November 2, 2010 / 10:04 AM / 7 years ago

Investors eyeing Balkan farms as long-term play

SVILAJNAC, Serbia (Reuters) - Foreign investors are showing renewed interest in agriculture in the emerging Balkans, where land and labour are relatively cheap and crops plentiful, although strewn with many potential pitfalls.

To date, foreign firms have invested in dairies, meat processing, crops and others areas in Serbia and other non-European Union members of the Balkans, and more are considering investments as the world economic crisis eases.

“We have had, in particular, contact with investors from the Gulf who need diversification in order to assure their food security,” Serbia’s Deputy Prime Minister Bozidar Djelic said. “Several very powerful groups in the Middle East are seriously considering the 3.2 million hectares that Serbia has to offer.”

According to U.S.-based agriculture consultants HighQuest Partners, the total value of investment funds in agriculture worldwide is $15-$20 billion, excluding sovereign wealth funds. “We’re seeing a tremendous surge in people interested in investing,” said Chris Erickson, a firm partner.

Some experts say the Balkans offers even better value after the battering of the financial crisis, attracting food producers and equity funds alike.

For example, the London-based asset management firm Agrotrust ( has been interested in Serbian farmland since 2004 but at the time did not attract financial investors. It will try again next year to raise 250 million euros to buy and manage farmland mostly in Serbia, Poland and Romania, with an eight-year fund life.

“People are now seeing farmland investment as a very, very clear subdivision of the real asset class,” he said. But “there is still some hesitation in the market...certain reluctance to be the first mover”.


One investor who sees big potential in Balkan agriculture is former investment banker Placide Machoud of Switzerland, who in 2008 invested in a Serbian olive and pickle bottling factory and this year expanded to greenhouses for herbs.

“The potential is enormous; the advantage of Serbia is that it is very close to Europe,” he said on his farmland in Svilajnac, about an hour’s drive south of the capital Belgrade. “The idea is from here to serve the European market.”

He has put up more than half of at least 3 million euros in investment in the two enterprises, separately partnering with Dutch and Israeli investors. Both businesses are profitable, with the pickle/olive operation to see more than 1 million euros in sales this year, he said.

Serbian regions such as Svilajnac are anxious to lure foreign investors with big incentives for providing jobs.

“Any investor in agriculture will get free land from the district with gas, telephone, water and electric links,” said Svilajnac Deputy Mayor Predrag Milanovic.

Several Balkan countries hope relatively backward farms can turn into a market advantage by producing organic crops.

“Bosnia has great potential for agricultural development, where thanks to the low cultivation rate during the postwar years, in most cases, the soil provides optimal conditions for organic agriculture. However, this potential is barely used,” said Zoran Puljic, general manager of the Mozaik Foundation, a community development foundation.

Even once closed markets such as Albania are hoping to boost their food exports in niche markets such as organic fruit and vegetables, olive oil and herbs.


Several private equity funds have been investing in food related industries in the Balkans for years.

    In 2006, the British Ashmore Special Situations Fund 3 partnership took a majority stake in Carnex CRNX.BEL, one of Serbia’s largest meat companies.

    Salford Capital Partners is a major dairy player in Serbia and the firm expects about $300 million in revenue this year at its Imlek Group dairy group IMLK.BEL.

    It also owns several other Balkan food companies which it wants to sell in the next two years to majors such as Danone (DANO.PA), Nestle NESN.VX or PepsiCo PEP.N.

    However, investing in the Balkans can bring unwelcome surprises, as was the case of two Canadian investors who in 2005 bought a major dairy farm BD Agro ( north of Belgrade in a privatisation sale in 2005.

    After an initial purchase for 5.9 million euros, they were surprised to inherit 5.4 million euros in debt rather than the 3 million suggested by original documentation, said BD Agro Chief Executive Ljubisa Jovanovic.

    Despite an injection of modern computer technology and imported Canadian cows, it remains unprofitable, hurt by an end of subsidies to big producers in 2008, Jovanovic said. The firm has invested a total of 39 million euros into the farm over the past five years, and had operating costs of 42 million.

    But co-owner Djura Obradovic remains bullish about Serbian agriculture: “It is a good opportunity. Land is still very cheap, cheaper than anywhere else in Europe.”

    Other obstacles include fragmentation of Balkan lands.

    “Strategic investors in the agricultural sector are lacking in the region primarily due to the fact that the markets are quite fragmented,” said Vedrana Jelusic Kasic, EBRD senior banker responsible for regional agribusiness banking operations. “Potential for development of that sector is quite strong.”

    There are also tricky bureaucratic hurdles, uncertain legal systems, corruption and other issues of post-Communist transitions. Croatia, which hopes to join the EU in 2002, and Serbia, which is still likely 8-10 years from joining the bloc, do not allow direct foreign ownership of agriculture land, a provision often overcome by creating a local company. (Additional reporting by Igor Ilic and Zoran Radosavljevic in Zagreb and Benet Koleka in Tirana, Maja Zuvela in Sarajevo; editing by Sue Thomas)

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