Prohibitive Cost of Farmland Damages Agriculture
Agricultural policy is in tatters. Land in rural Wales is being transformed in a hobby farming paradise for the already wealthy, while young people who want to start farming have scant chance unless they already live on a farm.
The cost of land is vastly higher than its commercial potential warrants. The average price of farmland sold in Wales in the second half of 2011 was £6,900 per ACRE, according to the Royal Institution of Chartered Surveyors. Farms under 100 acres are more expensive per acre than larger ones, such as a 43-acre grassland farm at Talley, north of Llandeilo, Carmarthenshire, costing £697,500 — £16,221 per acre. This farm has a lot of buildings, but an ordinary house rather than a smart period one. A gracious dwelling would push up the cost even more.
Well over 40% of all farms in Wales had a farm business income of less than £20,000 in TOTAL in 2010-11, and one in ten farms were haemorrhaging money – their farm business income was less than zero. Fewer than one Welsh farm in five achieved a farm business income of £50,000 or more. Farm business income is not profit, but the value of output less the costs of production excluding the labour of the farm’s owners and other unpaid workers. Farm business income has to cover all the living costs of the farmer and his/her family, new investments in the farm, and ‘profit’.
The low or negative incomes for farmers in Wales contrast somewhat obscenely with the values of farmland. Estate agents Smiths Gore commented in June 2012 that “Agricultural land has continued to remain in high demand from a widening array of investors. The ongoing period of macro-economic uncertainty and turmoil has underpinned the need for safe havens for investment, and land has been a beneficiary of this trend.”
There is a further factor beyond the appeal of a ‘safe haven’. Farmland is usually exempt from inheritance tax, which otherwise kicks in at 40% for assets over £325,000. This tax benefit encourages landowners not to sell, thus restricting the quantities coming up for sale.
In fact, the productive capacity of land has become separated from its financial value, a worrying fact in the context of the need for land in Wales to produce more of our own food in future. Wealthy land-holding investors and people who buy farms for rural seclusion are not usually ‘farmers’, and their incomes are independent of the output from their ‘farms’.
The rise of land as an investment class has a strongly negative impact on people who want to enter farming and earn their living from it: mortgages have all but disappeared because what business plan can realistically forecast a profit when land costs so many times the value of its output? The gross margin per forage acre for a spring-lambing sheep flock – a common enterprise in Wales — in 2011 was only £169. Sheep rearing is a common enterprise because over much of upland Wales the soils are thin, the growing season is short and the sun often absent, creating difficulties for commercial crop production.
The climatic and environmental limitations on the farmer’s choices of enterprise are further complicated for potential new entrants to farming by another separation, beyond that of land and the farming on it: that of the main farm subsidy, the Single Farm Payment, from the land for which it was awarded, free of charge, back in 2005. This frequent separation means that even if an aspiring farmer succeeds in buying land, buying the subsidy to go with it (if available) requires a further purchase. The Single Farm Payment has become yet another investment class.
Only farmers are supposed to be able to buy entitlements to the Single Farm Payment, but there are ways around this intended restriction. One investigation, by BBC Scotland, found that investors can easily register as farmers by agreeing to rent any bare land, even the lowest quality moorland, and then they are free to trade in Single Farm Payments. A property developer, Paul Millan, told BBC Scotland that he bought a Single Farm Payment in 2006 which had brought in £250,000, a return of over 30% a year. He told BBC Scotland “With the benefit of hindsight I would have sold everything I owned, including my own house, to invest in this type of return.” Where does the subsidy come from? Ultimately from us as taxpayers, of course.
Entitlements to the Single Farm Payment relating to areas not classed as ‘severely disadvantaged’ were trading for about £230 a hectare (£93 an acre) in spring 2012. The scheme expires at the end of 2013, but will almost certainly be replaced with a similar programme.
The challenges facing new entrants to farming – those born without silver spoons – are so enormous that they threaten to shred the already torn fabric of rural society. New policies, to restrict investment in land by non-farmers, and to help young farmers and community groups to acquire land for food production, are needed urgently now and the need will increase with each passing year.
 ‘Wales farmland prices among UK highest’, BBC News Wales, February 24th 2012.
 Table 2.5 in Agriculture in the United Kingdom 2010-11, from the Department for Environment, Food and Rural Affairs.
 ‘Rising land and commodity prices in the UK make rural property investment the safest haven’, IPD Rural Property Investment Index, June 20th 2012.
 John Nix Farm Management Pocketbook 2012 from Agro Business Consultants, page 62. Gross margin is output minus variable costs, e.g. feed, forage crops, veterinary and medical costs, and marketing costs, and excludes rent, labour, machinery, general overheads. A forage acre is a notional unit of grazing land equivalent to one acre completely covered with grass or other forage crop, which can all be utilised by grazing livestock, and thus on poor land often relates to well over one acre.
 ‘Farm subsidy loophole costs millions’, BBC News Scotland, March 5th 2012.