A requirement that land be actively farmed could increase the amount of unused or underutilized land on long-term leases, new research suggests.
Researchers at UCC and Teagasc examined the impact of long-term farm lease investments on dairy farms following the introduction of increased tax incentives for long-term leases in 2015.
According to the study, in 2018 only 23 percent of farms leased land for periods of 5 years or more, although the practice is said to have increased in recent years.
However, despite the tax incentives available for renting property on longer leases, conacre agreements remain the most common lease.
The study shows that the likelihood of capital investment in “rental milk farms” increases with increasing lease length.
A positive relationship between the lease period and the amount of capital employed was also found, which is increasingly evident when a farm has a high lease share.
However, it has been found that the likelihood of a farmer investing in his herd is not affected by the length of leases, and the amount of herd investment is only affected by time period.
“This underscores that grandfathering is less important in the decision to invest in the herd. This is because dairy cows are a liquid asset that can be easily sold when a land lease expires,” the study concluded.
The study, led by UCC lecturer in economics Tracy Bradfield, questioned the level of investment that could be achieved if more farmers leased land on long-term leases or if existing leaseholders leased land for longer periods.
It suggested considering the introduction of minimum lease terms as this has increased the amount of leased land in some European countries.
But the authors said it’s not clear whether a “one size fits all” approach is best when land and farmer requirements are different, and it’s possible minimum-term contracts could prevent some of the Land enters the market for land sale and a full lease arises security during this period.
“Evidence from France and the Netherlands suggests that very strict regulations can discourage farmers from renting out their land,” the study concluded.
However, increased tax incentives could be a more appropriate alternative to achieve greater land security by enticing more farmers to rent their land for longer periods when they believe renting land offers the lowest opportunity cost.
An active land management obligation, as implemented in Norway, should also be considered as it encourages farmers to rent out idle or underutilized land.
The research, also conducted, assessed the actions of young farmers and found that they are not more likely to invest in their herd or capital than other farmers.
This could be interpreted as a ‘red flag’ of intergenerational renewal as investment is an indication of the desire of young farmers and likely successors to invest in the future of the farm.
