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15/10/2013

New publication provides an assessment of private equity funds for primary agricultural investment in the CEE and CIS region

In recent years there has been notable growth in public and private investment in primary agriculture, particularly by private equity funds. This relatively new phenomenon has led to private and quasi-private large-scale acquisitions of farmlands that often enhance efficiency and productivity while also contributing to modernizing the primary sector. As a result, private equity funds that invest a substantial part, or all, of their capital in primary agriculture have increased both in number and volume globally. As this is a new trend, both economic and social implications must be explored to understand the likely evolution of these investments.

The FAO Investment Centre, at the request of the European Bank for Reconstruction and Development (EBRD), has published a new study, “Emerging investment trends in primary agriculture: a review of equity funds and other foreign led investments in the CEE and CIS region”, which provides an overview of existing investments in private equity funds and other similar vehicles and the potential for these in ten selected European and Central Asian countries with significant agricultural commodity production.

Based on the analysis of existing experiences in the Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) regions, the study reviews existing and planned investments in primary agricultural production and the macro-economic drivers for such investments, their returns and risks, the financing and corporate structures utilized, and the characteristics of equity funds focused on such investments. Moreover, the study focuses mainly on large-scale arable agriculture, as this segment of primary agriculture has been the primary focus of private equity funds and institutional investors in CEE and the CIS.

Data and analysis on these private equity fund investments in the region is lacking, primarily because the trend only developed after the commodity price spike in 2007-2008. The study reviews seven publicly listed farmland companies that are mainly invested in the Russian Federation and Ukraine.

“While there have been individual standouts in terms of investment, the profitability of the large-scale investment model hasn’t been proven on a consistent basis,” commented Ian Luyt, main author of the study, “It is still too early to make firm conclusions but one thing has become clear: management, both strategic and operational, is key to the success of these investments.”

More information on agricultural investment in the region can be found in the EastAgri Rural Finance sector.

 For the full report, please click here.