Preparing for the transformational changes in agriculture

A few European recent trends are noted below:

• The price of agricultural land in Europe has been rising in recent years, driven by demand from investors and farmers. According to a recent study by the European Commission, the price of agricultural land in the EU has increased by 15 percent in the past five years²opens in a new tab;
• The number of farms in Europe is recording a declining trend, as smaller farms are absorbed by larger estates. This is driven by a number of factors, including the need for economies of scale and the increasing cost of land. A study commissioned by the European Commission states that the number of farms in the EU has decreased by 20 percent in the past decadeopens in a new tab³opens in a new tab;
• Technology is playing an increasingly important role in agriculture, with farmers using drones, sensors, and other devices to improve efficiency and productivity. According to a recent study by the European Union, the use of precision agriculture technologies has increased by 25 percent in the past five years⁴opens in a new tab.

There is continuous investment and momentum built by the EU deploying capital in the agricultural space through its Common Agricultural Policy (‘CAP’). The CAP is a set of policies that support farmers and rural communities, which accounts for a significant portion of EU’s budget. The new CAP period will provide €270billion in funding for the 2023-2027 period⁵opens in a new tab. In 2021, top 5 countries which included France, Spain, Germany, Italy and Poland received €33 billion⁶opens in a new tab of CAP funding.

Another factor attracting investors is the rising focus on Environmental, Social and Governance (ESG) issues, with growing awareness of climate change, emergence of green funds and net zero targets all having caused significant investor interest in sustainable agriculture.

The sector has also attracted more focus from private equity investors, with recent notable transactions being: (i) EW Group’s €900m acquisition of Planasa (Spanish producer of red fruit varieties); (ii) Americold’s $1.7billion acquisition of Agro Merchants Group (owning and operating 235m cubic feet of refrigerated storage spaces across 10 European countries) and (iii) Partners Group’s $1.1billion acquisition of Rovensa (sustainable bio-nutrition, biocontrol and crop protection services, helping farmers produce safe, nutritious food).

The agricultural space is certainly gaining traction and we would expect to see more dry powder being deployed by private equity investors in this space, given their focus on green asset investments and portfolio diversification going forward.

What these recent trends may mean for your accounting?

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