Want to own a farm? Be game for the risks

While owning a farm has several positives, understand the risks and how to address them

Increasingly, India is showing interest in owning a piece of Bharath. Urbanites are considering purchasing agriculture land for reasons including investment, passion for farming or to get away from the stress of city life. A case is often made that land prices always appreciate and there are benefits such as tax exemption for agriculture income. For many, beyond the financial reasons, the opportunity to consume fresh produce grown in their own land is exciting enough to take the plunge.

While farm land ownership has a lot of positives, it has many risks that may not be obvious. You must understand these as you warm up to own a farm.

Can you buy?

As food is an important priority, agriculture land ownership comes with certain restrictions. Only Indian citizens can buy; persons of Indian origin (PIO) and overseas citizens of India cannot purchase agricultural land, plantation property or farm houses. NRIs need permission from the RBI to buy.

Also, agriculture is a state subject and you must find out the current regulations on purchase in the State where you plan to buy rather than go by general guidelines. For example, in Karnataka, Himachal Pradesh and Gujarat, you can own agri-land only if you can establish that you are an agriculturist in the State. There are also ceilings on the size of land ownership. For example, in Uttar Pradesh, you are only allowed to hold 12.5 acres of land.

There may also be issues in establishing ownership — is the land owned by the individuals or taken on lease? The land may have been given as a grant, with some restrictions on sale. Also, land is typically transferred within the family and there are often no legal documents to clearly establish transfers, legal heirs, partition of the land and the list of rightful owners. This can lead to complications as some persons, who may have ownership rights on the land may raise objections after the transaction concludes. There is also a risk of long-drawn litigation.

Some solutions: Work with a lawyer and the local village authorities to understand the rules, history and issues in the region. Rather than be green about it, take time off to visit a few places to build a rapport with the locals and get a sense of the problems.

Can you manage?

If buying is difficult, you must consider the umpteen issues in managing a farm. Unless one is an expert and is on the ground, the trials and travails of running a farm can make city stress feel like a happy vacation.

For starters, you may need to spend sizeable amounts (upto 25 per cent of what you spent on buying land) on items such as setting up irrigation system and water supply solutions; power sources such as solar; and soil testing to understand and improve quality.

The work and effort may be higher if you plan to do natural or organic farming, as livestock such as cows may need to be maintained. You must have dedicated resources to ensure that plants and trees are watered and cared for and the produce is picked. Finding trusted help may not be easy, especially if you live far away and cannot visit frequently.

Some solutions:Rather than go at it alone, see if you can be part of a landowners’ group, which may have holding in the vicinity. This can help you to share monitoring and other resources. You can also lease the land to a local farmer or a farm manager. They may work on a fixed lease payment or profit-share basis. Orchards may be another option, as they require less maintenance.

Can you sell?

Selling the produce for a profit is not an easy job. Your ability to sell must determine what you grow. Vegetables and cash crops may yield immediate returns, only if you can sell. Seasonal produce such as mango can be an option, if you prefer once-a-year sale. Also, if you can create value-added products, profits can be higher by over 30 per cent and you may be able to access different channels to sell.

At a later point, when you want to sell your farm, you must give sufficient time to conclude the sale. Unlike financial assets or even a flat in the city, farmland is a very illiquid asset and it takes time, sometimes over one year, to find buyers and exit the investment.

The chance of a sale improves if you have developed infrastructure such as a source of water. Others such as clean title, improved soil quality and orchards or other trees also add to the value of the land.

Some solutions:You can consider selling directly online to increase profit. If selling the produce regularly is difficult, you can consider choices such as growing bamboo that take a few years to mature. Farms with a comfortable farm house have good appeal and can help at the time of sale.

The writer is co-founder, RANA Investment Advisors

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