The large investment funds exchange the brick for the countryside and buy rustic properties in Spain and Portugal as an investment
More than 15.400 rustic properties changed hands in the month of May and more than 13.400 in June. Some sales figures that, in this 2022, reach the highest levels of the last 15 years, according to the data published by the National Institute of Statistics (INE). They are not casual data, because operations with agricultural land have skyrocketed in the last two years. Behind this rebound is not so much the vocation to bet on the rural world as an alternative for the future, but rather there is a growing number of investors who are launching themselves to buy companies in the primary sector and agricultural land simply because they are profitable and have become an investment product.
“In other areas, such as the United States or Australia, they are mature assets, but agriculture in Spain and Portugal has not always been visible to investors. However, that has changed, it has matured, it is now much more technological and that has facilitated the entry of institutional investors who see it as an alternative in the medium and long term", explains Héctor Rodríguez, 'associate director' of Agribusiness -which is like call for agricultural investment – from the consulting firm CBRE Spain. An alternative, they indicate, cheaper because the prices paid to invest in Australia or California, for example, double those of Spain.
This consultancy has just published the report Agribusiness in the Iberian Peninsula, where it reflects the potential of the field for institutional investors, either with the purchase of land or agri-food companies. Investors who previously focused their attention on brick but who now see agricultural activity as a business focus, where quality land is reduced on a global scale – climate change weighs – and where the population's food needs are going to multiply in the next years. "It is estimated that food production will have to grow between 60% and 70% to be able to feed the world population by 2050, 9.000 million people," the report indicates.
An attention that derives from the high profitability –in Spain it reaches 10%– and where liquidity is guaranteed –money in cash– in the medium and long term. “They are very safe assets for investors. They are resilient. They were in the 2007 crisis and in the coronavirus crisis, ”says Héctor Rodríguez. “There is interest in Spain, because we are talking about a solid sector, we are the fourth largest food producer in the European Union and the seventh largest in the world”, he adds.
What investors have noticed in the field?
As for who is behind these investments in the field, CBRE does not mention specific names, which are the firms, local or global, that are betting on buying agricultural land, but it does indicate typologies. “We work with three types of investors. First, family office Spaniards [patrimonial societies that channel family fortunes] that were already investing in this sector and want more investment in agriculture or enter agricultural farms, ”he points out.
Along with them, Héctor Rodríguez lists the venture capital funds, which do set a time horizon to make the investment profitable, that is, they are there for 10 years and then they leave, they sell it; and pension funds and insurance companies, which have begun to take an interest in this segment. The latter "are the traditional real estate investors, who are looking for a fixed return, they do not want exposure to risk". They operate in sale & leaseback, They buy land and look for a tenant to work it and pay an annual rent. "They don't stop seeing it as just another real estate asset, without risk, while the first two investor profiles have a higher risk profile," he adds.
To these profiles Cocampo – a specialized web platform with advertisements to invest in rustic properties – adds other types of investors, including the professional from the field, “mainly a farmer or rancher, who is already present in the sector and who buys new productive assets to grow and obtain better economies of scale”, says Regino Coca, CEO of Cocampo. It also adds to the investment funds that are looking for land to install renewable energy plants and individuals who want recreational farms, "which may include hunting, agricultural or livestock operations, but whose most common objectives are the diversification of heritage and the improvement of quality of life. They tend to look for farms that are less than two hours away from their place of residence”, he indicates.
The agrarian organizations doubt the profitability
The funds and firms that seek profitability are interested, above all, in products where they see more room for growth. “Investors are betting on high-value assets, with demand growing by 2% or 3% per year.” There, CBRE cites products such as olive oil, almond trees, pistachios, citrus, tropical fruits (such as avocado or mango) and strawberries, raspberries or blueberries. "These are products with projection of consumption that provide security on the investment, because there is a growing demand for healthy foods, of local origin and that leave less carbon and water footprint."
In the case of olive trees, according to the report, the average profitability per ton and hectare can reach 14%, similar to that of avocado. However, these figures are much higher for mandarins or apples, where the average profitability, the return on investment, can reach 50% per tonne and hectare.
That profitability is far from how the agrarian organizations see the current situation. A few weeks ago, the Union of Small Farmers (UPA) assured that the rise in prices in these months "hides a serious reality based on high costs and low prices in the field and on speculation and abuse by intermediaries." "Despite the rise in prices of fruit and vegetables to consumers, farmers still do not cover costs in most sizes, with the exception of the largest, which barely account for 20% of the total production of fruit stone (cherries, plums, peaches...)”, listed UPA.
La Coordinator of Farmers and Livestock Organizations (COAG) It has also warned that climate change is going to reduce by 80% the area suitable for olive cultivation in Andalusia, in rainfed varieties such as hojiblanca and manzanilla. “Only the picual variety could maintain dryland yields in interior cultivation areas, although in a scenario of a 2,5ºC rise, the increase in temperatures would reduce yields in all producing areas: -83% in Seville, -72 % in Cádiz, -41% in Córdoba and -16% in Jaén and -5,7% in Granada”, he broke down.
However, investors see agricultural assets as a shield against rising prices. "Investors see in agriculture a protection against inflation," they explain from the consultancy. "In periods of high inflation, the value of farms increases and, also, the price of agricultural products." Cocampo points in the same direction. “Rural properties are products of the real economy and are revalued at the same rate as the economy as a whole. It is a common characteristic of real estate assets that is even better in the case of rustic properties because they are limited assets. As Cocampo's motto says: 'Buy land, it is no longer manufactured'.
Another variable that comes into play in this investment interest is public aid, the European Common Agricultural Policy (CAP). “Grants are also a key piece of the game and cannot be overlooked. EU subsidies have increased by 56% since the last time funds were allocated to agriculture to solve problems, ”says the CBRE report.
As for which areas are more attractive for these investors who are looking for the profitability of agri-food production, in Portugal it focuses on the areas of the Algarve and Alentejo; while in Spain they are Andalusia, Levante and Extremadura. If we look at the data published by the INE, the communities that concentrated the most rural property operations in May were Castilla y León (2.534), Andalucía (2.238), Castilla-La Mancha (1.985), Comunitat Valenciana (1.786) and Aragón ( 1.209).
"We observe three factors that are triggering investment interest: water, renewable energy and proximity to large urban centers," says the person in charge of Cocampo. “Agricultural professionals are looking for farms with water, with irrigation possibilities. Environmental limitations, proximity to electrical substations with evacuation capacity and economic criteria lead them to bid for the same farms with investors in renewable energies. Finally, private investors who are looking for a recreational property highly value the proximity to their place of residence, since they want to be able to enjoy the property to the fullest”.
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