The Agricultural Transformation: Future of Farmland Prices In India

Published on:
December 11, 2023

India, with its rich agricultural heritage, plays a significant role in the global agricultural industry. It boasts the world's second-largest agricultural land and sustains around 55% of its population through farming. This sector not only supports livelihoods but also drives the nation's economy. In this article we'll explore the changing Indian farmland landscape, focusing on the future of farmland prices and investment opportunities. 

The Shifting Landscape of Indian Farmland

Historical Farmland Prices in India

For the longest time, the price of farmland in India remained relatively stable. In rural areas like Vadicherla, located in Andhra Pradesh's Mehbubnagar district, farmland prices stayed below Rs 20,000 an acre. However, in recent years, this stability has given way to puzzling and significant price increases. As Byru Veeraiah, the sarpanch of Vadicherla, recalls, "In 2003, an acre cost Rs 25,000. By 2006-07, it had climbed to Rs 2 lakh. By 2010, an acre cost Rs 3 lakh. And Rs 12 lakh by 2012."

The Surprising Surge: Recent Price Spikes

These price spikes were not isolated incidents. In Ramavarapadu, a village adjacent to Vijayawada, an acre's price leaped from Rs 7 lakh to Rs 7 crore within ten years. Similarly, in Mardi, 15 km off Solapur, Maharashtra, the price of an acre surged from Rs 20,000-25,000 to Rs 10 lakh.

Factors Driving the Price Increase

While this surge might appear perplexing at first glance, a closer look reveals several driving factors. It's important to note that Vadicherla, Ramavarapadu, and Mardi are not isolated cases; they represent a broader trend across rural India. Anecdotal information and microstudies from 68 villages across seven states reveal that much of rural India is witnessing a similar rise in farmland prices.

One significant factor is the development of highways, which enhances accessibility to these rural areas and attracts investors. Furthermore, urbanisation has pushed the demand for land further into peri-urban areas. Investors are entering the market with a different assessment of value, often including people from larger cities and NRIs. Land near highways is also being marked for development, as investors see the potential for future returns.

This surge in farmland prices has far-reaching implications. It provides farmers looking to transition out of agriculture with an exit strategy while simultaneously pulling land out of cultivation. As land rates rise, many farmers find it increasingly challenging to acquire farmland in their own villages, leading to a transformation in land ownership.

These dramatic changes in India's farmland market result from the convergence of three main elements: investors seeking to buy, farmers seeking to exit agriculture, and politicians and their associates establishing a marketplace for these transactions.

The Convergence of Factors Fueling the Farmland Boom

Investor Interest and Changing Dynamics

The interest in farmland among investors can be traced back to a combination of factors. Liberalisation and economic growth have led to increased job creation and income levels in India, creating a greater demand for housing. Simultaneously, the housing market has shifted from predominantly cash transactions to credit-based purchases. This shift has brought a significant number of new consumers into the housing market.

Moreover, the limitation on floor space index (FSI) in Indian cities has led builders and buyers to look towards peri-urban areas for real estate development. Buyers increasingly view farmland as an attractive investment opportunity due to its potential for exponential returns and fewer encumbrances, such as pre-existing structures. All these factors might affect the future of farmland prices in India. 

The Role of Investors and a Growing Trend

A new set of buyers, often individuals over 40 with surplus cash, began purchasing land even in rural areas. They anticipated substantial returns as cities expanded and population growth intensified the scarcity of land. This trend is not exclusive to individuals; businesses, particularly in small towns like Suryapet, have invested in land within their peripheries, foreseeing future price appreciation.

Investors' motivation varies, with some converting agricultural land into commercial use, while others simply hold onto it, waiting for its value to appreciate. The net result is a sharp increase in farmland prices and a transformation of rural landscapes.

The Intersection of Agriculture and Real Estate

The sharp increase in farmland prices has left its mark on rural India. While the benefits for investors are evident, the consequences for agriculture and food security are profound. In 2023, the trend of investing in farmland is projected to yield favourable returns, especially for properties near forthcoming government infrastructure developments, such as highways and airports.

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Nandi Farms Phase I 

Nandi Farm, a 13.2-acre gated community with 40 farms near India's National Highway 544E, offers a serene escape from city life. It's close to the World Heritage Lepakshi Temple and just 58 minutes from Bangalore International Airport, making it the perfect place for organic farmland and self-sustainable living.

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Coconut Habitat Farm is an 80-acre managed farmland community enclosed by lush Coconut and Mahogany Trees. Situated adjacent to NH44 and in close proximity to KIA Motors, it offers a unique and desirable location.

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The Socioeconomic Implications of the Farmland Boom

Impact on Farmers and Agriculture

As urbanisation and investor interest drive up farmland prices, there is a fundamental shift in how farmers perceive the value of their land. A farmer, upon hearing that another farmer sold land for a substantial sum, is unlikely to settle for anything less. This persistent upward pressure on land prices is transforming land from an agricultural asset to a speculative commodity.

In rural areas, where agriculture was once the primary economic driver, it is now evolving. The percentage of income derived from agriculture has diminished, and more farmers are transitioning to wage labour, viewing it as a more reliable source of income compared to the uncertain returns of farming.

Ramesh Chand, Director of the National Centre for Agricultural Economics and Policy Research (NCAP), highlights that agriculture now accounts for only 33% of the rural economy, based on data from the National Sample Survey Office (NSSO). This shift in economic dynamics is reshaping the ownership of farmland, leading to increased absentee landlordism and concentration of land ownership.

The Emergence of a White-Collared Cultivating Class

These changes in land values and land use are creating a new socio-economic landscape. A growing number of white-collared individuals are investing in farmland. Educated and with higher disposable incomes, they are better equipped to participate in evolving markets and adopt modern farming practices.

For example, JA Chowdary, Chairman of an IT company called Talent Sprint, exemplifies this trend. Over the past decade, his family has acquired 200 acres of farmland in Andhra Pradesh's Anantapur district at relatively low prices. Many of these new-age landowners are diversifying into high-value plantation crops such as mangoes and pomegranates.

The evolving landscape also poses challenges to food security and prices. As land is increasingly converted for non-agricultural use, there is a reduction in the area under agricultural cultivation. This intensifies the need to improve cropping intensity to maintain food production levels.

Human Costs and Rural Transformation

Furthermore, there are societal costs associated with the farmland boom. Traditional rural occupations are being replaced by newer ones such as construction contractors, real estate brokers, auto-rickshaw drivers, and small business owners. This transformation is partly driven by the migration of rural youth to urban areas in pursuit of more stable and higher-paying jobs.

For instance, several farmers near Vijayawada, who have sold their land for substantial profits, have transitioned to becoming landlords and living on rental income. The shift from agriculture to other professions alters the economic fabric of rural communities and has implications for local economies.

Current Market Trends and the Future of Farmland Prices

Farmland investment in India has become an attractive option for investors. As a significant portion of India's population relies on agriculture for their livelihood, the rural landscape offers immense opportunities for those considering purchasing agricultural properties. The changing dynamics of the market, along with evolving government policies, make farmland investment an enticing prospect.

Farmland as a Portfolio Diversifier

One of the primary advantages of investing in agricultural land in India is its ability to diversify an investment portfolio. Diversification is essential to mitigate risk associated with holding primarily conventional investments such as stocks and real estate. Farmland investment offers an asset class that acts as a hedge against market volatility while providing stability and long-term growth potential.

In 2023, investing in farmlands is poised to yield favourable returns, especially when situated near upcoming government infrastructure developments such as highways and airports. These developments not only enhance connectivity but also increase the desirability of land in these areas for potential housing and industrial projects.

Tax Benefits and Government Incentives

One of the most significant advantages of owning agricultural land in India is that income derived from farming and profits from selling farmland are tax-free. The Indian government recognizes the importance of agriculture and, therefore, offers a range of tax breaks and incentives to landowners engaged in farming activities. These incentives include attractive financing options for agricultural projects, subsidies for irrigation and farming equipment, and exemptions from taxes on income generated through agricultural activities. These financial benefits create a favourable environment for agricultural investments, attracting investors looking to capitalise on these opportunities.

The Rise of Organic Farming

The COVID-19 pandemic has emphasised the importance of health and well-being. With a growing awareness of the need for healthy food consumption, many consumers are shifting towards organic food items. This shift in consumer preferences has made the cultivation of organic products in rural areas highly attractive to investors.

The growth of organic farming not only contributes to healthier food options but also enhances the income potential for investors. Organic produce often commands premium prices in the market, making it a lucrative endeavour for those who invest in farmland. This trend is expected to continue, providing further incentives for farmland investments and contributing to the future of farmland prices.

Long-Term Profitability

While agriculture investments may not yield immediate profits, they offer substantial long-term potential. Being an early adopter of agricultural investment can lead to significant returns over time. Investors are increasingly turning their attention to the Agro-Realty sector, viewing it as an emerging asset class. Previously focused on small-holder farms and organic orchards, investors are now drawn to large-scale commercial farmlands.

As India undergoes significant transformation, including changes in social and economic demographics, the demand for real estate development surges. Agriculture plays an integral role in shaping various aspects of our lives, from food production to the development of shelter and clothing. As a result, investing in agricultural land not only preserves capital but also offers the flexibility to explore various future uses within legal boundaries. Furthermore, landowners receive a percentage of the sales when the crops are harvested and sold.

Investment Strategies and Risks

Investing in farmland is an appealing prospect, but like any investment, it comes with strategies and associated risks that investors should be aware of. Here, we will explore some investment strategies and the potential risks involved.

Strategies for Farmland Investment

  1. Location Analysis: When considering farmland investment, analysing the location is paramount. Regions with a history of agricultural solid performance and those strategically positioned near urban centres or upcoming infrastructure projects are more attractive. Consider the soil quality, water availability, and climate conditions in the area, as they directly affect agricultural productivity.
  2. Land Type Selection: Investors can choose between different types of farmland, including arable land, pastureland, and orchards. Each has its own set of opportunities and risks. Arable land, for example, is suitable for crop cultivation, while pastureland is ideal for livestock farming. Orchards offer long-term returns but require additional care and maintenance.
  3. Crop or Livestock Selection: Determine whether you want to engage in crop cultivation or livestock farming. Crop cultivation offers annual returns, while livestock farming may provide long-term income through meat and dairy production.
  4. Local Partnerships: Collaborating with local farmers or agricultural experts can help investors navigate the complexities of agricultural operations. It's an effective way to leverage their knowledge and experience.
  5. Diversification: Just as diversification is essential in financial investments, diversifying crops or livestock can reduce the risk of crop-specific issues or diseases affecting the entire investment.

Risks in Farmland Investment

  1. Market Price Volatility: While farmland offers long-term stability, market prices for agricultural produce can be volatile, impacting income levels. Crop prices can fluctuate based on various factors, including weather conditions, demand, and global supply.
  2. Weather-Related Risks: Agriculture is highly dependent on weather conditions. Droughts, floods, or extreme weather events can significantly impact crop yields and, consequently, an investor's income.
  3. Pest and Disease Outbreaks: Crops and livestock can be vulnerable to diseases and pests. An outbreak can lead to crop loss or increased expenses for disease control.
  4. Land Management Costs: Owning farmland involves ongoing costs such as irrigation, maintenance, labour, and equipment. It's crucial to account for these costs when calculating potential returns.
  5. Regulatory and Legal Risks: Land Ownership often involves adherence to agricultural regulations, land-use policies, and legal obligations. Changes in regulations can impact land use or income potential.
  6. Market Saturation: Investing in an area with excessive agricultural competition can lead to market saturation and difficulty in achieving favourable pricing.
  7. Environmental Risks: Increased environmental awareness has led to concerns about sustainable farming practices. Failure to adopt environmentally responsible practices can negatively affect an investor's reputation and potential income.

How Nimbus Agro Farms Overcomes These Challenges?

  1. Upto 15 percent ROI: When you invest in our managed farmland at Nandi Farm, you can expect an attractive return on investment of up to 15 percent. With that, you also earn profit from the crop yield and land appreciation. This means not only do you get to enjoy the serene country environment, but your investment is also financially rewarding.
  2. Managed Farmland: At Nandi Farm, we offer you the opportunity to own a piece of well-maintained farmland in a beautiful, natural setting. This managed farmland ensures that your investment remains productive, profitable, and hassle-free. You don't have to worry about the day-to-day upkeep; we handle it for you.
  3. We take care of everything: One of the key benefits of Nandi Farm is that we take care of all aspects of farmland management. This includes tasks such as paperwork, planting, maintenance, and more. You can sit back and enjoy the benefits of country living without the responsibilities that typically come with it.
  4. Country living: Nandi Farm offers you the opportunity to experience the tranquility and beauty of country living. The serene surroundings and the peaceful environment provide a perfect escape from the hustle and bustle of city life. You can unwind, connect with nature, and savor the idyllic countryside without the usual stresses of rural property management.

The Path Forward

Maximising returns and sustainability is the key focus for farmland investors in India. To align with environmentally responsible practices and consumer demand for organic food, consider strategies like organic farming, agroforestry, precision agriculture, and sustainable livestock farming. Social responsibility involves supporting local communities, education, and eco-friendly infrastructure. Long-term land stewardship includes prioritising soil health, efficient water management, and wildlife conservation. Farmland investment in India offers promising prospects in a changing economic landscape, making it a versatile and valuable asset class.

Concluding Thoughts - Future of Farmland Prices

Farmland investments in India offer great potential due to the country's agricultural dominance and government support for investment. These investments diversify portfolios, offer tax benefits, and support sustainability. While they come with market risks, they contribute to a more sustainable future in agriculture. To succeed in this venture, diligent research, strategic planning, and adaptability are essential. Farmland investments in India signify a commitment to responsible agriculture and the nation's agricultural landscape.

Future of Farmland Prices FAQs

1. Will agricultural land prices increase in India?

The future of agricultural land prices in India depends on a complex interplay of factors, including demand and supply dynamics, government policies, crop prices, infrastructure development, and environmental considerations. While certain areas may witness price increases due to urbanisation and development, others may experience fluctuations based on local agricultural conditions.

2. Is buying farmland a good investment in India?

Buying farmland in India can be a potentially sound investment due to its stability, income potential, and the possibility of asset appreciation. However, it comes with inherent risks, including agricultural challenges and a lack of liquidity. Successful farmland investment requires careful research, expertise in agriculture, and a long-term perspective. It can be a suitable investment for those willing to commit the necessary resources and manage the associated risks, but it may not be ideal for all investors.

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