New Entrants and Young Farmers Start-Up Grant Schemes: evaluation

2 Literature Review

Box 1. Key Points

The dearth of younger farmers and the challenges that this will bring for the sector has been recognised in Scottish and EU policy discourse. This reflects concern with the high average age of farmers and the lack of new entrants to the sector.

In Scotland, 64% of male and 60% of female farmers are over 55 years old.

The key barrier to entering the farming market is access to land. This reflects both the demand exceeding supply, competition for plots, high land prices and may reflect the limited incentives older farmers have to sell their land.

Tenancy availability has also substantially declined over recent decades

European schemes to encourage generational renewal do not appear to be successful, which may reflect the sheer scale of the challenge.

2.1 What is the "Young Farmer Problem"?

The importance of generational renewal in farming and anxiety about what has been referred to as 'the young farmer problem' is a common feature of European agricultural policy discourse. It relates to two primary policy challenges. On the one hand, the farming sector is characterised by an aging workforce, and there is limited movement into the sector from younger generations. On the other hand, the complex range of barriers facing those seeking to enter farming that makes it challenging for policy makers to respond effectively to it. The high barriers to entry, in turn, are perceived to deter innovative and disruptive businesses and retain legacy enterprises which may be less likely to innovate.

The aging of the agricultural sector is a phenomenon in the UK as a whole, as well as the European Union, although more notable in the southern territories than in northern Europe. Writing in 2015, Zagata and Sutherland observe that every second farm in Europe is managed by a farmer who is over 55. In Scotland, the June 2021 Agricultural Census found that only 10% of male and 11% of female owner-occupiers were under 41. By contrast, 64% of male and 60% of female owner-occupiers were over 55. Matthews, writing in 2012, characterised the challenge as reflecting both reduced entry by new farmers and reduced retirement or exit by older farmers.

2.2 The Benefits of Generational Renewal

Overall, there is some evidence of benefits associated with younger farmers entering the sector. However, the strength of this evidence in a Scottish context is relatively limited. There has been considerable academic research on the relevance of youth in the farming sector. For example, to quote Zagata and Sutherland in their 2015 research:

"…together with attitudes and beliefs, age related to views on sustainability…orientation towards sustainable and efficient agriculture…up-take of organic farming….and impacts on the welfare of animals kept on farms."

They further argue that, based on statistical comparison, young farmers' holdings in the EU tend to be larger, use more labour units and generate more value, alongside having higher productivity.

Evidence collected in the UK has found mixed results. A review of the Farm Business Survey in England found that productivity among the 35-45 age cohort was higher than older cohorts, but also higher than farmers under 35. In the Scottish context, it is difficult to disentangle the importance of 'youth' from other variables that influence farm productivity, including effective succession arrangements and better education.

2.3 Barriers to Entering Farming

Access to land has consistently been identified as a key barrier to entering farming, in both UK and European contexts. While it does not represent the only constraint on entering farming – for instance, farming may be increasingly perceived as an undesirable career choice – it represents a prominent and the most intractable constraint from a policy perspective and for this reason is elaborated upon here.

It is worth noting that high land prices or rental cost decrease the profitability of farming in a context where this is already an important challenge. The more that is paid for land, or is due as a regular payment of land, the greater the output of the farm will need to be in order to make a profit. In this way, land access impacts are not limited simply to the number of farms that can be obtained.

2.3.1 Land Prices

Data provided by the ONS, in response to a Freedom of Information request, observed that the total value of agricultural land in the UK rose in value by 462% between 1995 and 2016. While this represents an aggregated, UK wide increase, the fact that this value has increased fourfold in 21 years is indicative of increased values more broadly. Evidence indicates that arable land prices in Scotland have also increased in recent years. The estate agents Strutt and Parker observe that, between 2000 and 2017, arable land went from an average of £2,000 per acre to £7,000 per acre. Added to the high capital costs associated with setting up a farm, this may present an important barrier to new-entrants to farming.

As observed elsewhere, those seeking to purchase land on the open market also have to compete with those perceiving land as an investment opportunity. Writing in 2021, the estate agent Savills reported that, in the UK as a whole during 2020, 34% of the farms sold were bought by non-farmers and that existing farmers accounted for just about half of all purchasers with farm expansion the most common reason for buying new land. Indeed, the primary competition for young farmers and new entrants – i.e. existing farmers – are likely to have substantially better access to capital and borrowing than those without comparable security of tenure.

Finally, as a contemporary example of the impacts of policy on land prices, Strutt and Parker observe that, in relation to hill farms specifically, that the Scottish Government support to plant trees has resulted in a tripling of the value of hill land – which is suitable for afforestation – in recent years.

2.3.2 Limited Land Availability

Research conducted by the James Hutton Institute in 2017, commissioned by the European Parliament, undertook seven case studies across seven countries (including Scotland). This research worked with young farmers to identify the key barriers to entering the sector. Across all case studies, access to land was identified as the most important barrier to new entrants. The report observes the following factors that influence this:

• There is limited high quality land available for purchase or secure rental.
• The available land is too expensive.
• CAP direct payments increase the price of land and dis-incentivise land transfer.
• Concerns, particularly in Scotland, among land owners about the tenant 'right to buy'.
• The fact that land has become an investment opportunity for national and international investors.

In Scotland, demand for land also considerably outstrips supply. According to Strutt and Parker, in late 2020, the five year rolling average of farms coming onto the market is 102. The rolling five year average of farm sales should provide some indication of the scale of the challenge of supporting new market entrants in the current context. Assuming this rate of purchases remained constant – and excluding tenancies for the time being - replacing 1% of the current farmers in Scotland – 518 holdings – would take slightly over five years.

Strutt and Parker also provide commentary on the pressures on supply, with reference to 2019:

"Notwithstanding this reduced interest, demand still exceeded supply. There were still many buyers looking to expand their businesses or reinvest roll–over capital during these tentative times. Borrowing is cheaper than ever and land remains seen as a good investment with values largely stable."

They further observe that most farm purchases are undertaken by other farmers seeking to expand their holdings and achieve economies of scale. For additional context, it is worth noting that Scotland has a remarkably uneven distribution of land. Research from 2014 indicates that approximately 1,125 owners hold 70% of Scotland's rural land. All things being equal, greater concentration of farmland is likely to lead to less farmland coming onto the market.

2.3.3 Decline in Tenancy Availability

Tenancy – whereby land is rented – offers a potential form of access to land that does not involve outright purchase. However, in terms of tenancy options, it was observed in 2014 that Scotland has among the lowest proportions of rented land in Europe, with only Ireland, Poland and Romania having a lower proportion. A Scottish Parliament Information Centre (SPICe) briefing from 2014 observes that there has been a long term decline in the availability of tenancies. Between 1913 and 1980, the number of rented or mainly rented holdings declined from 77% of all holdings to 31% in 1980 . As SPICe observe:

"By the 1980s, the supply of land available to rent as a secure tenancy had virtually dried up and despite various initiatives, this has remained the case. Very few new secure tenancies have been created over the last 30 years. Thus, the number and extent of secure 1991 tenancies continue to reduce."

Figures from the June 2021 Agricultural Census indicate that this decline has continued, albeit at a slower rate (likely reflecting the lower base). From 2011 to 2021, the total area rented has fallen from 25% to 22%. Of the 15,283 rented holdings in 2021, 9,343 holdings contain crofts. It was also observed, in 2017 that since 2008 there has been an above-inflation increase in rents (47% or 30% after accounting for inflation), particularly on LFA land which has risen 62 per cent (44% in real terms).

The decline in tenanted land, according to SPICe, can be attributed to a combination of an increased tendency towards farm amalgamation and larger holdings, reflecting the emphasis of policy and subsidies on production, the subsidies which can make tenant rents, by comparison, less attractive than farm development, and the increasing reluctance of landowners to create new tenancies, given the increased security of tenure for tenants brought about in various pieces of legislation. A 2018 report from the James Hutton Institute (JHI) further observes that tenancies are "…increasingly being replaced by contract farming arrangements" and that uncertainty around a potential tenant's right to buy have also contributed to making tenancies less available, as noted above.

2.3.4 Succession

Finally, it is worth briefly touching on the challenges of succession, that further contribute to challenges of accessing land. As Matthews notes, the increasing life expectancies and the fact that older farmers – whose farm may be their home – have reduced opportunities to exit. As Hamilton et al demonstrate, while older farmers may have less income and profit, they also have less debt and concentrated assets. This, combined with an entitlement to subsidies, may result in limited incentives to exit the industry.

As JHI observe, research has consistently demonstrated that succession is the most common route into farming in Europe. Successors, furthermore, are the most likely to move into a successful business.

Reluctance to sell farmland reflects a myriad of factors, including both the emotional attachments experienced by owners and the valuable capital asset that the farm may represent. Further, owners may be reluctant to sell, as ongoing farm subsidies may contribute to funding the retirement of older farmers. As an absence of farms being sold on is likely to contribute to scarcity of available land, addressing succession going forward is likely to be an important policy area.

2.4 Do Schemes to Support New Entrants Work?

In the first instance, it is worth observing that, despite interest in generational renewal policy in the EU since the 1990s, there has been limited success in addressing this problem. In the EU, based on figures from 2018, young farmers represented only 6% of the agricultural community. As Matthews shows, the percentage of farmers under 35 has declined from over 10% in the period from 1990-2003. Conversely, this has fallen from 6.9% in 2005 to 6% in 2013. At the macro level, this is indicative of the challenges here. As Matthews observes further, the aging workforce is a phenomenon across the European economy as a whole, irrespective of sector. As observed above, it would take substantial time at present rates of farms entering the market to achieve even limited changes in the age composition to the sector.