THERE is something different about selling farm land compared to selling other assets. Some people just can’t do it.
There are several reasons given for this. They’re not making any more of it. If I sell, I won’t be able to buy back in. I inherited it from my father and I should pass it on to my kids. If I don’t leave it to my kids, they will never be able to buy a farm of their own. And even, I’ll be regarded as a bit of a failure if I sell.
Such thinking is not applied to land in metropolitan areas (apart from the occasional family home), nor to share portfolios, bonds or investment units. The idea of holding on to these for such reasons is inconceivable. Equally, farmers are never reluctant to sell surplus machinery or livestock if the circumstances require it. Only farm land is treated in this way.
Such thinking can act as a huge brake on agricultural productivity. This became obvious to me on a trip to Ireland recently, where I found that country’s agriculture to be more or less locked into the status quo because of widespread reluctance to sell land. Just 25,000 hectares of farm land came on the market in the whole country last year, 0.6 per cent of the total farm area. By far the biggest transfer of land occurred by inheritance.
As a consequence Ireland is a patchwork of mainly small uneconomic farms facing enormous barriers to change. Progressive farmers wanting to expand their operations are forced to lease small areas for short periods. Thus there is little incentive to invest, while achieving economic scale is extraordinarily difficult.
As always governments makes things worse. In the past two decades Ireland has received about $34 billion from the EU in agricultural subsidies, keeping tens of thousands of inefficient operators in business. Rules concerning leasing of land and inheritance taxes also don’t help.
And yet, reluctance to part with land is a key issue. There are innumerable examples of owners of land worth millions of dollars who prefer to live in relative poverty than sell. The proceeds of selling would guarantee they were comfortable for the rest of their lives, the land could be used far more productively than they use it, and the country overall would be far better off. But none of that can happen because they simply won’t sell.
One day it will catch up with them. Just 20,000 of Ireland’s 140,000 farmers are full time commercial (in a country of 4 million people). Off farm income and EU subsidies keep the rest going. But with poor countries like Bulgaria and Romania joining the EU and European governments struggling with debt, the gravy train is slowing down. The Common Agricultural Policy is currently under review and reductions in subsidies are widely expected. The impact on agriculture in Ireland, and indeed throughout the EU, could be far-reaching.
The significance for Australian farmers is that when the EU eventually allows the market to drive its agriculture sector, there will be enormous flow-on effects on world trade. The EU is the world’s largest producer of dairy products and third largest producer of beef and grains, for example, vastly exceeding Australia’s production. Even a relatively small increase in productivity as a result of restructuring would have major implications for markets and prices.
All of which means Australian agriculture cannot afford to rest on its laurels. Those who no longer wish to farm, or are struggling to make it pay, should be encouraged to sell their farms. Land is an asset to be bought and sold just like anything else. Imitating the Irish with silly notions about farm land being different will do nothing except prevent it from being farmed in the most productive manner possible.
David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at firstname.lastname@example.org