At a time when the national economy faces major challenges, the Irish agricultural sector has been one of the few shining lights of the economy. According to Teagasc, Irish food and drink exports grew last year by 12%, giving a 25% increase in two years, and were valued at a record €8.9 billion. The Government’s target is to grow this figure to €12 billion by 2020, which means continuous growth between now and then.
The performance of the sector has led to strong demand for agricultural land. There has been a perception that the demand has arisen largely from farmers who are cash rich due to development land sales and compulsory purchase orders (CPOs), and while this has no doubt accounted for a considerable number of purchasers, they only represent part of the market. A recent lending demand study prepared for the Department of Finance reported that approximately 50% of respondents from the agricultural sector are seeking credit for business expansion. Anecdotally, banks are reporting that up to 50% of the loans provided to the agri sector have been for land purchase purposes.
Price will drive growth
Ultimately, the price of agricultural outputs will dictate the continued growth of the sector and the demand for agricultural land. Detailed analysis of output prices is beyond the scope of this article. However, while output prices are notably volatile, and there are concerns over certain sectors, the long-term outlook for Irish agriculture is generally positive. In addition, the abolition of milk quotas in 2015, the relatively small size of Irish farms and the renewed interest in farming from young farmers suggests that the outlook for demand for Irish farmland is positive.
Demand outstrips supply
On the supply side, a recent survey conducted by the Society highlighted the lack of farmland for sale. One respondent stated:
“There is a lack of supply of good quality agricultural farms yet there is strong demand for these farms”.
What impact has this had on the market for agricultural land? Price stability and, in some cases, growth has returned to the agricultural land market. The Society’s survey highlighted growth rates of up to 5.35% in 2011. It is also noticeable that growth rates in 2011 were most pronounced, in all regions and farm types (with and without entitlements), in larger farms (over 100 acres).
This is not unexpected. Due to the historical patterns of Irish land ownership stemming from the land war of the late 19th Century, large farms have been in relatively limited supply right up to the present day. In modern day agriculture, all sectors of the industry are conscious of economies of scale and the Government’s prediction that the abolition of quotas in 2015 is likely to lead to a 50% increase in milk volumes has increased the awareness in the dairy industry. As such, on the rare occasions that large farms come on the market, they are in particular demand.
But how can the agri sector expand its operations if there is a shortage of supply? With difficulty. This has been recognised by the Rural Development Programme Ireland 2007-2013, which reported that:
“One of the major obstacles to increasing farm size is the low level of land mobility”.
Mobility is a long-standing problem
Land mobility is the share of agricultural land that changes hands in a particular time period. Land mobility is needed for good adjustment of land structures to changing requirements of the industry. In Ireland land seldom changes hands and this presents challenges for the sector. Minister Coveney, speaking at the Autumn 2011 rural practice event, acknowledged that land in Ireland only changes hands once every 400 years compared to once every 70 years in France.
What accounts for this limited mobility? The perception that all Irish farmers think like ‘The Bull’ McCabe is simply untrue. According to John Dawson, outgoing chair of the Society’s Rural Agency Professional Group, it is primarily because of taxation. He believes:
“The answer requires changes to Capital Gains Tax and Capital Acquisitions Tax, particularly where leasing of land is concerned, for transfer and sale purposes”.
While it can be argued that the traditional conacre system provides the ultimate in land mobility, it lacks the security for the farmer to invest heavily in their farm. Leasing fills part of the void but the uptake, despite incentives, remains relatively limited and in my view this remains an important challenge facing the sector.
In summary, the outlook for the agricultural land market remains positive; however, there remain issues facing the market that need to be addressed. Ireland’s strong agri sector does not face the major issues that Parnell and Davitt faced in the 1870s, but raising awareness of the issues facing the sector and resolving them remain as important as ever if we wish to continue the success story.