Scottish Agricultural Tenure Evidence Review

A review of tenure arrangements in Scotland and case studies of selected countries

1 Executive Summary

1.1 Data on land tenure in Scotland is reliant on the June Agricultural Census which, whilst having a statutory basis for holding occupiers to complete is not universally completed with around 70% annual completion. Coupled with missing data in some census returns, it means that some estimates have to be made around the prevalence of different types of tenure in Scotland. Consequently, the dataset does not yet offer a fully robust method of identifying crofts meaning that the data on tenure is likely to be clouded by crofting rentals. The data does, however, provide some clear indications of change in the amount of land let under Agricultural Holdings Legislation. It also gives insight into the way in which land has been let under the different letting vehicles introduced over the period not only within the legislation but also outside it, with particular reference to seasonal lets.

1.2 Including crofting tenure, there was a reduction in the total area of land let in Scotland from about 40% of land in 1982 to 24% of land in 2013, representing a decline of 42%. The rate of decline was low during the 1980s but since the introduction of the Agricultural Holdings (Scotland) Act 1991 and the Agricultural Holdings (Scotland) Act 2003 there was an average annual rate of decline of 2%. These changes are not entirely due to changes in land tenure, with reforms of Common Agricultural Policy (CAP) also having a bearing, particularly as support was decoupled from production.

1.3 At a holding level it is estimated that, excluding identifiable crofts, between 2000 and 2013 the amount of land let through agricultural tenure decreased from 1.59 million hectares to 1.19 million hectares with the proportion of holdings leasing land falling from 24.4% to 17.4%. At a business level (farm businesses may run multiple holdings) the proportion of businesses letting land fell from 26.8% in 2009 to 24% in 2013 with a reduction in the let area from 26.4% to 22.8% over the period.

1.4 There are strong regional variations in the relative importance of land tenure with areas in, for example, the Borders or Dumfries and Galloway traditionally having greater reliance on farming tenancies. There was also wide regional variations in the changes in the number of holdings, businesses and area of rented land over the period of analysis, with for example more rapid decline in areas such as Tayside, Ayrshire and Lothian.

1.5 The proportion of wholly tenanted holdings fell from 18.1% in 2000 to 12% in 2013 with the proportion of land on these holdings falling from 26.2% to 16.9%. Despite the proportion of holdings with mixed tenure falling from 6.3% to 5.4% the area of land under their control increased from 9.9% to 11.5%. Mixed tenure holdings and businesses were found to be more than double the size of wholly owner occupied holdings on average and about 60-75% larger than wholly tenanted counterparts over the period. At business level, mixed tenure businesses controlled a considerably larger proportion of the farmed area (20.4% in 2013) than at holding level (11.5% in 2013). The Borders and Dumfries and Galloway have traditionally had high levels of wholly tenanted farm holdings and businesses.

1.6 The estimated area and number of holdings and businesses under 1991 Act tenancies continues to decline, following long term patterns. It was estimated that the number of holdings with 1991 Act leases fell from 7,129 in 2007 to 5,793 in 2013 with the area leased falling from 1.15 million hectares to 0.887 million hectares during that time period. The North East of Scotland had nearly 1 in 5 holdings with 1991 Act leases in 2013 (14% of the rented area) and Highland had 22.7% of the rented area (13.7% of the holdings).

1.7 Business level analysis suggests that there were 4,497 unique businesses leasing 871,518 hectares in 2013 under 1991 Act tenancies, respective declines of 13% and 17.3% since 2009. There was also a decline in the estimated number of businesses leasing through Ltd Partnership agreements following legislative changes brought about from the Agricultural Holdings (Scotland) Act 2003. Whilst there has been growth in the uptake of Limited Duration Tenancies (LTDs) and Short Limited Duration Tenancies (SLTDs) this has been relatively slow and by no means compensates for the loss in 1991 Act and Ltd Partnership tenancies.

1.8 Using details submitted on IACS forms by CAP recipients since 2005 the amount of land let on a seasonal/temporary basis has increased from 510,805 to 721,907. This represents a net gain of 211,102ha (around 49,000ha less than was lost from holdings held under agricultural holdings legislation). The vast majority of new, seasonally let land is rough grazing and is likely used as "naked acres" as a result of "slipper farmers" seeking land to activate purchased CAP support entitlements or active farmers seeking a safety net for CAP inspections. There has been considerable uptake of seasonal let land in the south west of Scotland, letting in up to a quarter of the total area on seasonal basis. There were notable increases in the central Highlands and Wester Ross of locations where there have been significant increases in seasonally let-out land - potentially confirming assertions over naked acres.

1.9 In November 2013 there were 1,135 interests registered for a pre-emptive right to buy covering more than 190,000ha. This represented 21.4% of the estimated total area under secure 1991 Act leases in 2013, spread across Scotland but with some higher concentrations in counties traditionally associated with estate ownership and tenant farming. The Church of Scotland and Crown Estate were the landowners with the largest proportion of tenants' interests registered for their land.

1.10 The drivers of change surrounding tenancy issues are numerous but there was surprising commonality across the regions. It certainly appears that the limited uptake of SLDTs and LDTs relates to control of the land, inheritance taxation considerations and importantly the ability of landlords to access (or potential access) decoupled CAP support payments when leasing through contract farming arrangements or seasonal lets. It was predicted by many working with farmers and landowners that contract farming will continue to blossom in the near future as landlords seek to maximise returns from their land through CAP support payments, whilst minimising longer term risks relating to land reform. It also appears that those land owners that continue to lease land through secure 1991 Act tenancies have nervousness over land reform, particularly the uncertainty it brings to the sector. There appears to be a lot of informal arrangements (e.g. handshakes, unwritten agreements) being used as a more flexible method of renting land than more formalised legal options despite the landlord potentially being at greater risk through the informal route.

1.11 Surprisingly little empirical evidence is available on the relative performance of farms held under different tenure arrangements. This partly reflects a lack of suitable data for analysis, but also the confounding effects of other influences on farm performance. Literature suggests that mixed tenure farms may deliver superior results, but that farmer characteristics (e.g. attitude, education) are a more important determinant of performance. Moreover, results are sensitive to how finely tenure categories are defined and to how (imputed) family labour and (especially) land costs for owner-occupiers are treated.

1.12 Agricultural land tenure across different countries has been subject to a number of formal and/or academic reviews in recent decades. Although most are slightly dated, all of these studies provide useful overviews of different tenure patterns and of the different ways in which governments have sought to use legislative controls.

1.13 The variation in rented land's share of tenure is dramatic, ranging from less than 20% in Ireland and Romania to over 80% in Slovakia and the Czech Republic. In addition, the share of rented land has also varied over time - rising in some countries whilst falling in some others. There is also considerable variation on land prices and rents, plus in the structure of agriculture in terms of forms of business, average farm size, reliance on family labour and the proportion of younger and older farmers. Despite similarities in stated policy goals, countries have adopted a range of different tenure control measures.

1.14 In many countries, the holding of land by non-local interests is subject to regulatory restrictions. These restrictions reflect concerns over the impact of non-local and/or corporate interests on land prices and rental values plus community cohesion. Such concerns are prominent amongst New Member States of the EU, most of which have bans on foreign/corporate ownership and/or limits on areas that can be leased. Non-EU countries such as Canada, Norway and New Zealand have also had outright bans in the past, but have since generally adopted less-restrictive case-by-case consent procedures. Consent is often conditional on, for example, applicants having prior agricultural experience and relevant qualifications, being already resident in the country, and committing to personally residing on and working the land involved.

1.15 Acknowledgement of the negative influence of land fragmentation on agricultural efficiency has led many countries to constrain the sub-division of land and indeed to promote consolidation. Denmark, France and the Netherlands all have administrative bodies with the power to forcibly reallocate land between different farms if this will improve viability.

1.16 A desire to ease cost pressures on farmers has led many countries to impose maximum rental levels, typically revised every few years. In some cases, rents for a given piece of land are set with reference to rents on neighbouring land - a system that dampens changes, but inevitably imposes time lags - and in the event of falling incomes may actually worsen the situation. More commonly, rents are linked in some manner to the productive capacity of the land. For example, rents could be set in relation to crop yields, stocking densities and/or profit margins.

1.17 The degree of security of tenure provided varies considerably across countries. Belgian leases can be for up to 27 years and are renewed for the same period as the original term. Similar treatment is experienced in, for example, France, Italy and the Netherlands. Ireland offers no security of tenure and countries including Denmark, Hungary and Poland specify maximum lease durations with no automatic right of renewal.

1.18 Acknowledgement of the potential for tension between tenant and landlord interests is widespread, with most countries having some degree of explicit legislation detailing the obligations and powers of each party to a lease, plus how disputes can be resolved.

1.19 Examples of tenants having an absolute right to buy rented land are scarce, particularly from private landlords. Currently, most (but not all) tenants on Crown land in both Canada and New Zealand have an absolute right to buy and indeed are actively encouraged to exercise it. Most countries do, however, grant first refusal to private and public tenants through a pre-emptive right to buy land if offered for sale. For example, Belgium, France and Sweden. Some countries extend pre-emptive rights to relatives and/or neighbouring farms, as in France, Hungary and Italy.

1.20 In some countries such as Denmark, the Netherlands and New Zealand, the tax treatment of agriculture is more-or-less the same as for any other business sector. That is, although generic support for business succession and income-smoothing may be available, no farm-specific exemptions or allowances are offered. However, most countries do treat farm taxation differently, particularly with respect to the transfer of land between family members.

1.21 The availability of land, either to buy or to rent, is widely acknowledged to be a factor influencing the ease with which new farmers can enter the industry. Farm inheritance is the dominant entry route in most countries, and is typically facilitated by tax breaks on business succession and/or the extension of leasehold security to family heirs. Separately, for non-family succession, some countries make explicit provision for allocating land to new entrants. Bids for Crown land in Canada and New Zealand can be weighted in favour of younger farmers and around 1/3 of interventions under the French Sociétés d'Aménagement Foncier et d'Establissement Rural (SAFER) system are to assist new entrants, of which around 2/3 are not from farming families.

1.22 Five main points emerge from the tenure review literature and case studies. First, patterns of tenure vary considerably across different countries as do the nature and degree of government control (either through legislation and/or as a State landlord) over tenure arrangements. Second, this diversity reflects not only variation in the quality and abundance of land in different countries but also variation in (often inconsistent if not incoherent) political preferences, driven largely by historical factors including the local co-evolution of democratic principles and private property rights. Third, whist the nature and extent of intervention in land markets varies, in almost all cases the implicit or indeed explicit policy preference is for family-operated farms, either as owner-occupiers and/or tenants. Fourth, periodic reform of tenure controls is often highly politicised. This reflects inherent tensions between different interests in land and the ebb and flow of divergent views on the appropriateness of different forms of land tenure and indeed on the distribution of wealth within society. Fifth, formal evaluations of tenure controls are extremely rare and case study informants caution against drawing causal inferences. In particular, the context-specific and dynamic complexity of tenure means that similar observed outcomes may have different causes in different countries.


Email: Angela Morgan

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