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momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
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An abrupt slowdown in farmland prices?

Frédéric Hénin, Editor in Chief of Terre-net

Article published in Terre-net Média

What is the price of land? How is it changing? The answers and analyses including figures on the agricultural land market 2012 are available from the network of SAFER (the French land and rural planning agency).

Under the heading “An unexpected stability”, the National Federation of SAFER agencies examined the price variations of land and vacant grassland1. With a rate of €5,420 per hectare (2.47 acres), the price only rose by 1.1 percent over that of 2011, i.e. 0.6 point lower than inflation. Farmland prices regarding non-farm purchases even fell by 5.5 percent, which makes them lower than vacant land prices for the first time ever since 1998. These variations however do not lessen the gaps between the various départements.

As far as prices of land and leased grassland are concerned, negotiated prices reached an average of €4,060 per hectare, a 2.5 percent increase over 2011. The 25 percent gap compared to vacant land is higher in areas where land property is subdivided, such as in the Nord-Pas de Calais and Picardie regions. In other areas of Northern France, the prices of vacant or leased land per hectare are converging.

On the flip side, the disparity of prices for vacant land between livestock farming areas––where agricultural income are lower–-and grain growing zones is growing. Yet, when livestock farming zones (€4,220/hectare) switch to field crops (€6,560/hectare), we observe a price convergence with a hectare costing €5,840.

Several reasons should have caused higher land prices. First, the tightening of the land market: Only 326,000 hectares (805,220 acres) were traded, a four percent drop over 2011 (even involving more leased land than vacant land.) The other causes include the per-hectare income generated by grain prices and the amount of subsidies: The ratio of land price/gross operating income dropped by 1.5 year following the 27 percent rise of gross operating income per hectare between 2012 and 2011. The FNSAFER indicates that one must pay the equivalent of 52 months to acquire one hectare of field crops land.

Raising the retirement age as well as grain prices might steer grain farmers to work longer. In addition, the economic crisis has led non-farmers to withdraw from the market. As far as the banks are concerned, they have been less generous to finance land acquisitions. Yet, interest rates have never been so low!

The uncertainty regarding the CAP reform and amount of future subsidies might begin to weigh on the land market. Obviously, farmers are tempted to buy the land they are farming to safeguard their means of production at the end of leases. Yet, farmers seeking to expand now seem more reluctant to purchase new land, when they do not know the amount of the post-2014 direct aid!

Agricultural price volatility also dampens any motivation to become the owner of additional land, since volatility leads to unstable incomes, and thus complicates financing plans over several years.

In fact, agricultural and even rural land markets experienced record sales in January 2012, thus following a trend recorded at the end of 2011. The reason lies with the reform of real estate gain taxation. The new tax scale includes the ownership for at least 25 years to take advantage of an exemption from capital gains tax of 50 percent or more.
In contrast, the beneficial gross 3.3 percent lease yields might explain the robust sales of leased farmland (as a reminder: a 2.5 percent increase). The FNSAFER even indicates that lease yields even exceed 4.5 percent in areas where land prices are low, and vary between 3.5 and 4.5 percent in the Nord-Pas de Calais region where leases are high. As attractive as they are, these rates are higher than those of financial assets without including capital gains.

The key issue to be considered:

It concerns the vacant land prices that are slowed down by the CAP reform and economic conditions. With only 805,220 acres traded, the farmland market fell by four percent in a single year and by 27 percent since 1999. The price of vacant land only rose by 1.1 percent in 2012. As far as prices of farmland and leased grassland are concerned, an hectare has been traded for an average of €4,060, i.e. a 2.5 percent increase compared to 2011.

1 See page 28 of the document “Land prices – Analysis of rural land markets 2012”

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Paris, 20 June 2019