeping large operations running, mostly due to high interest rates and lack of access to liquidity.

But that is not to say that Ukraine should be written off entirely: the country’s most fertile black soils have not been physically ruined by the war and remain in Ukrainian hands. Geopolitical risk is of course high right now, but in the long term, profits could be made, especially if Ukraine changes its restrictive land-purchasing laws and farming technology is transferred from Western Europe.

The lessons here are clear: investors need to tread and choose carefully in Eastern Europe. Good farm management and careful planning can create opportunities, even in riskier places such as Romania and Ukraine. And as we are already seeing in Poland, the use of modern technology can have a big impact on yields and farmland values – something there is plenty of room for amongst its neighbours.

Where are the best opportunities in Eastern Europe? Send your thoughts to clare.p@peimedia.com