Concerned about food security? Buy farmland in Romania while you still can
With growing expectations of a global recession generated by the COVID-19 pandemic, avoiding disruptions to the food supply chain and food production continues to be a priority. One of the key measures for ensuring food availability is to maintain and support agricultural activities and markets.
Romania, which ranks seventh in the EU by largest utilised agricultural land area and has seen record yields for cereals in the past years, is well positioned to contribute to the achievement of food production objectives. The price of farmland remains attractive when compared to elsewhere in the EU, while the Romanian climate is largely favourable for agriculture.
Against this background, Romania has seen an increasing wave of agricultural investments during the past years, when major players entered the market via large-value acquisitions.
Entering the market doesn't come easy
This trend is expected to continue post-pandemic, as the focus on ensuring food availability remains a priority. Still, investors need to find ways to navigate the particularities of the country's farmland and the various local laws.
While major agri-business players mostly look for large deal sizes, these are not easy to find in Romania. Although the consolidation of fragmented farmland increased in Romania during the last years, the country has the highest share of small farms (i.e. farms with land less than 5 hectares) in the EU.
Investors usually enter the Romanian agriculture market by acquiring local players holding consolidated farmlands and further grow their business. Depending on the business model chosen, a potential investor may acquire the right to use the land by purchase, swap, agricultural lease or, if the owner is a public entity, by concession. If the investor has sufficient economic power, the preferred option will most likely be to acquire the ownership right.
Under Romanian law, to purchase agricultural lands a potential investor must comply with Law 17/2014, which regulates the sale and purchase of such real estate assets ("Law 17"). Among other things it aims to ensure food security, the exploitation of the country's resources in accordance with the national interest, the consolidation of agricultural lands and the establishment of economically viable farmland.
The plot thickens
Law 17 is set to be drastically amended by a new law recently adopted by the Parliament and sent for promulgation by the President of Romania.
The new law sets forth more categories of pre-emptors, new conditions to be met by the lessor exerting the pre-emption right, as well as a lengthier duration for the publication of the sale offer.
Also, an interdiction is introduced for the land to be sold for a period of eight years, under penalty of an 80 % tax on the difference between the sale price and the purchase price. There is no "but" here, as this 80 % tax may not be avoided by entering a share deal.
Further, to qualify as pre-emptors lessors need to have their domicile/corporate seat in Romania for at least five years at the moment the sale offer is published.
Much debated, this piece of legislation seems likely to slow down foreign investment in local agriculture, as it imposes major restrictions on the sale of agricultural land to foreign nationals and on the right of an owner to sell its land. Still, it is reasonably expected that the ongoing constitutionality check would result in at least part of these changes being discarded.
Romania is well positioned to benefit from the growing general concern for increased food security by continuing to attract and support investments in the country's agriculture sector. But it remains to be seen how the recently announced legislative changes will impact investors' interest.
Authors: Mădălina Mitan, managing attorney at law and Ionuț Sava, senior attorney at law, specialised in real estate and constructions, Schoenherr si Asociatii SCA