Land value, like every other commodity, is a matter of supply and demand. And demand for land always outstrips supply.
As the old saying goes, they aren’t making any more of it, so supply is finite.In terms of demand, I’m reminded of my economics teacher in secondary school.
He liked to quote Shaw, who said that our necessities are few, but our wants are endless. Every farmer wants a bit more land, whether they need it or not. And, increasingly, people and businesses outside farming want land too.
Factors affecting supply
The obvious one has already been implied – land is limited.
Only a tiny proportion of Irish farmland comes on the market each year.
The 45,000ac of land offered for sale in Ireland in 2020 represented about 0.5% of the farmland in Ireland, meaning the average acre only comes on the market every 200 years.
With supply so limited, competition for land will always be hot. And, of course, every parcel of land has neighbouring farmers who, presented with a once-in-a-lifetime chance to extend their own holding, will move heaven and earth to do so. Farmers from further away are at an immediate disadvantage.
What’s often forgotten is the sheer volume of land taken away from farming every year, often permanently.
Housing, business premises, sports facilities, roadways and erosion all require farmland for their development. An acre here, five more there; it all adds up to thousands rather than hundreds every year. And that’s before considering the farmland that is switched over to forestry.
Being designated as a special area of conservation (SAC) or a special protection area (SPA) has implications for the selling power of land. Farmers with such designated land have been waging a campaign for many years to have proper recognition of the economic loss involved.
Potential buyers are put off by restrictions around farming practice, building a house, or establishing a forestry plantation.
We could see similar impacts in the future on the value of farmland that is in an ecologically vulnerable catchment.
Current warnings as to the level of intensity of farming in certain pockets of the country could translate to curbs on input levels or farm practice.
However, that is down the line and is not affecting farmers’ mindsets at present.
Rewetting of peatlands is a hot topic in farming circles, however, and may be the one to watch in 2021.
Will land adjacent or near a bog be viewed as an investment with an element of risk? Some of the finest land and most productive land in the country is utterly dependant on adequate drainage. This is not just idle speculation on my part.
Pippa Hackett, Minister of State in the Department of Agriculture. \ Green Party
Pippa Hackett, Minister of State in the Department of Agriculture, said recently: “Some lands are simply meant to be wet — bogs and those with peaty soils, for example — and some lands are meant to flood.” She has wondered aloud if we should reverse land drainage works of recent decades.
There’s no doubt that dairy farmers are currently driving the land purchase market, and indeed the land rental market too.
Since the end of quotas, dairy expansion has been rapid and constant.
A quick look through the land sales in 2020 shows that this trend was maintained. But there might be some change in the air. Minister for Agriculture Charlie McConalogue chose this year’s IFA AGM to give the clearest signal yet that there is an upward limit on how far cow numbers can go to.
Since the end of quotas, dairy expansion has been rapid and constant
He didn’t go so far as to say what that number was, but the conversation within farming needs to start.
The limiting factor is the pressure extra cows put on the environment. The EPA expresses concern over nitrate levels in our rivers. This doesn’t necessarily mean that prices are guaranteed to fall.
As often happens in farming, there are contrasting forces pulling against each other.
Against that, there has been other signalling that dairy farmers may have to increase their grazing block or cut their cow numbers.
In November, the Irish Farmers Journal reported that the Teagasc Signpost programme for dairy sustainability will impose a limit of 3.2 cows/ha on the grazing block on the 100 participating farms.
If this strategy were to become part of the Bord Bia Quality Assurance programme, it would lead to increased demand from dairy farmers to lease or buy land adjacent to their existing grazing paddocks.
It might sound hackneyed to say that farmers are asset-rich but cash-poor, but that remains true.
Income figures, whether from the CSO, Teagasc or the IFA, all agree that outside dairy farming, the other sectors’ average incomes languish way below the average industrial wage. While tillage farming is a clear second, the income from most drystock farms leave very limited funds for on-farm investment.
This wouldn’t have mattered much at one time if the pet field down the road came on the market. The farmer would borrow on the strength of his asset value, added to a personal track record with his bank.
However, banks now evaluate the suitability of loans more on repayment capacity than on the value of owned assets. Land already owned is excellent security, but without a clear ability to repay, it won’t be enough.
This is limiting the ability of farmers to buy land, but it doesn’t mean land is getting cheaper.
It simply means the proportion of farmers who can finance significant land acquisition is shrinking.
Land is a very efficient way of transferring wealth through generations. For farmers, land is essential and is passed on to be farmed. For non-farming interests, buying land to avail of the agricultural relief that pertains is attractive.
Every year, people who will never own a pair of wellies complete the Green Cert to be eligible for such reliefs.
It means land auctions often see bidders who have buying power most farmers can’t match. This is exacerbated by the fact that land purchase uniquely cannot be set against income for tax purposes. It essentially means land acquisition must be funded by after-tax income.
For the average farmer, to pay €200,000 for land, it means earning €300,000 over time to pay tax then repay the land loan.
High inflation once shrank the real cost of repayments over time, but that is no longer the case.
Entitlements and
land leasing
Land-linked direct payments have had an influence on land value since their establishment.
The first Area Aid payments in 1992 walled off land eligible for arable crops from fields that were ineligible. The criteria was simply that a field had to have grown an arable crop in the first “reference period” of 1987 to 1991. Such land could fetch a premium for conacre over grassland.
The Fischler reforms saw the creation of entitlements. Once it became understood that these entitlements could be leased with land, we saw a new dynamic at play.
Coupled with Government tax incentives to encourage long-term leasing, retiring farmers were able to retain ownership of both land and entitlements, while gaining a tax-free income.
A retired couple with little other income could earn as much as €80,000 tax-free each year.
Auctioneer David Quinn is of the opinion that land that might otherwise have been put up for sale is being leased instead.
“With the high rental value of land with entitlements, added to the tax incentives for leasing, it is a very attractive option for many,” he says. This is particularly true when the land asset is holding its value and, indeed, appreciating.
Leased land tends to be farmed to a high level, as it represents a medium-to-long term investment by the leasor.
The 45,000ac of land offered for sale in Ireland in 2020 represented about 0.5% of the farmland in Ireland.
Indeed, dairy farmers are happy to put in paddocks, water, roadways, and even parlours and milking robots in 10-year leased properties. This contrasts with conacre land sometimes becoming “worn” or “hungry”– denuded of nutrients over time.
The leasing and renting of entitlements is coming under pressure in the current round of CAP reform.
The consensus is that “armchair” farmers should not benefit from direct payments in the long-term. Auctioneers and accountants and advisers report that this is generating a lot of queries from clients.
What effect will this have? It’s a little early to say. Many may opt to enter a lease now, on the basis that in the past existing contracts have been allowed to continue.
It could be that the CAP changes will release tracts of recently leased land on to the sales market
Others are contemplating “actively” farming themselves to protect their entitlements. This means filing a basic payment application on their own land themselves.
Another cohort may choose to hedge their bets, renting their land and entitlements out for 2021 on a conacre basis.
What everyone will want to see is clarity emerge around the future system of payments. It will be 2023 before the new system is implemented, but its shape will be clear by year’s end.
Some clear signalling from the minister around “armchair” farmers needs to be followed up at the earliest possible moment, with clarity around leasing and selling of entitlements.
It could be that the CAP changes will release tracts of recently leased land on to the sales market. That said, the acres involved are unlikely to satisfy demand.
The supply, though increased, will still be limited, and will never sate the endless, infinite, want for farmland.
Land value, like every other commodity, is a matter of supply and demand. And demand for land always outstrips supply.
As the old saying goes, they aren’t making any more of it, so supply is finite.In terms of demand, I’m reminded of my economics teacher in secondary school.
He liked to quote Shaw, who said that our necessities are few, but our wants are endless. Every farmer wants a bit more land, whether they need it or not. And, increasingly, people and businesses outside farming want land too.
Factors affecting supply
The obvious one has already been implied – land is limited.
Only a tiny proportion of Irish farmland comes on the market each year.
The 45,000ac of land offered for sale in Ireland in 2020 represented about 0.5% of the farmland in Ireland, meaning the average acre only comes on the market every 200 years.
With supply so limited, competition for land will always be hot. And, of course, every parcel of land has neighbouring farmers who, presented with a once-in-a-lifetime chance to extend their own holding, will move heaven and earth to do so. Farmers from further away are at an immediate disadvantage.
What’s often forgotten is the sheer volume of land taken away from farming every year, often permanently.
Housing, business premises, sports facilities, roadways and erosion all require farmland for their development. An acre here, five more there; it all adds up to thousands rather than hundreds every year. And that’s before considering the farmland that is switched over to forestry.
Being designated as a special area of conservation (SAC) or a special protection area (SPA) has implications for the selling power of land. Farmers with such designated land have been waging a campaign for many years to have proper recognition of the economic loss involved.
Potential buyers are put off by restrictions around farming practice, building a house, or establishing a forestry plantation.
We could see similar impacts in the future on the value of farmland that is in an ecologically vulnerable catchment.
Current warnings as to the level of intensity of farming in certain pockets of the country could translate to curbs on input levels or farm practice.
However, that is down the line and is not affecting farmers’ mindsets at present.
Rewetting of peatlands is a hot topic in farming circles, however, and may be the one to watch in 2021.
Will land adjacent or near a bog be viewed as an investment with an element of risk? Some of the finest land and most productive land in the country is utterly dependant on adequate drainage. This is not just idle speculation on my part.
Pippa Hackett, Minister of State in the Department of Agriculture. \ Green Party
Pippa Hackett, Minister of State in the Department of Agriculture, said recently: “Some lands are simply meant to be wet — bogs and those with peaty soils, for example — and some lands are meant to flood.” She has wondered aloud if we should reverse land drainage works of recent decades.
There’s no doubt that dairy farmers are currently driving the land purchase market, and indeed the land rental market too.
Since the end of quotas, dairy expansion has been rapid and constant.
A quick look through the land sales in 2020 shows that this trend was maintained. But there might be some change in the air. Minister for Agriculture Charlie McConalogue chose this year’s IFA AGM to give the clearest signal yet that there is an upward limit on how far cow numbers can go to.
Since the end of quotas, dairy expansion has been rapid and constant
He didn’t go so far as to say what that number was, but the conversation within farming needs to start.
The limiting factor is the pressure extra cows put on the environment. The EPA expresses concern over nitrate levels in our rivers. This doesn’t necessarily mean that prices are guaranteed to fall.
As often happens in farming, there are contrasting forces pulling against each other.
Against that, there has been other signalling that dairy farmers may have to increase their grazing block or cut their cow numbers.
In November, the Irish Farmers Journal reported that the Teagasc Signpost programme for dairy sustainability will impose a limit of 3.2 cows/ha on the grazing block on the 100 participating farms.
If this strategy were to become part of the Bord Bia Quality Assurance programme, it would lead to increased demand from dairy farmers to lease or buy land adjacent to their existing grazing paddocks.
It might sound hackneyed to say that farmers are asset-rich but cash-poor, but that remains true.
Income figures, whether from the CSO, Teagasc or the IFA, all agree that outside dairy farming, the other sectors’ average incomes languish way below the average industrial wage. While tillage farming is a clear second, the income from most drystock farms leave very limited funds for on-farm investment.
This wouldn’t have mattered much at one time if the pet field down the road came on the market. The farmer would borrow on the strength of his asset value, added to a personal track record with his bank.
However, banks now evaluate the suitability of loans more on repayment capacity than on the value of owned assets. Land already owned is excellent security, but without a clear ability to repay, it won’t be enough.
This is limiting the ability of farmers to buy land, but it doesn’t mean land is getting cheaper.
It simply means the proportion of farmers who can finance significant land acquisition is shrinking.
Land is a very efficient way of transferring wealth through generations. For farmers, land is essential and is passed on to be farmed. For non-farming interests, buying land to avail of the agricultural relief that pertains is attractive.
Every year, people who will never own a pair of wellies complete the Green Cert to be eligible for such reliefs.
It means land auctions often see bidders who have buying power most farmers can’t match. This is exacerbated by the fact that land purchase uniquely cannot be set against income for tax purposes. It essentially means land acquisition must be funded by after-tax income.
For the average farmer, to pay €200,000 for land, it means earning €300,000 over time to pay tax then repay the land loan.
High inflation once shrank the real cost of repayments over time, but that is no longer the case.
Entitlements and
land leasing
Land-linked direct payments have had an influence on land value since their establishment.
The first Area Aid payments in 1992 walled off land eligible for arable crops from fields that were ineligible. The criteria was simply that a field had to have grown an arable crop in the first “reference period” of 1987 to 1991. Such land could fetch a premium for conacre over grassland.
The Fischler reforms saw the creation of entitlements. Once it became understood that these entitlements could be leased with land, we saw a new dynamic at play.
Coupled with Government tax incentives to encourage long-term leasing, retiring farmers were able to retain ownership of both land and entitlements, while gaining a tax-free income.
A retired couple with little other income could earn as much as €80,000 tax-free each year.
Auctioneer David Quinn is of the opinion that land that might otherwise have been put up for sale is being leased instead.
“With the high rental value of land with entitlements, added to the tax incentives for leasing, it is a very attractive option for many,” he says. This is particularly true when the land asset is holding its value and, indeed, appreciating.
Leased land tends to be farmed to a high level, as it represents a medium-to-long term investment by the leasor.
The 45,000ac of land offered for sale in Ireland in 2020 represented about 0.5% of the farmland in Ireland.
Indeed, dairy farmers are happy to put in paddocks, water, roadways, and even parlours and milking robots in 10-year leased properties. This contrasts with conacre land sometimes becoming “worn” or “hungry”– denuded of nutrients over time.
The leasing and renting of entitlements is coming under pressure in the current round of CAP reform.
The consensus is that “armchair” farmers should not benefit from direct payments in the long-term. Auctioneers and accountants and advisers report that this is generating a lot of queries from clients.
What effect will this have? It’s a little early to say. Many may opt to enter a lease now, on the basis that in the past existing contracts have been allowed to continue.
It could be that the CAP changes will release tracts of recently leased land on to the sales market
Others are contemplating “actively” farming themselves to protect their entitlements. This means filing a basic payment application on their own land themselves.
Another cohort may choose to hedge their bets, renting their land and entitlements out for 2021 on a conacre basis.
What everyone will want to see is clarity emerge around the future system of payments. It will be 2023 before the new system is implemented, but its shape will be clear by year’s end.
Some clear signalling from the minister around “armchair” farmers needs to be followed up at the earliest possible moment, with clarity around leasing and selling of entitlements.
It could be that the CAP changes will release tracts of recently leased land on to the sales market. That said, the acres involved are unlikely to satisfy demand.
The supply, though increased, will still be limited, and will never sate the endless, infinite, want for farmland.
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