Letter From Europe: French cropland rents remain stable, while England's bust the bank
Wednesday, January 16, 2008
The rush for more land is pushing up rents in free-market England, while in France's more regulated environment, tenants are paying substantially less
by NORMAN DUNN
Soaring grain prices, which as we all now know have less to do with ethanol demand and much more with dramatically reduced wheat and barley reserve stocks the world over, have sharpened the appetites of grain growers for renting more land this fall.
Officially, 35 per cent of farmland was rented in 2006 in England. But, by the end of this year, expectations are that the rented share could be approaching 42 per cent as established growers pay premium rents for good fields in their locality. The rush for more land is attracting short-term rent offers for even medium-quality cropping land of from C$180 to C$200 an acre and more.
Helping the liquidity of the rented land demand is relatively new legislation in England and Wales (Scotland and Northern Ireland have other systems) which breaks away from the traditional long-term rental contracts and introduces so-called Farm Business Tenancies (FBTs) which allow almost any contract agreed upon by land owner and tenant. The FBTs have encouraged owners who want to give up farming to consider renting out their land instead of selling, often in smaller blocks to neighbours wanting to expand.
A four-year rental period is most common, although 10 years is also becoming popular. Farmer and owner can fix rent reviews as annual events or rents can be linked to the price of wheat with appropriate annual adjustments.
When it comes to renting whole farms, the old-style lifetime contract is still applied in many cases, but nowadays rent re-negotiations have to take place at least once every three years. And if the farmer and owner cannot agree, then a professional arbitrator has to be called in and a neutral decision reached.
These long-term rents are generally lower. But the renewals for cropland this year look like ending as much as 35 per cent up on 2006, at around C$130 an acre. Beef and sheep land rents (disease pressure with foot-and-mouth disease and blue tongue virus affects trade) appear to have dropped from around C$85 to C$75 an acre. Dairy farms, as usual, pay the highest rates which seem to be remaining stable at some C$135 an acre.
Meanwhile, as little as 50 miles southwards across the English Channel, a more regulated land renting market means that tenants pay much less. Rent renewals this year for northern France run between C$70 and C$85 an acre.
Here, tenancy agreements are for an initial 18 years, followed automatically by nine-year terms, with the next generation usually having the right to take over the tenancy.
More than 50 per cent of farmland north of Paris is rented out and this proportion has remained stable for two main reasons. One, there's a tax benefit for landowners renting out instead of farming land themselves and, two, the French systems allows a small rent adjustment every year which can benefit landlords or tenants.
Tax relief for landowners takes the form of no inheritance tax being levied on the value of farmland rented for periods of 18 years or more. Both tenants and owners meet to make adjustments for cost of living and general farm prices each September, although never by more than a few percentage points. This year, rents were increased by an average 2.1 per cent in a typical area while last year, when grain prices were very poor,
a 1.19 per cent decrease was agreed on.
Nothing could better illustrate the influence of legislation on farmland rents than the current situation in these two European neighbours. While English growers struggle to outbid each other for increasingly expensive rented cropland, the longer-term tenancies and controlled rent adjustments in France keep rents at levels less than half those in England. Inputs and grain prices are the same.
Guess where the happiest tenants live! BF
Norman Dunn writes about European agriculture from Germany.