Estonian land price growth in 2022

We analysed year-on-year land transactions and price data and found significant appreciation in land prices last year most likely due to high inflation, environment and current security crisis in Eastern Europe, which has increased demand for land.

Below please find the table with the summary of statistics, it shows the average price/ha change in % from the IV quarters of 2021 to 2022.

For example, in Estonia’s biggest county Harju, the average farmland price/ha has increased by nearly 60% over a year. We have looked at real transactions data and the total average growth in all of the counties was 53.75%!

The data were obtained from the Estonian Land Board.

Up next, you will find a chart, which visualises the lands’ average price growth in all of the Estonian counties. The prices on the graph are shown per hectare and the comparison is made also between the IV quarters of 2021–2022.

Conclusion

Based on our analysis, the year 2022 showed a significant appreciation in land prices due to the environment we live in, high inflation prices and the current security crisis happening in Eastern Europe. These factors have increased the demand for land.

We believe further increases in land prices are expected, as inflation is expected to continue in 2023 and Estonian land is still relatively cheap to some of the neighbouring countries, such as Sweden.

Source: Estonian Land Board

Private investment is essential if agriculture is to fulfil its vital function of contributing to economic development, poverty reduction and food security.
OECD

Despite the above quote by the OECD, buying, selling, and investing in farmland is widely different in different EU countries.

This article explores these differences and what they mean for investors.

1. Different Law

Each European country has a different law when it comes to buying farmland.

It’s easy to understand why. Farmland is a very sensitive asset. In the least developed countries, farmland is what enables most people to live and make an income.

Of course in the EU, where all countries are reasonably developed, farmland does not play as much of a role in the GDP as it does in the rural region of poorer countries.

However, there are clear differences across countries when it comes to buying and selling farmland, and who gets to do so.

For example, foreigners are not allowed to buy land in Bulgaria. Foreigners are not allowed to buy real estate if the property is located on a piece of land either.

The restrictions regarding the purchase of land in Bulgaria are extremely severe to prevent foreign speculation.

The same is true in Poland. While the law is a little bit more relaxed, it is extremely difficult for foreign companies and individuals to buy agricultural land in Poland, for the same reasons as for Bulgaria.

The situation is a little bit different in France. While there aren’t any limits to the purchase of agricultural land in France by French or foreigners, a public agency called SAFER has the right to buy any rural property bigger than two hectares to lease it to local farmers.

The SAFER’s job is to manage the rural development of France. As a result, they benefit from special rights.

Spain, Portugal, Belgium, and the Netherlands know no restrictions to the buying of farmland on their territory.

This has been revealed to be a problem for the Netherlands whose farmland has reached a price of up to €70 000 per hectare, while it remained stuck at €10 000 in France.

The Netherlands is one of the most productive countries when it comes to the production of agricultural goods. Unfortunately, the lack of space the country is suffering from has led to a rise in real estate prices, whichever its nature (apartment, house, etc).

In the Baltics, Estonia is the most forward-thinking when it comes to buying agricultural land. The land must be bought by an agricultural company that has been in the agriculture business for at least three years.

In Latvia, it is much harder. Anyone can own up to 10 hectares of land without any problems. After that, the city council and the public agency called “the land fund” need to give the authorisation to the buyer to buy or not.

There is also a priority list. The tenant has priority over anyone else. Landowners around the land also have priority.

The buyer must guarantee that they will keep the land for agriculture and not use it for any other purpose. The manager of the land needs to be Latvian. Finally, no entity can own more than 2000 hectares of agricultural land.

2. Different Prices

Farmland prices widely differ in Europe.

We can clearly see the difference between post-Soviet countries on one hand, and Western European countries on the other.

The most expensive farmland in Europe is in the Netherlands (€60 000/hectare). There are wide differences in Italy, where one hectare can cost €15 000 in the south, and €60 000 in the north.

In Belgium, the price reached €57 000 in 2021.

Meanwhile in Poland, one hectare costs on average €10 000, €8 000 in Estonia, €9 000 in the Czech Republic, or €6000 in Latvia.

What explains those differences?

Yield is the first reason. The Danish, Belgian, and Dutch farmers are among the most productive farmers in Europe due on one hand to the productivity of the land, and due to the highly advanced character of their farming method on the other.

The weather also plays an obvious role. It’s harder to grow in Estonia where the soil is frozen for at least four months per year.

The cost of living is the second reason. It’s cheaper to live in Poland, the Czech Republic, or the Baltics than it is to live in Belgium, the Netherlands, or Denmark.

Finally, supply and demand explain the difference in prices. It’s free to buy land in Belgium and the Netherlands, while it is much more complicated to do so in post-Soviet countries.

As a result, demand for land from investors will be higher in the West than in the East.

Conclusion

The lack of uniformity in the farmland market in Europe means that there are many arbitrage opportunities for investors that want to invest in farmland.

However, the strong laws established in most Eastern countries preventing speculation also means that these opportunities are not easy to take advantage of.

The issue of farmland is extremely sensitive in post-Soviet countries that saw the collectivisation of farms.

As a result, Eastern governments are much more careful regarding who gets to buy and use the land, than Western governments are.

Source: Elra

The state of the world economy at the beginning of 2023 is much more fragile than it was at the beginning of 2022, for two reasons:

1. Rising interest rates
2. The war in Ukraine

Here’s how these two trends will impact the economy in 2023.

1. Rising Interest Rates

Interest rates in the West have not *just* been low since the 2008 crisis — they have been declining every year since then.

Low or absence of real growth on one hand, and inflation below the 2% target on the other, compelled policymakers to use every tool at their disposal to stimulate the economy somehow.

In this case, easy access to credit was chosen.

When the health crisis began in March 2020, policymakers decided to support the economy that was partly shut down by printing important amounts of money.

While this sudden inflow of cash may indeed have saved the system, it also created perfect conditions for sky-high inflation.

As the economy reopened, policymakers have now focused on bringing inflation under control.

They do so by limiting the amount of money in the economy by raising interest rates.

What Do High Rates Mean for Asset Prices?

Interest rates increase always slows down the economy.

When this happens, potential financial bubbles pop, businesses that have never been profitable go bankrupt, and asset prices decrease as the entire economy slows down.

Bond prices decrease, stocks decrease, real estate decreases, and gold decreases.

Since cash is getting “rarer”, it becomes an asset of choice as it can be lent against higher interest rates.

Conclusion: in a rising interest rates environment, cash is king.

2. The War in Ukraine

Energy suppliers drastically decreased their output when the world shut down in 2020.

However, they did not increase production fast enough again when it reopened in 2022.

As a result, energy inflation began as early as January 2021.

Yet it truly accelerated when Russia invaded Ukraine and an energy embargo was established against Russia.

Since Russia was one of the biggest energy providers to more than a few European economies, the embargo only made energy supplies worse, which sent energy prices as high as twenty times their normal prices.

What Does the War in Ukraine Mean for Asset Prices?

Energy is likely to remain high in the next two to three years as countries will need to build new energy-producing capabilities and infrastructures, and as the energy markets are reorganizing around this new reality.

What Does That Mean for Farmland?

Interest rates don’t impact the price of farmland much as farmland prices depend on the price of food and on the supply and demand for farmland.

Food is something consumers will always have to buy regardless of the economic conditions.

And farmland isn’t a leveraged (aka, bought with debt) asset, so interest rates don’t influence prices much.

As long as the war in Ukraine continues though, countries dependent on Ukraine for food remain at risk of hunger.

We expect that this will continue to push prices for farmland as it is expected that these countries look for food producers in other places than Ukraine.

Conclusion

It is likely that 2023 won’t be financially easy.

As policymakers do all that they can to bring inflation under control, it is likely that they will sacrifice the economy for a while to achieve this purpose.

In that environment, cash will be the asset of choice, and farmland will be one of the most interesting alternative assets for investors seeking to invest in a sector that does not depend on the state of the economy.

Interested to invest in farmland? Sign up on landex.ai today.

Disclaimer: This article is not intended to be relied upon as financial advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor.

The content LandEx’s blog is for informational purposes only, you should not construe any such information or other material as investment, financial, or other advice. Nothing contained on the LandEx Medium blog constitutes a solicitation, recommendation, endorsement, or offer by LandEx or any third party service provider to buy or sell any financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Farm-to-table initiatives, which promote the direct sale of locally produced food to consumers, have gained popularity in recent years as more and more people are looking to support small, local farms and to know where their food is coming from.

This trend is not only benefiting small farmers, but it is also driving demand for nearby farmland.

In this article, we explore how the trend for local consumption will drive the price of European farmland up.

1. What Is Farm-to-Table Initiatives?

The farm-to-table movement is a movement started in the 70s that compelled restaurants to source their food directly from farmers.

The idea was to serve better, fresher food for customers while minding the environmental impact of transport.

It also helped customers to know where their food came from.

Today, farm-to-table initiatives go beyond the restaurant business and also focus on private citizens.

Everyone is encouraged to buy their food where they live.

2. What Are the Advantages of Farm-to-Table Initiatives?

One of the main benefits of farm-to-table initiatives is that they allow consumers to have a direct relationship with the farmers who are producing their food.

This helps to build a sense of community and connection between consumers and producers, and it can also lead to a deeper appreciation for the work that goes into producing food.

In addition to the social and emotional benefits, farm-to-table initiatives can also have a positive economic impact on local communities.

By supporting small, local farms, consumers are helping to keep money in the local economy and to create jobs in their own communities.

This is especially important in rural areas, where farming can be a major source of employment and economic activity.

Another reason is that the food purchased directly from a farmer is often of higher quality than the food purchased in supermarkets.

Supermarkets purchase their food from giant farms that do not participate in initiatives like farm-to-table.

This type of food, massively produced to decrease cost, is also often of lower quality and taste.

3. What Are the Downsides of Farm-to-Table Initiatives?

One potential issue is the potential for higher prices for locally produced food, as it may not be as competitive with mass-produced, imported options.

This can be mitigated, however, by education and marketing efforts to highlight the benefits of locally produced food, such as its fresher taste, higher quality, and positive impact on the local community.

Another challenge is the logistics of distributing locally produced food.

Small farms may not have the infrastructure in place to handle large-scale distribution, which can make it difficult for them to reach a wider market.

This can be addressed through partnerships with local distributors or the creation of farmers’ markets or other local food outlets.

4. How Will Farm-to-Table Initiatives Drive the Price of Farmland?

Locally-grown food is an ongoing trend highlighted by the EU Commission in its agricultural report in 2020.

It’s been driven on several levels.

• Consumers: consumers are increasingly environmentally-conscious and desire to consume locally-grown products to minimize CO2 emissions due to transport.
• Companies: companies have been using the locally-grown stamp for marketing purposes.

Since the members of the European Union desire to limit the amount of farmland on their territory while the demand for local products increases, farmers will have to compensate by improving the efficiency of the land which will naturally drive the prices up of the land up; or the price of locally-grown food will increase as a result of farmers’ failure to create more of it, which will drive the value of local farmland up as well.

Since the price of farmland depends on the price of food, on the value of its produce, and on the supply and demand for farmland, an increased demand for locally-produced farmland products will naturally increase the price of the land as well.

Conclusion

For investors in farmland, the growing popularity of farm-to-table initiatives can create opportunities for strong returns.

As demand for locally produced food increases, so too does the demand for nearby farmland. This can lead to higher prices for land and potentially higher returns on investment.

Farmland has been the main source of food for the world ever since nomadic tribes shifted to a sedentary lifestyle some 15 000 years ago.

In the developed world, food security became a given since the end of WWII. The continent has not known of any food crisis since then.

But a growing population, conflicts, climate change, and economic shocks are putting strains on the global food system.

1. Growing Population

As the population continues to grow and the demand for food increases, the importance of farmland becomes more and more apparent.

The 2022 FAO report on global food security begins by stating that in terms of food security, the world is going “backwards”.

More land is converted to other uses (buildings, roads, homes) which decreases the amount of available farmland.

This is particularly concerning as the world’s population is projected to reach 9.7 billion by 2050, according to the United Nations.

One of the key challenges in ensuring global food security is the need to produce more food on less land.

This will require a combination of technological innovations and more sustainable farming practices, like permaculture.

2. Conflict

Conflict and food security are a two-way street.

First, lack of food creates conflicts.

Populations end up fighting over resources or over the means of production (land, water, etc) when food lacks.

The chance for such a conflict is particularly high in countries where social and economic inequalities are already wide.

As a result, food security isn’t only a food management issue, but a social-economic issue too.

An important factor in helping developing nations with food security is supporting small-scale local farmers.

These farmers often operate on small plots of land and face challenges such as limited access to credit and markets.

Second, conflicts create a lack of food.

As the conflict in Ukraine has shown, belligerents will use the lack of food as leverage over populations to get to their ends, which can create devastating consequences for food security.

3. Climate change

Climate change, growing population, and agriculture don’t go well together.

On one hand, climate change is caused by human activity like modern agriculture. Our World In Data estimates that agriculture causes 20% of all CO2 emissions worldwide.

On the other hand, as the population increases, agriculture’s need for land to grow food will increase, which will increase even more CO2 emissions.

Climate change is already having a major impact on food security.

In some parts of the world, such as sub-Saharan Africa, droughts are becoming more frequent and more severe, which is making it harder for farmers to grow the food they need to feed their families and communities.

These villages stop being self-sufficient and the inhabitants must move to cities to survive, thereby putting more strains on the food system.

Another way that climate change is affecting food security is by increasing the frequency and intensity of extreme weather events, such as hurricanes, and floods.

These events can damage crops and infrastructure, making it more difficult to transport food from farms to markets.

In some cases, these events can also contaminate food and water supplies, leading to foodborne illnesses.

Climate change is also contributing to rising sea levels, which is leading to the loss of fertile land in coastal areas.

In order to address this issue, it is crucial that we take action to reduce greenhouse gas emissions and slow the pace of climate change.

It is therefore crucial to transform modern agriculture into sustainable and regenerative agriculture so that agriculture can become carbon-negative — or at least carbon-neutral — and play a better role in climate change.

4. Economic Shock

Economic shocks can cause major changes in the global economy, which can lead to changes in the prices of food and other commodities.

For example, if there is a sudden drop in the value of a country’s currency, it can make imports more expensive, which can lead to higher food prices.

Economic crises also lead many people to lose their job which decrease their income and make it harder for them to feed themselves, especially low-income people.

In order to address this issue, it is important to focus on improving food security by developing local food production capabilities, decreasing the impact that the economy has on the food system and prices, and helping low-income families to earn more money.

Conclusion

In conclusion, global food security is facing a number of challenges, including growing population, conflict, climate change, and economic shocks.

As the world’s population continues to grow, it is becoming increasingly important to find ways to produce more food on less land, using sustainable and regenerative farming practices.

Conflict and economic shocks can disrupt markets and reduce income, making it difficult for people to access the food they need.

Climate change is also having a major impact on food security, by causing droughts, extreme weather events, and the loss of fertile land.

In order to address these challenges, it is crucial that we take action to reduce greenhouse gas emissions and support small-scale local farmers.

Climate change is having a significant impact on farmland investment.

As extreme weather events are becoming more common, this adds more risks for farmland investors.

We explore in this article which risks farmland investors should fear, and what are the opportunities and actions they can take to mitigate those risks.

1. Risks

A. Global warming

Global warming is expected to have a major impact on farmland by making many areas that were previously suitable for farming no longer able to grow crops, particularly in countries already victims of heatwaves.

Higher temperatures can lead to more pests and diseases on one hand, and drought on the other.

Many have speculated that this could lead to a decrease in the amount of available farmland in the future, which in turn could drive up the price of farmland in countries where global warming would not have a significant impact (mainly cold countries).

As a result, investors should make sure to invest in farmland protected from heatwaves.

B. Sea level rising

As sea levels rise, low-lying coastal areas will be increasingly at risk of flooding, which can damage crops and make it difficult for farmers to farm.

Furthermore, there is also a risk that seawater contaminates the soil.

The countries most at risk of sea levels rising are China, Bangladesh, India, Egypt, the Netherlands, the United States, Brazil, Australia, New Zealand, and most islands in the Pacific.

C. Extreme events

Climate change also increases the frequency of extreme weather events.

These events, such as heatwaves, droughts, and floods, can cause significant damage to crops and soil, leading to reduced yields and lower profits for farmers and investors.

In some cases, these events can even render farmland unusable.

Extreme events usually increase in places that already have extreme events. Geographical areas without extremes aren’t as sensitive as areas that already have.

2. Opportunities

The challenges highlighted above have also created different opportunities for investors mindful of having a positive impact on the world.

A. Shifting towards sustainable farming

In order to mitigate these risks and protect their investments, farmland investors can support sustainable and resilient farming practices.

This can include investing in drought-resistant crops, implementing efficient irrigation systems, and supporting farmers who use conservation tillage and other sustainable farming techniques.

Investing in sustainable farming practices can also provide opportunities for investors to capitalize on the growing demand for environmentally friendly and sustainably-grown food.

As consumers become increasingly conscious of the environmental impact of their food choices, we can expect considerable growth from planet-friendly agricultural products.

B. Finding new ways to grow food

One new technique of crop production that has gained popularity in recent years is vertical farming.

This method involves growing crops in stacked layers, often in controlled environments such as greenhouses or warehouses.

This allows for year-round production, even in areas with extreme climates.

Vertical farming also allows for efficient use of space, as crops can be grown in a smaller area compared to traditional farming methods.

This can be particularly beneficial in urban areas where land is limited.

Additionally, because the growing environment can be carefully controlled, vertical farming can allow for more precise management of factors such as temperature, humidity, and light, which can improve crop yields.

Another new technique of crop production is the use of precision agriculture, which involves using technology such as sensors, GPS, and drones to collect data on factors such as soil moisture and nutrient levels.

This data can then be used to optimize farming practices, such as applying fertilizers and irrigation only where and when they are needed.

This can help to reduce waste and increase crop yields, while also reducing the environmental impact of farming.

3. Conclusion

Predicting what impact climate change will have on farmland is not easy. In a world where we can hardly predict the weather of the next day, all we can do is speculate.

What we do know is that extreme weather events and shifting weather patterns will have an impact on farmland. Investors would be wise to focus on well-managed farmland located in colder countries that aren’t threatened by rising sea levels, like Estonia, for example.

Interested to invest in farmland? Go to landex.ai today.

Permaculture is a type of land micromanagement that takes inspiration from what already exists in nature.

Permaculture was developed in opposition to modern agriculture and especially, monoculture, which sees fields of one or two crops only being grown on land.

Permaculture has shown to be a healthier type of culture as less dependent on fertilizers and other chemicals.

One could define a permaculture garden as an ecosystem of its own, with different species of plants and insects all playing a role and supporting another species.

History

Permaculture is a term coined by Bill Mollison, an Australian biologist, and David Holmgren, an Australian environmental designer.

Both met at the University of Tasmania where Mollison taught environmental psychology and Holmgren was a student.

The idea for permaculture began when Mollison and Holmgren noticed that modern agriculture was unsustainable.

First, it rested on fertilizers and other chemicals available in finite demand. Second, it was depleting the soil of its nutrients. Third, it polluted land and water.

Behind such practices stood the principle that nature had to be tamed and controlled with engineering.

This didn’t seem holistic and viable in the long term, so they decided to think in the opposite way.

Permaculture is a philosophy of working with, rather than against nature; of protracted and thoughtful observation rather than protracted and thoughtless labor; and of looking at plants and animals in all their functions, rather than treating any area as a single product system.
Bill Mollison

The idea was to consider agriculture in the context of a full ecosystem instead of focusing on growing only one plant.

Permaculture comes from “permanent agriculture”, which highlights well the philosophy of the practice.

Principles

• Observe and interact: the purpose isn’t to bend nature to one’s will, but to work alongside it.
• Catch and store energy: make sure to collect resources when you have too much of it (eg: water) to use them when they become rarer.
• Obtain a yield: focus on techniques that provide substantial results.
• Apply self-regulation and accept feedback: Discourage inappropriate activity to ensure that systems function well.
• Use and value renewable resources and services: Use renewable resources and avoid using finite ones.
• Produce no waste: Re-use as much as you can. Waste nothing.
• Design from patterns to details: Look at what nature does and reuse these patterns.
• Integrate rather than segregate: design a system where different elements relate to one another.
• Use small and slow solutions: Small and slow systems are more sustainable.
• Use and value diversity: Diversity reduces system-level vulnerability to threats and fully exploits its environment.
• Use edges and value the marginal: the most interesting things happen in the border between things.
• Creatively use and respond to change: A positive impact on inevitable change comes from careful observation, followed by well-timed intervention.

Results

Permaculture has mostly advantages and very few disadvantages.

First, permaculture enables you to have higher yields from your garden.

Second, because the garden is self-sufficient, it takes less time to take care of it in the long term. Some permaculture enthusiasts highlight that all they must do is water it during periods of drought.

Third, it’s both cheaper and more sustainable as there is no need for fertilizers or pesticides.

The only disadvantage really, is that it’s quite complex to set up and it takes time.

Because the success of the project depends on each of its parts, obtaining satisfying results take time and effort.

It’s also not possible to engineer permaculture on a grand scale like modern agriculture.

Conclusion

Permaculture is an innovative and sustainable type of gardening for people that want to grow their own food.

Based on principles found in nature, such a garden is self-sustaining and promotes sustainable practices.

2022 has been particularly agitated for energy and asset prices.

As I am writing these lines, the S&P500 has lost 20% since January 2022.

Demand for mortgages has dropped 86% in the US compared to one year earlier, which leads many to think that a sharp decrease in real estate asset prices is expected.

Oil is at $90 per barrel after reaching $120 in March.

Gas has also decreased significantly in Europe from a high of €340/MWH in August, to €110/MWH, which remains expensive given that €30 would be considered a high price in 2018.

What about farmland?

Farmland has remained steady since its jump in value in February 2022.

We have spotted four trends that will influence the price of farmland in 2023.

1. Inflation and Interest Rates

As the world is seeing record levels of inflation, central banks (led by the US Fed) have no choice but to increase rates to decrease the volume of money in the economy to decrease consumption in general.

As money is getting expensive, everyone reduces their purchase, which reduces everyone’s income, which reduces consumption in general, which reduces inflation.

Understand: governments want everyone to consume less (and produce more, albeit they don’t always understand that ;)).

While in general, inflation is caused by overconsumption due to excessive money printing (aka credit), the situation we’re in is quite unique as it has partly been caused by energy shortages due to the sanctions imposed on Russia following the war in Ukraine.

It’s obvious that inflation was bound to happen with the extensive money printing we have seen in 2021.

However, it has been widely exacerbated by the lack of energy.

As a result, prices won’t come down before we find a long-term solution to energy shortages.

What does that mean for farmland?

The price of farmland follows the price of food which follows both the price of energy and general inflation in the economy.

As prices remain high, the price of farmland will remain high too.

2. The Energy Transition

The energy transition is in everyone’s heads at the moment.

The problem is that it’s not as simple as it seems.

There are roughly three trends that influence the energy transition.

1. Nuclear: nuclear energy is clean and cheap to produce. I will leave it to experts the question whether it is safe or not. While certain European countries have decided to close down their nuclear power plants, others like Sweden have decided to build more of them.
2. EV: the shift to electric vehicles is unlikely to happen before 2035 like the EU would like to. The power grid cannot at this stage sustain a complete shift to EV, and countries barely have the capacity to generate enough electricity for EVs anyway. These would require massive investments, but as interest rates raise, they’re unlikely to happen.
3. Renewable: the problem with renewable energy is that it’s not as reliable as we would like it to be. When the temperature drops, wind turbines freeze. When the sun sets, solar panels stop producing. In both cases, recycling is extremely difficult and unsustainable. “Green” isn’t always what it sounds like.

What does it mean for farmland?

As energy prices remain high, so will the price of farmland.

3. The War in Ukraine

As we highlighted when the war started, Ukraine produces and exports a considerable amount of food both to Europe and to other countries like Turkey and Egypt.

Until Ukrainian farmers can go back to their fields safely, food prices will remain high and farmland, a scarce asset.

As a result, we can reasonably assume that European farmers will try all they can to increase their production.

This should in turn increase yield and further push-up farmland prices.

4. The New Global World Order

The new global world order is being shaped by two trends.

1. Western decoupling from China

The US (and Europe, to a lesser extent) have made clear that it desired to leave China, bring back factories to their continent, and take back control over their supply chain.

This means that the West and China have fewer and fewer common interests with one another and will grow divergent as time goes by.

2. The Democratic West VS the BRICS

The BRICS club, which was supposed to mean Brazil, Russia, India, China, and South Africa, is getting bigger.

Saudi Arabia and a range of other countries have asked to join the group which is now trying to create a currency to stop having to use the USD as a global currency exchange.

What separates the West from the BRICS?

Democracy.

Western nations don’t hesitate to impose economic sanctions on non-democratic countries when they go too far.

This leaves these non-democratic countries to seek other economic partners that will not meddle in their internal affairs.

They found this economic partner in China.

As a result, we will increasingly see in the future the world assembling into two groups:

1. USA-Canada + Europe + South Korea + Japan + Australia-New Zealand
2. China + Russia + Saudi Arabia + India.

Many countries remain on the fence.

While they’re not completely democratic, they don’t trust either Russia or China.

Brazil under Lula, for example, is more likely to engage with the West. Brazil under Bolsonaro isn’t.

This principle remains true for South America (and not Latin America, since Mexico and the countries under it are likely to follow the US) and Africa.

What does that mean for farmland?

As economic interests diverge and the exchange of goods and services halts, countries will have to increasingly rely on their own production capacities.

Technically, it means that the farmland market may become smaller.

5. Risks

It’s 100% certain that we’re now in a recession, but the impact on prices remains to be seen.

As we have been highlighting since starting this blog, what makes farmland such a beautiful asset is that it produces food which people need to eat regardless of the economic situation.

Could farmland prices go down? They could if demand decreased.

But as the Ukrainian war continues, demand for farmland is unlikely to decline. The same can be said for the price of food.

We’re likely not going to see the formidable increase in prices from 2022 anymore, which isn’t a bad thing.

But as food security remains threatened, we’re unlikely to see any type of decrease in value.

Conclusion

When I was a student, I was living in Rotterdam, Netherlands and lived on €700/month.

My rent cost €290 and my food, roughly €250.

The age of “cheap” is over.

On one hand, the price of energy is unlikely to decrease.

On the other, workers around the world demand to be paid more.

As people are losing their jobs, demand for various goods is likely to significantly drop in the following months, which will decrease the price of assets selling them.

There are only a few assets that are unlikely to decrease in price, and very likely to increase, in fact.

1. Arm and defence companies: the age of peaceful economic relations from the 2000s is over.
2. Oil and gas companies: it will be a long time before we can offset Russia’s gas and oil production by our own means, especially without the help of nuclear energy.
3. Farmland: as:

• farming yields increase
• energy remains high
• farmland remains scarce
• local production is favoured

Farmland’s value is highly unlikely to decrease in price in 2023.

Interested to invest in farmland? Visit landex.ai today.

The content of LandEx’s blog is for informational purposes only, you should not construe any such information or other material as investment, financial, or other advice. Nothing contained on the LandEx Medium blog constitutes a solicitation, recommendation, endorsement, or offer by LandEx or any third-party service provider to buy or sell any financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

ESG means Environmental, Social, and Governance.

It is a set of criteria that some investors use to decide whether or not to invest in a company.

The environmental criteria look at how sustainable the company is, and what its impact on the environment is; the social criteria look at how the company engage with its employees, suppliers, and customers; and the governance criteria look at how the company is managed.

ESG investing is sometimes referred to as sustainable investing, or impact investing.

A Short Story of ESG

While ESG formally appeared in 2006, its roots go back to the 18th century in America.

At the time, the Methodists, a group of Christian Protestants, decided to stop investing in companies that they deemed negatively impacted society, such as tobacco, gambling, alcohol, or armament companies.

The first fund ruling out “sin industries” was started in Boston in 1928.

These principles evolved and were brought up to the forefront in 1960 during the Vietnam War, when students demanded that universities stop investing in armament companies.

This type of investing took the name of Socially Responsible Investing (SRI), the ancestor of ESG.

SRI was quickly extended to avoid companies dealing in war, apartheid, and to support fair trade and other impactful practices.

The term ESG first appeared in a rapport called Who Cares Win. This rapport had been suggested by the then UN Secretary General Koffi Annan to twenty financial institutions.

The purpose was to analyze how investors and institutions could invest their money not only for profit, but to encourage positive change in society.

According to the report, ESG practices will win in the long term due to the significant value delivered to shareholders on one hand, and the impact on branding and society on the other.

Several initiatives have since then been developed at the governmental level to encourage more and more companies to focus on ESG.

ESG Criteria

Environmental

The environmental criteria relate to everything related to the environment, such as:

• Direct and indirect CO2 emissions
• Energy use
• Pollution
• Resources consumption
• Recycling practices
• Animal welfare

The more respective of the environment a company is, the highest it rates on the environmental criteria of ESG.

Social

Social aspects look at how companies treat their internal and external stakeholders.

These stakeholders are the employees, the customers, the suppliers, and anyone else impacted by the company’s activity, such as local communities in some cases.

The social aspect ensures that the company has high standards for diversity and inclusion, for example, that the company practices equal pay, and that it fights against all types of discrimination.

Governance

The governance criteria relate to the actions the company takes to lead as well as how it engages with its shareholders.

Is the accounting transparent? Does the company hire and pay lobbyists? Does it fund political parties? Does it lie, hide things, or engage in unethical behaviour?

The governance criteria analyze how ethical and transparent the governance of the company truly is.

Advantages

ESG investors ensure that the companies they invest in won’t suffer from scandals due to the natural inclination of ESG criteria to focus on ethics and impact.

Furthermore, these investors can also have a good conscious knowing that the companies they have invested in are improving their practices and doing good both for the planet and society.

Disadvantages

Historically, “sin industries” that ESG investors don’t invest in have delivered more returns than ESG industries.

Furthermore, ESG does not necessarily equal returns. Many ESG companies have lost money, and the investing giant Blackrock has halved ESG investing since the beginning of 2022.

Conclusion

ESG allies both investment and positive impact on society.

It’s a great tool for mindful investors that want to make sure their money is used to a good end.

Sources:

Investopedia

Forbes

Forbes

NPengage

Investopedia

IFC

Short History

Estonia did not escape the collectivisation of farms under Soviet rule.

The Perestroika initiated by Gorbatchev in the mid-80s reformed the agricultural market and in 1989, the government enabled private farmers to set up their own farms.

The independence of Estonia in 1991 gave farmers the chance to own their land, and the number of private farms quickly increased.

Today, farming account for 3% of workforce employment and roughly 1.7% of the total GDP.

How Much Land Is There

Estonia’s size is 4.522 million hectares (45 520 km2).

The country utilizes almost 25% of its area for agriculture, exactly 986 050 hectares of land.

Among these, 226 605 hectares are farmed organically, which makes Estonia one of the countries with the highest share of organic farming in Europe.

What Does Estonia Grow?

Estonia grows cereals, potatoes, and vegetables worth €1 129 163 per year.

The types of cereals Estonia grows are:

• Wheat
• Rye
• Barley
• Oats
• Triticale
• Buckwheat
• Beans
• Rapeseed
• Linseed
• Corn

Evolution of Prices

Estonia began measuring its range of economic indicators such as the CPI or the inflation rate in the 1990s after the stabilization of its economy.

The reform of the Estonian economy to transform it into a capitalist system has enabled considerable economic growth which was accompanied by considerable price increases.

Taking the CPI index at 100 in 1997, the same index is now worth…281 as of September 2022.

This has been reflected in farmland prices.

One hectare of agricultural land in Estonia cost approximately €600 in 2009.

Today, average prices stand between €7000 and €9000.

As we can see, farmland prices have increased much faster than the rest of the prices in the economy.

This is due to several factors.

On one hand, Estonian agriculture considerably improved its productivity.

On the other, the formidable economic development of Estonia has also increased prices in general.

The Future of Estonian Farmland

Estonian farmland price has increased by approximately 12% per year from 2011 to 2021 (with a sharp increase in 2022 due to the war in Ukraine on one hand, and inflation on the other).

It is set to keep on increasing as new farming techniques enable Estonian farmers to grow more on one hand, and as Estonia is becoming more expensive on the other.

Risk

There are several risks investors should take into account when investing in farmland.

• Water availability
• Pollution
• Weather events
• Rising sea levels

Luckily, Estonia is one of the safest places to invest in farmland as none of these risks apply to Estonia.

Conclusion

Estonia is a safe and reliable market for farmland investment.

Farmland prices are set to keep on increasing further as Estonia develops its economy and as Estonian farmers improve land productivity.

Ready to start your farmland investment journey? Go to landex.ai, and invest in farmland from €10.

The content of LandEx’s blog is for informational purposes only, you should not construe any such information or other material as investment, financial, or other advice. Nothing contained on the LandEx Medium blog constitutes a solicitation, recommendation, endorsement, or offer by LandEx or any third-party service provider to buy or sell any financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Sources:

• https://andmebaas.stat.ee/Index.aspx?DataSetCode=PM59
• https://ec.europa.eu/eurostat/web/agriculture/data/database
• https://en.wikipedia.org/wiki/Agriculture_in_Estonia
• http://www.estonica.org/en/Economy/General_overview_of_Estonian_economy/Agriculture_and_forestry/
• https://www.stat.ee/en/find-statistics/statistics-theme/finance/prices/consumer-price-index