A new SCSI/Teagasc report on the land market shows a complex picture in terms of agricultural land price movements in Ireland. CONOR O’DONOVAN and STEPHEN KAVANAGH report.
The SCSI/Teagasc Land Market Review & Outlook 2015 report points to considerable variation in price growth across the country during 2014. There was a notable increase in the price of land around Dublin. Agricultural land of up to 50 acres in Dublin, with no entitlements and no residential holding, averaged €11,700 per acre in 2014, up 26% on the previous year.
Meanwhile, in South Leinster and Munster, where dairy production is more prevalent, agricultural land prices also increased in 2014. However, it should be noted that the increases were greater in Leinster. The average price of agricultural land of up to 50 acres with residential holdings and entitlements in the Leinster region was €11,947 per acre, an increase of 7% on 2013, while in Munster it was €11,608 per acre, up by just 2%.
In contrast, prices in Connaught/Ulster, where drystock farming is more prevalent, fell in 2014. Land in the Connaught/Ulster region saw some notable downward pressure on prices, with agricultural land up to 50 acres, with residential holdings and entitlements, falling by 9% to €6,700 per acre. However, in some cases the decline in values in this region was as much as 19%.
Combining the results of this year’s survey with those of earlier years, the report reveals a growing divergence in land values in the south and east of the country in comparison with the north and west. This pattern of price movements was generally mirrored for sales transactions involving larger areas of land. Taking an international perspective, the report notes that in spite of the fact that Irish land sales prices are still well below their 2007 peak, agricultural land in Ireland remains expensive when compared with land prices in much of Northern Europe.
The report, which also covers the land rental market, showed an across the board increase in prices for grazing land in 2014, with the strongest increases being recorded in the Munster region. Rental prices for tillage land also increased, with the strongest increases again being recorded in Munster. With rents in Munster increasing by between 12% and 18%, this has resulted in a further widening of the gap between rents in this region and those in other parts of the country.
The report, which is the second in a series of annual reports on the state of the land market produced by the Society of Chartered Surveyors Ireland (SCSI) and the Agricultural Economics and Farm Surveys Department of Teagasc, provides a regional breakdown of sale and rental transactions for different land types and for land transactions of different sizes. It also includes views on the state of the market from members of the SCSI, and a commentary from Teagasc economists on the current situation in agriculture and the short-term economic outlook for the sector.
This is a historic year for Irish agriculture. The removal of milk quotas after 31 years creates an opportunity to increase Irish milk production, which is likely to create additional demand for both the purchase and rental of land, especially in areas where the dairy sector is more highly concentrated. The removal of milk quotas may also create opportunities for new models of farming, such as farm partnerships, and there may also be opportunities for drystock farmers to explore new opportunities such as the contract rearing of dairy replacements.
A significant majority of respondents to the SCSI member survey (62%) expect that the demand for agricultural land will increase during the next three years, while close to one-third (31%) expect it to be sustained at current levels. While respondents are confident that supply levels will be at the very least maintained at current levels, only 38% are expecting supply to increase.
This suggests that demand will continue to outstrip supply, with upward movements in prices implied over the coming years. However, respondents suggest that even though there may be some upward pressure on prices in areas of the market, this is likely to be relatively modest. Indeed, in some parts of the country (e.g., the west and north), prices will probably remain static at best.
The majority of respondents expect that rents will continue to increase into 2015, with 57% predicting an increase, and an average growth rate of 7% is forecast.
In terms of farm incomes, in 2014 lower costs of production for most farming activities were the key determinant of the outturn for incomes in the sector. In 2015, dairy incomes are likely to be considerably lower due to a forecast decline in milk prices. By contrast most drystock farmers should see incomes improve over 2014 levels as output prices increase and input costs stabilise. Cereal prices are forecast to increase in 2015 but, as ever, the level of harvest yields will be critical in determining income fortunes for tillage farmers in 2015.
The SCSI/Teagasc Land Market Review & Outlook 2014 is available to download from the SCSI website – www.scsi.ie. The Society would like to thank Trevor Donnellan, Kevin Hanrahan and Jason Loughrey from Teagasc for their input and collaboration on the report.
Conor O’Donovan, MBA
Conor is SCSI Director of Policy
Stephen is Chair of the Rural Professional Group of the SCSI