Estonia is probably best known for its IT businesses and startups. At the same time its population density is among the lowest in Europe, which means that forestry and agriculture are also topics to look into. Due to the country’s geographical location and climate, Estonia is well-suited for dairy farming, and the Estonian islands and seaside regions are also very good for beef cattle farming. Agricultural subsidies provided by the European Union and the Estonian government have resulted in some of the most modern dairy production facilities in the world, making the Estonian average cattle herd size the second-highest in Europe. As a result of state-of-the-art genetics, the average milk production per cow is over 9,300 kilos per annum – the second highest result in Europe, right after Denmark. As a consequence, foreign investors have turned to Estonia for investment possibilities. Here we would like to look more into the possibilities of investing in Estonian agriculture and what to bear in mind.
Arable Land. Around half of the land used belongs to farms. In Estonia’s 15 years in the EU, as a result of agricultural subsidies, the price of land has increased significantly: approximately 3.4 times in the last ten years. Due to modern equipment and methods, the land is in good condition, and in several areas it is the main or only source of competition for farmers. The restrictions for acquiring land are relatively reasonable. Both legal persons and citizens of countries which are members of the European Economic Area or the OECD have the right to acquire immovables on the same basis as Estonian legal persons and citizens. All Estonian legal persons can acquire immovables containing fewer than ten hectares of agricultural land without any restrictions. If a legal person would like to buy an immovable containing more than ten hectares of agricultural or forest land, that person must have been engaged in the production of agricultural products for at least three years preceding the transaction or receive an authorization from the local municipality. There are no limitations on acquiring shares for a legal person who has acquired such land.
Change of Generations. Estonian agriculture is in a state of transition, as many of the managers and owners of agricultural companies who transformed the leftovers of Soviet collective farms into modern and productive farms are now retiring or withdrawing from the sector. The land is expensive, as is the technology and farm buildings that house, in some cases, over 1000 cows, meaning that the possibilities for younger farmers to take over are limited. Agriculture is thus growing more and more into a business in Estonia with an ever-growing number of farms owned by local and international funds, corporations, and wealthy individuals. Most farms are no longer managed by their owners (as they were ten years ago) and this has created a class of experienced and business-minded managers. The farmers selling their life’s work may have been building their farms up for over 40 years and have helped with the upkeep of the local communities, resulting in tough negotiations when selling shares. Many of the former (Soviet) cooperative farms that were transformed into companies still have hundreds of shareholders – mainly people who have worked them, and their inheritors. Still, as a rule, such companies have one manager who has run the business for years and has a larger stake in the company.
Transaction Process. The recognition of the value of legal assistance and professional transactional advice has grown among farmers significantly over the last three decades, as a thorough Due Diligence process now includes reviewing rental agreements, agricultural subsidies received and used, environmental issues (such requirements have significantly increased over the last few years) and, of course, the usual financial and legal concerns. One should also bear in mind when acquiring a farm in Estonia that it is not only a business. It is also a community that you acquire, as many local villages are dependent on the agricultural business. This means that getting to know the local people and their issues is critical during the transaction process. Doing this smoothly helps with finding a workforce, renting land, and conducting business in the future.
Does Agriculture in Estonia sound interesting? Triniti is the only law firm in Estonia with a legal team specialized in Agriculture. We have been involved in most of the substantial agricultural transactions in Estonia over the last ten years. Get in touch.
By Ergo Blumfeldt, Partner, and Siim Maripuu, Senior Associate, Triniti
This Article was originally published in Issue 6.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.