Global Farmland Index records steady annualised growth over the past five years

Average farmland values around the globe increased by 6.6% during the past five years according to the recently published Savills global farmland index recording strong, steady growth and far less volatility than many other commodities.

At a regional level, Central Europe recorded the most significant growth of 20.4% annualised since 2002. However as the graph below shows, increased political concern surrounding rising levels of international investor interest put pressure on values in 2013.

Unsurprisingly, values across Western Europe have been the most varied during the time frame of the index and the annualised average growth for the region was 8% since 2002

Technological advances in soybean production, particularly in Argentina contributed to annualised growth across South America of 17.5% since 2002, but more recent output price pressure has led to a fall (-9.7%) in annualised growth since 2012.

Across Australasia, annualised growth of 13% since 2002 masks some volatility especially in New Zealand, where values are closely linked to movements in global milk prices. More recently pressure on commodity prices affected values with growth falling by -9.4% in 2015.

Matthew Sheldon of Savills International Farmland Investment team comments, “Despite concerns surrounding FDI regulations investment is still possible. Some of the larger potential purchases in Australia have been rejected but these have been for some very specific reasons.”

In North America, where farmland values are closely linked to commodity prices and farmland profits, the steady annualised growth since 2002 of 7.3% drops significantly for the past three years due to a fall of 5% in 2015.

Ian Bailey of Savills rural research comments, “The rate of growth is significantly lower than that in the emerging markets, but comparable to North America, reflecting the lower risk profile of a mature market.”

Sheldon again, “Land values are currently under pressure through low commodity prices, but the market remains diverse and, at a global level, the opportunities will depend on quality, scale and location. It is imperative to carry out thorough due diligence especially with the current political uncertainty in the European markets, post Brexit.”

It is important to note the fundamental factors driving the value of farmland remain. Food production and national food security coupled with competing land uses and a variety of ownership motives will all support farmland value growth in the long term.

Bailey concludes, “Looking ahead we anticipate an appetite from investors to diversify portfolios. Historically farmland’s performance has been counter cyclical to other assets and a long term hold to iron out volatility.”

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