Why the Issue of Share Buyout Has Become Critical for Agribusiness
Today we come to the question of what a farmer should do if their own savings are insufficient to buy out agricultural land, the number of people willing to sell land is increasing due to its gradual price growth, and it’s necessary to determine a strategy for preserving the land bank, without which the further existence of agribusiness becomes impossible.
In fact, today there are only a few options that will help achieve this. We will explain the advantages and disadvantages of each in detail in this article.
Main Options for Preserving the Land Bank
- Attracting bank financing for purchasing agricultural land with it as collateral.
- Engaging a partner in the form of an investment company that will find an investor to purchase agricultural land from your shareholder.
- Attracting investment funds from close contacts (friends, relatives, acquaintances, etc.) who are ready to invest in land cultivated by the farmer.
Option 1. Bank Credit for Land Purchase with Collateral
Why This Option Only Seems Simple at First Glance
Let’s start with the first option, which may seem the simplest. In reality, everything looks somewhat different. Banks today are only beginning to consider the possibility of such lending, as until recently the option of lending against agricultural land looked like pure risk.
However, in 2025, programs for purchasing agricultural land with collateral specifically for farming operations that cultivate it began operating. At least, one bank is known to have such a program, and other financial institutions are preparing similar programs.
Initial Model Conditions (Example of One Share)
To calculate this option, let’s take the basic parameters under which banks can lend today, using the example of purchasing one share of 2 hectares.
A farmer cultivates 2 hectares of land. Market price is $2,500 per hectare, total plot value is $5,000. The credit program requires a 20% down payment ($1,000) and a $4,000 loan for 7 years at 7% annual interest. The principal is repaid in equal parts – 1/7 annually, and interest is charged once a year on the remaining debt. Additionally, a one-time bank commission of 1% is paid.
Lease Before Buyout and Cost Dynamics
Before the buyout, the farmer used the land under lease conditions, paying $200 per year for 2 hectares. It’s important to consider that over 7 years, under a realistic scenario, the rental rate increases approximately 1.8 times – to $360 per year.
Operational Economics: Key Clarification
The farmer’s net operating income is $300 per hectare per year. Fundamentally important: this is income after paying rent.
When a farmer buys out land, the rental component doesn’t disappear from the economics. It stops being an external expense and becomes an internal cash flow that the farmer effectively “pays to themselves” and can direct toward loan servicing.
Therefore, after buyout, the operational potential from 2 hectares is not $600, but $600 plus the rental component, which grows over time.
Credit Burden and Real Cost of Funds
Under the given conditions, the annual bank payment (principal plus interest) in the first year is approximately $851, gradually decreasing to about $611 in the seventh year.
In total, over 7 years, the farmer pays the bank $4,000 in principal and $1,120 in interest, and including the commission – approximately $1,160-1,170 in net overpayment for using credit funds.
This is the financial “cost of credit” that doesn’t increase yield, reduce costs, or create operational income.
Comparison with Lease: Real Additional Burden
The correct comparison looks like this: with buyout, the farmer saves rental payments but instead receives a bank payment. Therefore, the real additional burden on operational activity is the difference between the bank payment and the “internal” rental component that remains in the operation.
In the early years, this difference is greatest, in subsequent years it gradually decreases but remains negative throughout the loan term. Even considering that the rental rate grows to $360 per year and works for the farmer as an additional resource, cumulatively over 7 years the farmer must finance approximately $3,160 of additional cash burden from other sources – other fields, other activities, or liquidity reserves.
This is the answer to the question of what burden credit creates compared to the lease alternative.
Land Value Growth: Investment Profitable, but Doesn’t Help Pay Credit
Certainly, land value growth should be considered. Under a moderately optimistic scenario, over 7-10 years land value will grow to $8,000 per hectare. This means 2 hectares bought for $5,000 could cost approximately $16,000.
However, the fundamental point is that this return is unrealized in cash and doesn’t help service the credit. On the contrary, the farmer effectively finances future asset value growth at the expense of current operational liquidity.
This emphasizes the key point: purchasing agricultural land is an investment, and making it exclusively from operational funds is a mistake that in the medium term can be fatal for agricultural producers.
Option 2. Investment Company and Investor for Share Buyout
Distrust and Fear of “Land Raiding”
Considering the existence of relatively recent cases of so-called “land raiding,” when someone re-signed lease agreements whose terms were expiring and then intentionally created problems for farmers, interaction with investment companies often causes distrust. That’s why it’s important to explain the difference between professional investors and speculative schemes.
Who Are the Participants in Deals After Land Market Opening
After the land market opened, three groups of participants appeared.
Buyer – a person who invests funds in agricultural land as an asset to receive passive income in the form of rental payments and await land value growth. They have no relation to agricultural production.
Seller – usually an elderly person who wants to sell a share at market price and doesn’t delve into legal details.
Tenant – a farmer who has preferential right to buy out the share and is interested in preserving the land bank.
Why the Deal Is Almost Impossible Without a Professional Intermediary
Each participant lives in a different context, and without a professional intermediary who can verify legal nuances, organize notarial actions, and ensure continuation of lease agreements, such deals often don’t happen.
This was precisely the basis for creating the “Dobrozem” agricultural land marketplace – maximum transparency, speed, and security for all parties.
Why “Raiding Through Share Purchase” Is Economically Impractical
Buying out shares with the purpose of subsequent pressure on farmers is economically unprofitable due to the high cost of land acquisition compared to the costs of re-signing lease agreements. Moreover, the new owner is interested in continuing the lease, not in conflicts.
Thus, engaging a reliable investment partner allows preserving the land bank without direct burden on the operation’s liquidity.
Option 3. Investment from Close Contacts
This option is also used but has limitations. On one hand, it allows preserving land without credits. On the other hand, it’s limited by the volume of available funds and often creates risks of internal conflicts, rental rate revisions, or demands for land buyback.
Conclusion
Each of the described options has its own financial model, advantages, and disadvantages. The farmer’s key task is not simply to buy out land, but to do so without destroying the operation’s operational liquidity.
It’s precisely the balance between investment logic and daily operational stability that determines whether the land bank becomes a foundation for development or a source of financial pressure.
Let’s Continue the Conversation Live
The land market is already open, and for many farmers the issue of preserving the land bank is moving from theory to practice. Options exist, but each has consequences for liquidity, lease, and financial stability of the operation. That’s why such decisions are better discussed not alone.
We invite farmers to join the online meeting “Land Bank Preservation Strategy for Farmers After Land Market Opening”, where we’ll discuss real scenarios, working models, and typical mistakes without complex theory.
- February 24, 2026
- 5:00 PM (Kyiv time)
- Online, ZOOM
The meeting is organized by WEAGRO online service and “Dobrozem” marketplace.
Registration – via link: https://forms.gle/UVWiKuXFmYiMa2BL8
Follow announcements on WEAGRO and “Dobrozem” social media.
