The Coming Farmland Boom, Pt 2: Colombia

In part one of this series, we examined some of the value drivers that can spur the appreciation of farmland in emerging markets. Now, we’re going to take a closer look at one country where these factors seem to be present - Colombia.The agriculture sector in Colombia is ripe for transformation. The country features a wide range of climates and soil profiles, making it ideal for a variety of high-value crops for export. In addition, Colombia is well situated to supply developed markets in North America and Europe, and has access to both Atlantic and Pacific sea lanes.Colombia is a prime example of a trend that we have observed elsewhere on the continent, such as Chile, where infrastructure, market access, and improvements to the legal framework have created an agricultural powerhouse. In part two of this series we will assess these factors individually and determine if farmland in Colombia is on the cusp of a boom.Market AccessThe value of a piece of farmland is in large part determined by the markets that it can access. In Colombia, new and existing free trade agreements, especially with developed markets in Europe and North America, have created conditions for Colombian agriculture exports to increase, especially in the tropical fruit space.In recent decades, Colombia has cemented its reputation as a free and open economy. In addition to being a founding member of the Pacific Alliance trade bloc, the country has entered into multilateral agreements with major agricultural importers such as the US and the European Union. Recent agreements with Israel and a post-Brexit agreement with the UK - which accounts for over $400 million dollars in annual export value - promise to create new channels for Colombian goods.In addition to free trade agreements, non-tariff barriers to trade have also decreased significantly. For products like mango, lime, and avocado, phytosanitary agreements were reached in 2019 with China and the European Union. This is especially significant for avocado, which increased 37.6% last year in terms of exports.

Colombian Avocado Exports, 2014-2018 (Statista)

Colombia is quickly positioning itself as one Europe’s top suppliers of produce, especially in the organic category, where exports to the EU increased by 38% from 2018 to 2019. This increase highlights the rising popularity of the Colombian origin. In the future, streamlined bureaucracy and phytosanitary regulations will only increase Colombia’s market access, raising the value of the country’s farmland.Infrastructure Infrastructure in Colombia is poised to benefit from several major projects that will pump tens of billions of dollars into the country. The Via Pacifico project, part of the larger Fourth Generation infrastructure plan, will serve to connect the interior regions of the country with ports on both coasts, and will have massive implications for agriculture-focused regions, especially Antioquia and Cordoba.For example, estimated reductions are vehicle-operating reach as much as 30% in some cases, as with the route from Medellin to Cartagena, and to Manizales, time in transit will decrease by an estimated 11 hours. These reductions present a massive opportunity to integrate supply chains and reach international markets.The country’s port infrastructure is also set to drastically expand. One of the most significant improvements in this area will be the Port of Antioquia, a USD $300 million project strategically located in the Free Trade Zone near Urabá, on the Atlantic coast. The multipurpose installation will be able to move more than 6.6 million tons of cargo per year, and will provide improved logistical efficiencies to Colombian exporters across a range of economic sectors.

Port Container Traffic in Colombia, TEUs (Statista)

In an industry such as agriculture, where logistics can have such a huge impact on margins, the infrastructural improvements currently underway in Colombia will be tremendously beneficial. Shorter time-to-market will help Colombia establish itself as a consistent and high-quality origin, and new ports and roads will make goods from the country’s beautiful and fertile rural regions accessible to the world.Legal ProcessesAs we discussed in part one, a key factor for the appreciation of farmland is the existing legal framework for ownership and transaction, especially for potential foreign buyers. In Colombia, this type of infrastructure has improved markedly, as former hinterlands become integrated into the country’s titled and registration system.Largely responsible for these improvements is the UPRA, a government rural planning organization that has conducted extensive surveys and land registration campaigns, and has made significant improvements to the legality of land transactions in rural areas. The organization estimates that over 40% of the country’s continental land area is now integrated into the legal framework for land transactions.For foreign buyers of Colombian real estate, the last 15 years have seen favorable changes to legislation governing property ownership. Foreign nationals have the same rights as native Colombians when purchasing property, and foreigners can also return proceeds from the sale of land to a foreign domicile without limitations.

Ease of Doing Business in Colombia (Statista)

These features make Colombian farmland legally accessible to foreigners. The security of land transactions allows for increased liquidity, and a stable legal framework has given buyers confidence in the security of their purchases. The country’s government is conscious of the value of foreign investment in land, and has worked to ease legal processes for rural real estate.Final ConsiderationsIt seems highly likely that the value of Colombian farmland will continue to rise. But ‘boom’ status is a bit more difficult to identify. Although infrastructure, market access, and legal factors all seem encouraging, there is a vast universe of considerations to take into account, and even then, the future cannot be predicted.Farmland booms in Colombia are likely to occur, but they may be concentrated in certain regions and agricultural sectors. For example, as global beef consumption continues to decline, land dedicated to cattle ranching will probably become less valuable, and the same can be said for row crops such as grains and soybeans.Nonetheless, an opportunity exists to convert much of this pasture land to more sustainable and more profitable purposes, and the land may come at a discount due to the declining viability of cattle ranching. Additionally, the country possesses vast swaths of arable land that, at present, are going unused. With economies of scale at play, Colombian farmland could benefit substantially.In summary, it is impossible to say whether a farmland boom will or will not occur in Colombia. However, the factors that have impacted farmland valuations in other regions certainly seem to be present. Colombia’s rapidly improving infrastructure, increased access to foreign markets, and stable legal framework for land transactions all bode well for the nation’s farmland. Only time will tell, but Colombia could very well be the world’s next big agricultural success story.Read more from Farmfolio.