by Plamen Doudov
Springtime is all over the plains after only a short visit from a winter which saw record breaking high temperatures. The juices of life are bubbling beneath our feet and the smell of the land is in the air. And there is good news for foreigners in Bulgaria who are feeling the call of the fields: you can buy your own land here even if you are not a Bulgarian.
All EU citizens have the legal right to acquire ownership of land and forests, even those included in ecologically protected areas.
In 2006, deals were closed for 900,000 decares* of agricultural land at an average price of 200 leva per decare. The most expensive land is located in the central part of southern Bulgaria, followed by the southeast and the northeast of Dobrouzhda, where arable land is prevalent and is acquired on an entirely rented basis. The market for agricultural land is slowly gaining momentum after the decline in real estate property investment.
Until now, investment in land has been justified solely by the extremely low prices and not by the returns it could bring to the owner in terms of rent. The price of land in Bulgaria is five to 10 times cheaper than in the EU, depending on the country, and is expected to gradually reach EU levels over the next five years. For example, the average price of good quality land in the new members Poland and Hungary ranges between 300 and 500 euros per decare. As a whole, the average price of agricultural land in EU member states varies from 800 to 2,000 euros per decare.
The same expectations apply to the renting of land. At present, the rent for land in Bulgaria is just 50 percent of the EU average. In fact, rent in Bulgaria has already doubled from an average of three-five leva a decare in 2005, to seven-10 leva in 2006. There are major disparities between the different parts of the country. In the southeast, rent reaches 30 leva a decare, while in the northwest, you wouldn't expect to pay more than eight leva a decare. For the time being, this is expected to remain unchanged, as before rents are hiked there must be investment in arable land, machinery and human resources to increase the yield. It will take at least a year before the results from EU subsidies for agriculture, effective from 2007, will be seen.
Quality goes hand in hand with quantity. The demand for arable land is predominantly for large plots of land. This to some extent characterises the regional differences in price, as certain regions like Plovdiv and Dobrich allow for the formation of larger areas of arable land and prices could easily surpass 500 leva per decare. The prices and rent of larger land plots, over 500 hectares, are expected to double in three years. However, supply of larger plots is low at the moment.
The general trends on the land market over the next year are increasing prices, the pooling of small private land plots into big collective acreage and the emergence of big tenant farmers. Bulgarian law gives preferential treatment to tenant farmers, giving them priority over other potential buyers. The only prerequisite here is the presence of a long term rent contract (for at least two years) between the parties involved before the deal is closed.
The low supply of land is due to the presence of many small landowners and respectively the scarcity of larger plots of land for sale or cultivation. Both owners and entrepreneurs have high expectations of the effects the EU agriculture subsidies will have, and sellers are waiting to get better prices for their land. This means that drastic increases in prices this year are unlikely. After all, land as an investment either brings dividends, rent or production, which are interdependent, as revenues depend on productivity and prices on the EU markets.
The emergence of agricultural investment funds is probably the best solution to cracking the agricultural sector in Bulgaria. These funds raise capital on the stock exchange to invest in land which is aggregated and rented to enterprising farmers. Revenues from rent result in dividends. Small landowners can also benefit by exchanging their property for shares in a fund, which means they can enjoy higher returns than they would otherwise have received from simply renting their land. Tenant farmers will benefit from the more effective cultivation of larger land plots. The agricultural funds are also attracting the attention of many foreign investors who expect high dividends from their shares. This is certain to agitate the agricultural land market and increase prices over the next two to three years. In 2006, investment funds accounted for 50 percent of the closed deals in land.
Today, everyone involved in the agriculture sector in Bulgaria is directing their attention to EU subsidies. Four million hectares of arable land are eligible for funding. During the first year of EU membership, all Bulgarian producers who are duly registered and cultivate more than one hectare of land will receive financial assistance. The subsidy is expected to be between 45 and 50 euros per decare. These conditions impose on small owners the choice either to enter into land cooperatives in order to be eligible for EU funding, or rent their land to other farmers. EU subsidies will push rent up due to the increase in arable land plots and their better professional treatment.
If you have already decided to start a farm and have purchased a considerably large land plot, you will need to know how to go about getting EU subsidies. First, you must register the land with the municipal agency of agriculture and forestry in order to be included in the registry of arable lands in Bulgaria. This is followed by a formal declaration by every registered producer on the area of land. Next, you must apply for EU funding at the local revenue agency within the "Agriculture" State Fund and expect the result towards the third quarter of the year. In 2007, as an EU-member country, Bulgaria is destined to receive 200,000,000 euros.
When buying land, make sure that its ownership is clear, as sometimes a group of owners will be selling the plot. This is easily verified by consulting the local land cadastre and means that you will avoid having a grumbling owner who was left out of the deal on your hands. Fortunately, if you just want to rent the land, the law permits a contract to be signed with only a single owner without necessitating the participation of the other owners, if any.
During the first three years of Bulgaria's EU membership, agricultural subsidies will be in the form of direct payments per hectare of arable land. At the end of this period, landowners may apply to continue to receive subsidies for a further year, and at the end of that year may apply a final time for another year's extension. That is, they may have a total extension of a maximum of two years through two consecutive applications. After this period, the subsidies will go towards differentiated agricultural production and this will increase the tendency for small owners to sell or rent their land. Massive sales are expected towards the end of the subsidy period, as prices are expected to be considerably higher then than they are now.
An attractive alternative to traditional farming is the production of organic food of a guaranteed origin from ecologically sound areas, or even from areas under environmental protection. Bulgaria ranks in the top 10 countries worldwide in terms of the growth of areas cultivated with biological crops during recent years. This mode of production is extremely profitable compared to regular agricultural production and is very well accepted in EU countries, particularly in the Netherlands, Germany, Austria, and Switzerland. At present, organic agriculture areas in Bulgaria represent just 15,000 hectares, which is insignificant compared to the 4,000,000 hectares of arable land in the country. Ninety percent of their product is exported. EU membership brought an end to imposed restrictions on exports and now local firms can export organic products directly to the European market.
A pair of oxen and a wooden plough are not enough to make you a farmer, you need to exercise careful consideration when investing in agriculture. Consider the cost of land and the rent or subsidies you will receive in return. You could buy land with an eye for reselling it later at a higher price without getting involved in farming activities, but better options to consider are getting returns through rent, or, alternatively, buying shares in an agricultural investment fund. Land must be cared for and well-managed to produce good crops, only then will you reap the fruits of your labour.
Four Steps to EU Funding
- Buy land
- Register for funding
- Declare arable land
- Apply for EU funding
* 1 decare=1,000 sq m=0.24 acres