Risks; challenges and mitigations
Each investment involves risks. The risk profile of farmland investments is very low. However, there are three factors which cannot be controlled by Cibus Farmland Club:
- The weather conditions
- The purchase prices (land, sowing and planting material, oil)
- The sales prices (land, soft commodities)
Land ownership
Romania has a properly functioning land register after the Dutch model. Experiences with problems in the area of purchase, transfer and title to ownership are rare. If deemed necessary risks in this area can be insured. Thorough juridical preliminary research with respect to the title to ownership and due diligence limits the risk considerably.
Agricultural/meteorological
Extreme climate conditions can damage a crop or let it fail partly (if one applies crop rotation). The same applies to diseases, insects and weed. Investors should never forget that it concerns living material and the influences of nature can never be fully controlled. Risk limitation in the form of careful examination and balancing of the historic course of the weather conditions in the prospect purchase region is of eminent value for buying farmlands. Just like current, preventive agricultural measures in the area of crop protection where necessary and possible.
Political
Restrictions in the area of export, land ownership, environment, juridical nature, subsidy changes, tax increases. Risk limitation is brought about by proper carefulness with regard to policy decision and development of operation models which can also be profitable without subsidies.
Cultural
The indolence or careless nature of conducting business with Romanians. Risk mitigation is brought about by anticipation and extreme alertness with regard to critical subjects and aspects which may involve local habits, corruption or informal contacts. Broker due diligence is critical: there is plenty of false intermediation and less than reputable agents operating in this space.
Project Partners
Large responsibility and dependency on farm operators. To this applies: the chain is only as strong as its weakest link. Risk mitigation: thorough due diligence when choosing farm managers: they must have broad experience, knowledge and track record, followed by permanent, intensive guidance and consultancy by Cibus Farmland Club.
Missing lease income
All annual subsidies to the operating company (around 4%) will serve as a collateral for the lease income of the property holding company.
Inflation
The value of the invested funds may decrease due to monetary depreciation. If the inflation in Romania differs from the inflation in the country of the investor’s origin this can have negative but also positive consequences for the value of the investment portfolio. This is beyond the control of Cibus Farmland Club.
Exchange rates
The value of land assets is set out and traded in Euros.
Raw material prices
Volatility in purchase as well as selling prices. Risk mitigation brought about by a proper timing of the sales of the crop yield and a good financial planning.
Exit timing
A relatively illiquid investment can impede quick liquidation. Risk mitigation is brought about by the purchase and development of high-quality soils, linked to good management due to profitable operations. This results in a high quality and competitive company. This will strongly contribute to a quick sale against market prices. Today’s experience shows that the sale of such a Dutch’ agricultural company in Romania involves an average completion time of 3 to 6 months. Good planning and proper preparations are also required.
