Sunday, May 18, 2008

Farm land price boom

The cost of agricultural holdings across the EU has risen to record levels. However, this is not entirely good news for farmers. It makes it even harder for those who do not inherit to enter the industry, while only farmers wanting to retire can cash in. Tenant farmers face higher prices making life more difficult for them.

Several funds have been set up to buy farmland, particularly in the UK where prices have risen 40 per cent over the last year. Manchester-based group Braemar had to close a fund it launched after two weeks. Higher commodity prices have also attracted institutional investors such as Blackrock and Schroeder.

Good quality arable land in the UK is fetching £6,000-£8,500 an acre in many parts of the country. Buyers from Denmark and Ireland have been piling into the UK for several years. Some estimates suggest that as many as 30 to 40 per cent of buyers in the eastern countries of England are coming from overseas.

Land prices fell between 1997 and 2003 in the UK after the BSE and foot and mouth crises. The price could rise to £8,000 - £10,000 an acre, close to the price in parts of Denmark, but industry experts predict that it will rise more slowly from now. One factor who has been 'lifestyle buyers' who run farms as hobbies rather than businesses, while field sports are a factor in purchases within reach of London.

There are considerable variations in land prices across the EU. In Lithuania a hectare of agricultural land cost €734 in 2006 compared with €164,340 in Luxembourg, the most expensive country. In Poland the average price rose 60 per cent between 2003 and 2006. Foreigners cannot buy land in Poland until 2016 but it is easy for investors to set up a local company to bypass the rules.

In France land is about €6,000 a hectare because it must be offered first to young local farmers. However, land prices are still 50 per cent up on 2003.


Anonymous said...

The value of land is high because of the CAP. No CAP, better value land, and better value food. The CAP is bad for consumers and taxpayers. The CAP puts extra wealth into the hands of farmers / landowners. They then have more to spend if they want to buy land.

Former CAP critic said...

The factor behind rising farmland prices is not CAP, but rather the fast escalation of grain prices, which push push up the profitability of the agricultural sector. If there was a singular justification for the CAP, I believe we saw it in the developments in the food sector over the past two years. The new paradigm is security of food supplies and no longer cheaper food. In many ways we have been paying way too little for our food for way too long. (Corn prices in 2007 were 30% lower in nominal terms than in 1973, when a barrell of oil cost $3!) Higher food prices are driven mainly by increased protein consumption in China and India, as well as rising alternative use of farmland for energy/fuel generation. We should prepare for drasticly higher food prices in the medium term. The good news is that EU has spare capacity in agriculture and that is to a great extent due to CAP! Who would have thought that CAP contains some positive features..