December 06, 2017, 00:21 / Business

Land prices in Russia have reached five-year highs

Next year, farmland may become cheaper Irina Sinitsyna

Sanctions for those who do not cultivate their land have reduced the number of speculative investments / Ilya Naymushin / Reuters

The value of agricultural land in the main grain-producing regions in 2017 reached its highest level in the last five years - both in rubles and in dollars. Analysts from the Sovekon industry center came to this conclusion based on the results of an annual study.

Among the fundamental reasons are record profits for agricultural producers in the 2016/17 season, associated with good harvests and relatively high ruble prices for most goods, says Sovecon director Andrei Sizov.

In addition, there remains high demand for land from predominantly Russian capital represented by specialized investors, he adds. Among the most active public buyers, Sizov names the agricultural division of AFK Sistema , Agrocomplex named after. N.I. Tkachev, the family of the Minister of Agriculture and Volgo-Donselkhozinvest, the family of Sergei Kukura, advisor to the President of Lukoil Vagit Alekperov. Also, new players like Roman Avdeev’s structures continue to enter the crop growing business. Over the course of the year – from the fourth quarter of 2016 to the third quarter of 2017 – Sistema’s structures, according to AFK, increased the land bank by more than 1.5 times – from 247,000 to 380,000 hectares. In the spring, Volgo-Donselkhozinvest closed a deal to purchase the Russian assets of the Swedish Black Earth Farming - 244,000 hectares. At the end of 2016, Avdeev’s Rossium concern bought 99% of the Lipetsk agricultural holding Agronova-L, which grows grains and oilseeds on more than 70,000 hectares in the Lipetsk and Tambov regions.

The agricultural complex of the family of the Minister of Agriculture became the fourth among the owners of farmland

Business / Agroprom

At the same time, Russian agricultural land is still undervalued compared to land in other countries, for example in Eastern Europe, adds Sizov. But in some regions, for example in the Kursk region, prices are unreasonably high, says Alexander Krasnov, head of the legal department of the Miratorg agricultural holding.

Land has become more expensive in recent years, but this year the growth has slowed down or even stopped, notes Vladislav Novoselov, managing director of the industry consulting company BEFL. The main reason for the previous growth, according to him, is the increase in profitability in agriculture, largely due to devaluation.

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In the coming year, the growth of land prices in the south may slow down significantly, and in regions more distant from export ports it may even stagnate or even decline, Sizov believes.

AFK Sistema is expanding its land bank

Business / Agroprom

Domestic prices for all major agricultural commodities - primarily grain - have fallen very much this year amid a record grain harvest, he explains. According to Sovecon, in November the main export product - 4th grade wheat in the south was 10% cheaper than a year ago, in the center - by 20%, in the Volga region - by a third. In 2017, the prices of all major goods dropped significantly, agrees Novoselov, and problems with storage and transportation significantly reduced the income of market participants. Many yesterday's land buyers took a break in anticipation of a price drop, Novoselov sums up.

Land prices - especially in the central regions - have already begun to decline, Krasnov points out: “Today land can be purchased 10–15% cheaper than at the beginning of the year.” At the same time, according to him, the quality of supply has improved: there is a choice of large tracts - from 5000-6000 hectares, more cultivated land is offered, previously they gave a premium to the market for such, he recalls, but now - no.

In addition, the number of speculators has noticeably decreased, Krasnov continues: holding land in anticipation of growth is no longer profitable due to high taxes and fines for those who do not cultivate the land.