As we prepare to welcome the New Year, we can look back at what happened in the agricultural land market during the now "old" 2008. In retrospect, we can say that the market exhibited quite interesting behaviour. By the end of the third quarter, average agricultural land prices rose to as much as 1900 and even 2000 euro per ha, 50 per cent higher than their 2007 value of about 1300 euro per ha. The market attracted more and more investors, big and small, and saw much speculation.

The year 2008 also saw the first payment of EU subsidies per unit of land. Gross domestic product (GDP) for the third quarter registered good results for the agricultural sector with a 24 per cent increase compared to 2007. All this led to unusually high expectations among landowners willing to sell their holdings. However, by December, average agricultural land prices eased down to about 1600-1700 euro per ha, a much healthier level. It should be stressed that agricultural land prices have demonstrated a liveliness not currently evidenced in other real estate sectors, some of which have already exhibited severe downtrends in prices.

The year will end with an increase of average agricultural land prices of about 20-25 per cent over 2007. It may be safely expected that agricultural land prices in Bulgaria will rise annually at about this rate for the next few years at least. Of course, this will hold for well managed and properly used lands of larger sizes and suitable locations. This leads us to our next point.

Consolidation and value
The restitution processes of the 1990s have led to the severe fragmentation of agricultural land in Bulgaria. As a result, almost 90 per cent of arable land is held by about nine million owners, split into approximately 11 million plots averaging 0.2-0.5 ha each. This is a hindrance not only to modern agriculture but also to land value. In Western Europe, by contrast, agricultural lands have seen consolidation processes go on for centuries either on a voluntary or a compulsory basis.

The year 2007 - and especially 2008 - saw many Western investors willing to purchase agricultural lands in Bulgaria at superior prices. Most seek consolidated land masses averaging several thousand ha. Such land masses, however, do not currently exist.

What should we anticipate?
Apart from increasing agricultural land prices, we can hope for certain legislative changes to help the land market and the agricultural sector as a whole. It is painfully obvious that consolidation must get under way. The driving force of changes to come will be institutional investors in the land market with their concentrated funds and initiatives. One of the major processes, which should take place during 2009, will be the beginning of land consolidation within and among land portfolios held by real estate investment trusts (REITs).

Next year will see active swapping of holdings between REITs on a territorial basis, accompanied by the sale of excess lands deemed inappropriate and the further purchase of lands where REITs have achieved concentrated holdings. The unifying factor will continue to be the Bulgarian Association of Agricultural Landowners, comprising most of the REITs investing in agricultural lands as well as some large private companies. The total area of land accumulated by its members is more than 150 000 ha.

To support the consolidation process, in mid-December the association submitted several proposals for amendments to the Ownership and Use of Agricultural Lands Act to the Ministry of Agriculture and Parliament's agriculture committee. These proposals address several issues, which have been found by investors to hinder the consolidation process. One of these issues is the legal requirement for landowners to first offer their land for sale to the tenant farmers cultivating it before they can offer the land freely on the market.

This provision has been misused on far too many occasions by tenant farmers who, for one reason or another, are unwilling to buy the land they cultivate but want to keep working it. They fail to give their consent to their land being sold to someone else, hence they either delay or effectively block land deals. It is proposed that this requirement is struck out.

Another issue addresses the continuing fragmentation of agricultural lands where several heirs own a single plot. They usually proceed to divide the plot among them, creating several smaller plots. The proposition is to discourage this process through severely increasing state fees for division, while, on the other hand, removing fees for the consolidation process.

Bulgarians have a strong sentiment for land ownership and an act forcing consolidation would risk being construed negatively. This is mostly why the current state strategy for consolidation has failed to produce actual results. However, they must understand the importance of consolidation, even if only viewed through the perspective of added value to their holdings. This stresses the need for an information campaign to accompany possible legislative actions.

While the proposed amendments are in parliamentary discussions, hopefully 2009 will see some legislative aid to investors' consolidation efforts. Either way, 2009, or susequent years, will see a positive qualitative change in the agricultural land market and the agricultural sector as a whole, one that goes beyond just increasing land prices.

Hristo Dimitrov is Head of Projects and Analyses at ELANA Property Management, the fund manager of the biggest REIT investing in agricultural land in the country, ELANA Agricultural Land Opportunity Fund.