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Water is the Key to Farm Sustainability
With rising demand for agricultural commodities driven by population growth, improved standards of living and the drive for biofuels this sector has seen major growth for several years.
For several years now we have heard of foreign companies buying up huge tracts of land in Africa, Asia and South America for farming projects which in many instances are actually to sustain their own domestic demands, often these are from Middle Eastern countries that rely very heavily on commodity food imports, in some cases being 100% of staple products. Although we are now seeing a shift many countries remain attractive investment targets due to negligible entry costs, which in some African countries are as low as one US dollar per hectare for a fifty year lease. But when logistics and infrastructure costs are assessed and the potential for future land security issues are considered, in some countries the old adage "there is no place like home" often springs to mind. For this reason a surge in demand for European and US farmland has been seen, especially from foreign buyers who are now looking for land security and infrastructure in proven markets.
Another aspect which has been again brought to the forefront recently is access to water. This obvious fact is now one of the most fundamental needs of any long term agricultural project as the climate is changing. Recently crop failures in the USA and Russia, in both cases due to drought, have seen global food prices skyrocket yet again. Speaking to one farmer last week harvesting sunflowers and linseed in Russia he was able to confirm that despite the total loss of last year's winter wheat harvest, due to drought, the spike in prices for all food commodities has led to a rise in sunflower seed prices which alone has wiped out his losses. That said water remains the key, and not many countries can fulfil that consistently.
Jean Hubert of Sustainable Capital, who has been focused on this sector since 2001, explains why demand for farms in Romania is on the rise and is projected to continue growing well into the future. "An interesting fact regarding Romania and unless you visit the country one that is totally overlooked. During the late 60's, 70's and 80's Russia, working with the former regime under Ceausescu, had spotted the potential for Romania to become the bread basket of central Europe. Not just due to its vast acreage of flat plains of prime arable land, but because of its reliable access to water from sources including the mighty Danube and Carpathian Mountains. Backed by Russian investment the country developed the largest and most advanced irrigation infrastructure system anywhere in the world, containing thousands of miles of concrete channels, canals, storage reservoirs and pumping stations linked nationally to a network of underground piping irrigating vast acreages across the country. When the regime was finally overthrown in the late 80's and Romania became independent and democratic the financial legacy left behind, combined with a shift away from Russia, resulted in much of the system falling into abandoned disrepair, further exasperated by the theft of pumps and other essential equipment from pumping stations. However the fundamental infrastructure such as concrete canals and underground steel pipework remains and in certain regions backed by EU and foreign investment these are already back in service and bringing noticeable benefits to Romania's GDP, so much so that the Romanian Government recently took the decision to rehabilitate the entire network. Sustainable Capital has strategically bought lands with access to this irrigation system and by further investing in maintenance and renovation will bring improvements enabling us to achieve optimum yields which are in many cases in excess of countries with farm land prices ten-times our own, helping provide future food security and just as important investment security".
In recent years large buyers ranging from Investment Funds to groups of English and other European farmers have started to take advantage of this unique agricultural sweet spot. Jean Hubert added "Currently Sustainable Capital are involved in acquisitions for private clients, Investment Funds and a consortium of EU farmers totalling over 7,400 hectares (18,285 acres) with a land value alone of almost €20 million and we are seeing no slowdown in enquiries. Additionally, and with EU grant assistance, we are establishing a major farm contract business of our own to manage farms for our clients and our own investment portfolio; which based on size of machinery fleet alone will be one of the biggest and most modern in the region." Hubert went on to add that "the stage is set for Romania to reclaim the dominant position it once had as one of the major agricultural hubs in Europe. The conditions could not be more favourable, we are seeing a rare window of opportunity to secure sound investments at excellent p/e ratios, the time to act is now".
One of the funds advised by Hubert and his team is the Sustainable Resources Fund that is looking very favourably at this region where they see great potential for good investment returns whilst also combining modern practices to safeguard biodiversity and water stewardship.
At around 15m hectares the agricultural areas of Romania represent about two thirds of the country's land area, and with significant investments in training and technology resulting from the expansion of modern sustainable techniques there are increasing numbers of employment opportunities for local communities.
Notes for Editors
About Sustainable Resources Fund
The Sustainable Resources Fund is a sub-fund to the Amiri Shariah Investment Platform which is a Luxembourg-registered “Société d’Investissement à Capital Variable” organised under Luxembourg Law of 13th February 2007 relating to specialised investment funds (SICAV-SIF) and regulated by the “Commission de Surveillance du Secteur Financier” (CSSF), the Luxembourg financial services authority. It’s objective is to achieve capital growth over the medium to long term via investment in sustainable and commercially viable forestry and agricultural assets globally.
About Sustainable Capital Luxembourg S.A.
Sustainable Capital was founded on the belief that corporate and social responsibility plays a key part in today’s investment decisions, as well as providing solid financial and tax efficient opportunities. The firm's competitive edge is a function of its market leading access to world class sustainable projects and a strong and experienced management team with an unrivalled breadth and depth of investment, commercial and sustainable project management experience. In addition to acting as investment advisor to the Regulated Sustainable Resources Fund and other Funds, the team sources and evaluates forestry and agriculture opportunities for Institutional Investors, Pensions Funds, Hedge Funds, Family Offices and private HNWI clients seeking standalone projects to meet their exact asset allocation and strategic needs.
They are currently working with agricultural, forestry and plantation managers, land owners and investors on more than a dozen projects on four continents and can offer their partners unrivalled expertise and a commitment to meet the most demanding environmental and commercial criteria.