Romania, magnet for foreign investors due to low cost of farmland

There’s no news to anyone that Romania’s fields are a good investment in long term due to the favorable climate, fertile soil and… low prices. Much of the area is made up of subsistence farms unable to access good technology. However, investment managers putting money into Romania’s lands are paying a fraction of prices in Germany or the U.K., buying the potential to boost yields by joining fragmented plots and improving farming methods, according to Bloomberg. Foreign investors in the domestic fields brought spending on machinery, use of improved seeds and innovation in cultivation, such as minimal tilling.

A hectare of Romanian farmland cost an average USD 6,461 in 2012, compared with USD 18,521 in Germany and USD 25,575 in the U.K., data from U.K. realtor Savills Plc show.

German farm manager ASI Europe GmbH oversees about 4,000 hectares (9,884 acres) in Romania, the Netherlands’ Cibus Farmland Club is developing a farm project there and U.K.-based Velcourt Group Plc announced last year it was entering the country. Romanian farmland prices on average rose about 40 percent a year between 2002 and 2012, double the global average, according to Savills. The value of French and German farmland on average increased 5 percent to 10 percent a year.

A plot of uncultivated wasteland in Romania of 1 to 5 hectares was worth EUR 1,900 (USD 2,432) a hectare last year, compared with EUR 3,900 a hectare for a larger plot that had been in production for more than three years, Cibus data show. Prices could double in five to six years. Romania had 7.05 million family farm laborers in the 2010 census, 30 percent of the EU total, while the country’s farmland accounts for 7.6 percent of agricultural land in use, according to Eurostat.

The number of landowners means expanding a corporate farm in the country to 5,000 hectares, a size that allows for maximum efficiency, may require years of negotiations with “easily” 500 to 1,000 family members, Cibus estimates.

Using existing arable land and lifting yields for key commodities closer to those of more advanced countries, Romania could boost production volumes by at least 30 percent, according to Miljan Zdrale, a senior banker at the European Bank for Reconstruction and Development. “It’s a stable country, it has Black Sea access, it’s an EU country,” Zdrale said. “The potential is there, that is the bottom line.”

For example, the same Eurostat data reveal that Romania’s five-year average wheat yield has risen to 3.2 tonnes per hectare from 2.92 tonnes in 2003. In contrast, French farmers on average gathered 7.16 tonnes of soft wheat per hectare in the past five years and Germany averaged 7.65 tonnes. Furthermore, Romania gathered 7.52 million tonnes of wheat this year compared with 7.28 million tonnes last year.