Publication - Research and analysis

Scottish Agricultural Tenure Evidence Review

Published: 27 Jun 2014
Part of:
Research
ISBN:
9781784126018

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

122 page PDF

3.4 MB

122 page PDF

3.4 MB

Contents
Scottish Agricultural Tenure Evidence Review
7 Overview Of Agricultural Land Tenure In Selected Countries

122 page PDF

3.4 MB

7 Overview Of Agricultural Land Tenure In Selected Countries

7.1 The analysis of the data has shown that there are wide variations in the extent and importance of the tenanted sector across Scotland, for a variety of historic, fiscal, and wider policy reasons. This level of variation is not unique to Scotland and the 2010 Farm Structure Survey results show that there is considerable variation in the proportion of tenanted land within many countries. For example, Figure 28 shows how the tenanted sector is more important in the north and east of France, compared to the south west. Equally in the UK, Wales and Northern Ireland have the lowest level of long term tenancies followed by Scotland, with the highest levels of farm tenure occurring in England. The factors behind these regional and inter-country differences in the importance of the tenancy sector are investigated in more detail in this chapter which uses a number of case studies that can be found in Annex B.

Figure 28 Proportion of Utilisable Agricultural Area that is tenanted across the EU

Figure 28 Proportion of Utilisable Agricultural Area that is tenanted across the EU

Recent tenure review exercises

7.2 Agricultural land tenure across different countries has been subject to a number of formal and/or academic reviews in recent decades. For example: the Northfield Committee (1979) reported on the UK situation, including some limited international comparisons, whilst the European Commission (EC, 1982; see also Harrison, 1985) provided an overview of tenure arrangements in nine European countries, later extending explicit attention to new entrants (EC, 1992).

7.3 Grossman and Brussaard (1992) offered an academic perspective on 12 countries, including some outwith Europe. Ravenscroft et al. (1998a, b and c) also considered a mix of European and non-European countries, with their conclusions later incorporated into best practice guidelines by the Food and Agriculture Organisation (FAO, 2001). At a less detailed level, the OECD (1996) made some international comparisons and the United Nations Economic Commission for Europe presented results of a survey across Europe (UNECE, 2003). ADAS (2004) considered new entrants in the UK context. Most recently, in a continuing programme of work, various aspects of land markets in both old and new Member States of the EU have been explored in some detail by Swinnen and colleagues (Swinnen, 2002; Swinnen et al., 2009; Swinnen et al., 2013).

7.4 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. Case studies conducted for this project (see Annex A) provide some additional, updated information to supplement insights from the general literature.

7.5 The following sections summarise briefly the main findings reported by the reviews cited above, supplemented with updated information from the 10 short case studies undertaken specifically for this project. The summaries offered should be viewed as indicative rather than definitive descriptions since requests for information from other countries are inevitably subject to interpretation and translation errors, plus on-going legislative changes can overtake reporting.

Relative shares of owned and rented farmland

7.6 The diversity of agricultural tenure is most easily illustrated by a comparison of the relative shares of owned and rented farmland across different countries. Such comparisons are hindered slightly by discrepancies[15] in how data are recorded and/or reported, but available information is nevertheless sufficient to reveal broad patterns - as shown in Table 11, Table 12, Table 13 plus Figure 29 below.

7.7 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.

Table 11 Rented land as a current share of utilised agricultural area in selected countries

Country % rented Country % rented
Belgium 67 Latvia 27
Bulgaria 79 Lithuania 48
Canada 40 Netherlands 41
Czech Republic 83 New Zealand 30
Denmark 34 Norway 42
Estonia 50 Poland 20
Finland 34 Romania 17
France 74 Slovakia 89
Germany 62 Spain 27
Greece 32 Sweden 39
Hungary 56 UK 32
Ireland 18 England 40
Italy 28 Scotland 24

Source: adapted from Ciaian el al. (2012), supplemented by cases studies. The year and basis for calculations varies across countries, but the estimated shares are indicative of broad differences.

Figure 29 Rented land as a current share of utilised agricultural area in selected countries, ranked

Figure 29 Rented land as a current share of utilised agricultural area in selected countries, ranked

Source: as per Table 10

Table 12 Rented land share over time in case-study countries, plus indicative current land costs

Country 1970s % rented 1990s % rented current % rented £/ha value £/ha rent
Belgium 71 68 67 6.5k - 12k 120
Canada 35 37 41 1k - 7k 20 - 130
Denmark 18 29 34 16k 400
France 51 57 74 2k - 10k 30 - 125
Hungary - - 60 1.6k 80
Ireland 6 10 11 21k 160
Netherlands 48 33 41 33k 300 - 675
New Zealand - - 20 8k - 11k 200 - 500
Norway 20 31 42 - 32 - 160
Poland - - 20 4k 80
England 46 37 40 22k 130 - 180
Scotland 49 36 24 9k 75 - 230

Source: case study research. The year and basis for calculations varies across countries, but the estimated rental shares and land costs are indicative of broad differences (but may mask within-country variation across different land types). Comparable rental data are not available for Hungary and Poland prior to liberalisation in the 1990s; NZ rental area is an industry estimate. Norwegian land values are not available. Scottish data from variety of sources including land agent publications.

Table 13 Share of farms held by sole-proprietors, farmers age profile and importance of family labour

Country Sole-proprietors % < 35 years % > 55 years % family labour Avg. farm size
Belgium 92% 6% 53% 79% 30ha
Canada 55% 8% 48% 50% 312ha
Denmark 98% 6% 44% 61% 60ha
France 59% 8% 38% 70% 29ha
Hungary 96% 7% 48% 58% 20ha
Ireland 97% 4% 44% 60% 33ha
Netherlands 93% 4% 44% 60% 25ha
New Zealand 77%/25%a 4% 44% 80% 248ha
Norway 94% 8% 23% 93% 22ha
Poland 99% 17% 23% 93% 12ha
England 95% 3% 59% 70% 87ha
Scotland 93% 3% 58% 81% 106ha

Source: case study research. The year and basis for calculations varies across countries, but the estimated figures are indicative of broad differences. NZ figures are mainly industry rather than government estimates.

a higher figure is for beef and sheep farms, lower figure for dairy farms.

Types of tenure control

7.8 Despite similarities in stated policy goals, countries have adopted a range of different tenure control measures. Although Annex B offers greater detail on a country-by-country basis for the selected cases studies, Table 14 and the accompanying descriptions below are structured by broad type of control measure as a means of highlighting the diversity of approaches taken.

7.9 Whilst focusing on measures relating directly to tenure, some other influences are also considered - notably taxation, treatment of new entrants to farming and environmental or planning restrictions.

Table 14 Summary of common tenure control measures in example countries

Tenure control measure Example Countries
Restrictions on nationality of owners Canada*, Finland, Greece, Hungary, Latvia, Lithuania, New Zealand, Norway Poland, Romania, Slovakia
Restrictions on owners (e.g. residency, qualifications) Austria, Denmark, Norway, Hungary, Poland
Max area owned Denmark, France, Hungary, Lithuania
Land consolidation Canada, Denmark, France, Netherlands, New Zealand*, Norway
Maximum sale price Austria, France, Poland
Maximum rent Austria, Belgium, France, Netherlands
Minimum rent Austria, France, Czech Republic
Minimum lease duration Austria, Belgium, France, Italy, Netherlands, Portugal, Slovakia, Slovenia, Scotland
Maximum lease duration Denmark, Finland, Sweden, Hungary, Poland, Slovakia, Scotland
Continuity of tenure Belgium, Canada*, France, Italy, Netherlands, New Zealand*, Portugal, Sweden, Slovakia, Slovenia, Scotland
Land-specific court or other body for dispute resolution Denmark, France, Netherlands, Norway, Scotland
Tenant pre-emptive right to buy Belgium, France, Italy, Portugal, Sweden, Hungary, Latvia, Lithuania, Poland, Slovenia, Scotland
Tenant Absolute right to buy Canada*, New Zealand*
Neighbour's pre-emptive right to buy France, Italy, Portugal, Hungary,
Tax breaks on transfers Canada, Ireland, Norway, Poland, Scotland
Tax breaks on ownership Canada, France, Norway, Scotland
Tax breaks on rental income Belgium, Hungary, Ireland.
New entrant tenure support Canada*, France,
New entrant finance Canada, Denmark, France, Hungary, Ireland, Netherlands, N. Zealand, Scotland
New entrant partnerships Belgium, France, Denmark, Netherlands, New Zealand
Other non-tenure legislation (e.g. planning, environment) Across EU, New Zealand, Scotland

Source: derived from EC (1982), Grossman and Brussaard (1992), (UNECE, 2003) and Swinnen et al. (2013) plus case study research. * for Canada and New Zealand, only on Crown not private land. Also, not all Canadian Provinces have the same controls.

Restrictions on owning or leasing land

7.10 In many countries, the holding of land by non-local interests is subject to regulatory restrictions. For example, outright bans on non-local ownership, limits on the area that can be held by a non-local, and consent procedures prioritising local residents. In some cases, non-local is interpreted as from outwith the immediate area but more generally as from a foreign country. Restrictions may also apply to corporate land holding, favouring family-operated farms.

7.11 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. However, such restrictions are due to be relaxed for EU-nationals as NMS' transitional entry arrangements come to an end (a similar process applied to Denmark earlier).

7.12 Non-EU countries such as Canada (although not all provinces), Norway and New Zealand have also had outright bans in the past, but have since generally adopted less-restrictive case-by-case consent procedures - as have a number of EU countries such as Austria, Denmark and France. 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. Some countries, such as France, Hungary and Italy, grant pre-emptive rights to neighbouring farms to buy or lease land, prioritising them over other prospective bidders. Norway prioritises within-family transfers.

7.13 In Scotland, there are no restrictions on owning or leasing land in terms of nationalities, residency or skills/experience.[16]

Restrictions on area of land held

7.14 Restrictions on the area of land held are not necessarily confined to non-local interests but can extend to locals too as a generic constraint on land aggregation by individuals. Such restrictions are intended to favour a pattern of smaller, family-operated farms. Examples include Denmark, France and Hungary.

7.15 However, external pressure for structural change in agriculture typically leads to a need for periodic adjustment of such constraints. Hence, for example, the maximum area permitted and the number of individual farms permitted to be held by an individual has gradually increased in Denmark whilst New Zealand removed all such controls in 1995.

7.16 In Scotland, there are no restrictions on the area of land that can be owned or leased.

Promotion of land consolidation

7.17 Conversely, 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. For example, through arrangements to avoid splitting land amongst multiple heirs and offering pre-emption rights to relatives, co-owners or indeed neighbours.

7.18 In addition, consolidation can also be promoted more actively through State facilitation of voluntary exchange of land between neighbouring farms and/or through active intervention in local land markets. For example, Denmark, France and the Netherlands all have administrative bodies with the power to forcibly reallocate land between different farms if this will improve viability (or is necessary to accommodate public infrastructure improvements). The French SAFER (Sociétés d'Aménagement Foncier et d'Etablissement Rural) system is the most active interventionist model, with all land transfers being subject to local scrutiny and pre-emptive rights of the State to take (temporary) possession of land for reallocation.

7.19 In Scotland, although there is some legal provision for the amalgamation of tenanted land by landlords, there are no formal processes to promote land consolidation in a manner akin to that in some other countries.

Sale price controls

7.20 Explicit articulation of acceptable land values is rare. However, concern over the impact of rising land values on farmers' (especially new entrants) ability to acquire land has led some countries to subject sales to case-by-case scrutiny. For example, Austria, France and Poland all empower local land boards to intervene to cap excessive local price rises. Equally, restrictions on land ownership, especially by non-local interests, are also intended to dampen the rate of increase in land values. Minimum sale prices are not apparently addressed.

7.21 In Scotland, there are no controls on land prices.

Rent controls

7.22 A desire to ease cost pressures on farmers has led many countries to impose maximum rental levels, typically 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. Equally, expressing rents as a percentage of land values can result in excessive increases if land values are detached from agricultural productivity through external drivers (i.e. non-farming demand).

7.23 More commonly, rents are linked in some manner to the productive capacity of the land. For example, in relation to crop yields, stocking densities and/or profit margins. In some cases, such as the Netherlands, formal independent analysis is used as the benchmark whilst in others, such as Belgium and France (which also sets a minimum rent), a more consultative approach involving local stakeholders is used (with some independent input). In Belgium, maximum rents are also varied according to the lease duration, rising with length. Canada, Hungary, Poland and New Zealand have no rent controls for private leases, but do for public leases.

7.24 Where maximum price or rent levels are in place, an illegal "grey" market may emerge. That is, farmers keen to obtain more land, particularly if contiguous with an existing holding, may be willing to pay more than the maximum regulated amount by offering additional "key money" payments. This is suspected to occur in, for example, Belgium, France and the Netherlands. Similarly, constraints on (especially) foreign ownership are suspected to be circumvented through additional payments in, for example, Hungary and Poland - particularly in border regions.

7.25 In Scotland, there are no rent controls in terms of definitive maximum or minimum values. However, there is a recommended voluntary process for reviewing rents. Ultimately, disputes over rent can be judged by the Scottish Land Court.

Minimum lease duration and continuity of tenure

7.26 Leasehold occupation of land is less secure than freehold occupation, meaning that tenant incentives to plan and invest for the longer-term may be dampened. Consequently it is common for leasehold security to be strengthened through limiting the scope for leases to be terminated and by obliging landlords to offer leases of reasonable duration which are then renewed automatically (and often for the same period as the initial term). In addition, renewal typically extends to other family members, thereby making leases heritable and facilitating farm succession.

7.27 The degree of security provided varies considerably across countries. For example, Belgian leases can be for up to 27 years (or indeed up to the expected life of the tenant) and are renewed for the same period as the original term. Similar treatment is experienced in, for example, France, Italy and the Netherlands. By contrast, Ireland offers no security of tenure and countries including Denmark, Hungary and Poland specify maximum lease durations with no automatic right of renewal. Although offering no obligatory security for private tenants, rental of Crown land in New Zealand is typically on a 33-year perpetually renewing lease. Similar arrangements exist in some Canadian Provinces.

7.28 In some countries, such as England, the Netherlands and Norway, shorter-term leases are exempt from regulatory controls - notably rent levels plus rights of renewal, succession and pre-emption rights. Concerns that over-regulation was limiting the availability of rental land led England to introduce unregulated short-term leases in the 1990s (see Whitehead et al., 2002, for an evaluation) and the Netherlands to do the same in the mid-2000s.

7.29 In Scotland, minimum duration and continuity vary across different types of lease. For example, although often rolled-over for successive years, short-term lets have no binding commitment beyond their first year. Conversely, "secure" tenancies under the Agricultural Holdings (Scotland) Act 1991 are heritable with long-term security of tenure and a succession right. In-between these two extremes, a Short Limited Duration Tenancy (SLDT) is for up to five years whilst a Limited Duration Tenancy (LDT) is for a minimum period of ten years.

Dispute resolution

7.30 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. Aspects covered include lease duration and rental levels, but also in most cases how tenant improvements (or damage) to land are valued and any limits to the freedom to farm. A few countries, such as New Zealand and Hungary, rely upon basic contract law or generic landlord-tenant law and do not have specific courts or tribunals to resolve disputes arising from private leases. However, many countries do have land-specific bodies either at a local and/or national level, for example, Denmark, France and the Netherlands,

7.31 In Scotland, the Land Court can ultimately rule on disputes between landlords and tenants. Less costly voluntary resolution processes are also available, for example as promoted by the Scottish Agricultural Arbiters and Valuers Association (SAAVA).[17]

Tenants' right-to-buy

7.32 Examples of tenants having an absolute right to buy rented land are scarce, particularly from private landlords. Historically, the transformation of Irish agriculture from mainly tenanted to mainly owner-occupied during the late 19th and early 20th centuries occurred through granting of such an absolute right to buy - but only once favourable financial support was also provided. 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.

7.33 By contrast, most countries 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 (in a sequence of rank-order prioritisation) pre-emptive rights to relatives and/or neighbouring farms, as in France, Hungary and Italy. In some cases, pre-emptive rights are accompanied by price controls (e.g. France, Hungary) but in other cases there are no price controls and holders of pre-emptive rights may simply be outbid (e.g. Denmark).

7.34 In Scotland, holders of secure tenancies under the Agricultural Holdings (Scotland) Act 1991 are granted a pre-emptive right to buy if the land is sold, but only if they register (and re-register after five years) an interest to do so with the Registers of Scotland. There is not currently any absolute right to buy[18], but the Cabinet Secretary has indicated that he is minded to grant it to holders of secure tenancies under the 1991 Act.

Tax breaks on farmland

7.35 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.

7.36 However, most countries do treat farm taxation differently, particularly with respect to the transfer of land between family members. For example, within-family transfers of farmland are often either entirely exempt from stamp duty, capital gains and/or inheritance tax, as in Canada and Poland, or artificially low valuations are used for taxation purposes, as in Ireland and Norway.

7.37 Similarly, although some countries subject farmland to the same property taxes as other real estate, many countries offer exemptions or apply lower rates. For example, Canada, France and Norway.

7.38 In Scotland, farmland and associated buildings are exempt from business rates and from the highest rates of stamp duty on sales. Subject to certain eligibility criteria, Agricultural Property Relief and Business Property Relief (the latter is not unique to agriculture) are commonly used to reduce inheritance tax liabilities by up to 100% (some tenanted land is restricted to 50% relief). Capital gains tax liabilities can also be reduced through the use of Rollover and Holdover reliefs.

Tax breaks on rental income

7.39 To overcome land owners' reluctance to let land on longer leases (especially when longer leases are associated with other conditions that reduce owners' control), some countries offer tax breaks as incentives. For example, Ireland allows progressively higher exemptions for progressively longer leases whilst Belgium exempts all rental income from taxation for leases of at least 18 years and Hungary does the same for leases of at least five years.

7.40 In Scotland, no tax breaks are granted on rental income from farmland. Some landlords opt for partnership arrangements with tenants in order to gain more favourable tax treatment.

Tenure support arrangements for new entrants

7.41 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 (as mentioned above) typically facilitated by tax breaks on business succession and/or the extension of leasehold security to family heirs.

7.42 Separately, for non-family succession, some countries make explicit provision for allocating land to new entrants. For example, bids for Crown land in Canada and New Zealand can be weighted in favour of younger farmers. Perhaps most notably, around 1/3 of interventions under the French SAFER system are to assist new entrants, of which around 2/3 are not from farming families.

7.43 In Scotland, no formal mechanisms exist for prioritising tenancy applications from new entrants or offering more favourable tenure terms to them.

Other policy support for new entrants

7.44 Several EU countries use Pillar II of the CAP to support new entrants (ENRD, 2013). This typically takes the form of capital grants or soft loans to aid with start-up costs, although budget constraints have limited such support (e.g. in Hungary). Preferential funding support (e.g. lower interest rates, higher loan-to-value limits, State-backed guarantee) is supported in countries such as Canada and Poland (although the latter is subject to EU State-Aid rules).

7.45 Acknowledging that entry into agriculture also depends on the exit of incumbent farmers, some countries have also attempted to hasten retirement dates. Typically, in return for transferring land to an eligible young farmer (e.g. under 40 with relevant experience or qualifications) an early retiree gains access to a pension at an earlier age than would otherwise be the case - either a separate time-limited payment until reaching State pension age (as under Pillar II schemes) or simply earlier access to a State pension (as in Norway). Tax incentives are offered in Ireland.

7.46 In Scotland, limited financial support for new entrants is available through the allocation of new Single Farm Payment entitlements. Equally, new entrants can also receive limited funding under the SRDP.

New Entrant Partnerships

7.47 Separately, some countries have a tradition of easing new entrants into agriculture through formal partnership or sharefarming arrangements. For example, "maatschap" in the Netherlands (and to a lesser extent in Demark, Belgium and France - with some current attempts to promote them in England and Ireland; Ingram and Kirwan, 2011; Bogue, 2013) and sharemilking in New Zealand. Essentially this approach offers an opportunity for new entrants to gain experience alongside an established farmer in a more structured manner than simply being a farm employee, taking an initial stake (e.g. 20%) in a farm and then gradually accumulating capital towards buying the incumbent farmer out. At the same time, the incumbent farmer continues to draw an income from the farm whilst gradually withdrawing from active farming with the prospect of being able to retire when bought-out completely. The precise division of assets and managerial responsibility (and of farm income) will vary across different agreements but typically has the new entrant initially assuming a tenant-like role (e.g. owning livestock) and the incumbent assuming a landlord-like role (e.g. owning land and buildings), with the new entrant gradually taking fuller control.

7.48 Typically, the transfer price is below the market price and attracts preferential tax treatment and financing (including loans from the incumbent farmer). Nevertheless, new entrants are still faced with high debt levels and rising land values have increased the duration of partnership working required to accumulate sufficient capital to complete the buy-out (not least since incumbent farmers may also seek a higher share of farming income to ensure a reasonable return on their capital as its value is inflated by rising land values). Indeed, such arrangements rely on a farm being capable of generating sufficient income to support both partners - or to permit off-farm employment as an alternative means of accumulating capital. Consequently, although still accounting for 1/3 of new entrants to the dairy sector in New Zealand, sharemilking is now competing with other entry routes such as via contract farming or as a farm manager.

7.49 In Scotland, no formal support is offered to encourage partnership working as an entry route to farming.

Other non-tenure legislation

7.50 Agriculture in all countries is increasingly subject to environmental regulations, notably with respect to water pollution and biodiversity conservation. For example, the Water Framework Directive within the EU or the Resource Management Act in New Zealand. Although not directly related to tenure, such regulations can impact on tenure arrangements indirectly. For example, at least anecdotally, compliance with manure disposal requirements (e.g. under NVZ regulations) has led to increased rental of land in Denmark, Ireland and the Netherlands.

7.51 Equally, although not dictating tenure arrangements, agricultural support in the form of production subsidies, quotas and (now) decoupled payments can influence tenure patterns and lead to disputes between landlords and tenants. In particular, a proportion of support payments are capitalised into land values,[19] which has implications for relative returns to owners and tenants.[20] In addition, again anecdotally, the advent of decoupled payments has led some farmers who might otherwise have sold land to let it out on short-term leases or to use contractors in order to retain support payments. For example in Belgium and Denmark. Equally, decoupling may also lead some famers to use seasonal lets to ensure a sufficient area to activate entitlements and/or ease cross-compliance requirements. For example, in Ireland and the Netherlands.

7.52 Separately, demand for residential housing and associated infrastructure places farming in competition with non-farming land use - particularly if close to urban centres. This increases land values, but can also affect the type of landlords renting land out (e.g. homeowners, speculators). Managing the conversion of agricultural land to other use typically falls within the remit of Town and Country Planning, and official guidance for the preservation of agricultural land is commonplace.

7.53 In Scotland, agriculture is subject to a variety of environmental regulations. For example, the Water Framework Directive, the Nitrate Vulnerable Directive and the older Birds and Habitats Directives. Equally, as noted in earlier sections of this report, decoupling of production subsidies has altered some landlord-tenant relationships and on-going changes to CAP support are anticipated to drive further adjustments.

Discussion

7.54 Intervention in land markets to influence agricultural tenure and the 3Fs (fair rents, fixity of tenure, and free sale) have a long history. For example, Tuma (1965) describes Egyptian, Greek and Roman attempts to do so whilst Linklater (2014) cites landlord-tenant statutes from Mediaeval England. Indeed, in the UK-specific context, comparing current debates with the survey by Shaw-Lefevre (1893) of the situation in England, Ireland and Scotland more than a century ago highlights the recurrent nature of the issues involved and indeed the proposed remedies.

7.55 Five main points emerge from the 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. As Cardwell (2006) notes, unlike agricultural policy relating directly to production, tenure has generally not been constrained by either international (e.g. World Trade Organisation, WTO) or European (e.g. Common Agricultural Policy, CAP) restrictions and thus has been and remains essentially a domestic matter.

7.56 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 (Ladjensky, 1964; Harrison, 1985; Swinnen, 2002; Linklater, 2014). For example, the importance of Crown land in Canada and New Zealand stems directly from 18th Century colonisation processes whilst land reform in Eastern European countries such as Hungary and Poland is driven by more recent experiences of autocratic state control. Equally, current tenure in many Western European countries reflects political choices made in previous eras, for instance the Irish transformation from mainly rented to mainly owner-occupied farms.

7.57 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. However, pressure for structural adjustment - notably from rising incomes in the wider economy, technological progress and market competition - means that size definitions of family farms need to be revised upwards over time. In turn, this can lead to the adjustment of other tenure controls. In particular, attempts to increase the availability of land to rent or buy, relaxation of restrictions on farm size and relaxation on foreign (and/or absentee) ownership controls.

7.58 Fourth, periodic reform[21] 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. These views vary across countries and also over time, leading to iterative attempts to maintain a tolerable (rather than optimal) level of efficiency and equity under changing circumstances. That is, it is difficult to design tenure arrangements to simultaneously balance and maintain interests of new entrants with those of incumbent farmers, of tenants with owner-occupiers and landlords, of farming with non-farming land uses and of rural with urban communities.

7.59 Fifth, formal evaluations of tenure controls are extremely rare[22] and case study informants caution against drawing causal inferences - as do previous review exercises (e.g. Northfield, 1979). In particular, the context-specific and dynamic complexity of tenure means that similar observed outcomes may have different causes in different countries. For example, recent apparent increased rental activity in (e.g.) England, Denmark, the Netherlands and Norway may reflect changes to legislative controls but also coincides with other changes, notably to agricultural support measures and environmental regulations as well as continuing pressure for structural change. Moreover, the ability of legislation to quickly influence tenure patterns may be limited (e.g. Butler and Winter, 2008). Consequently identification (and applicability to other countries) of measures to achieve particular outcomes is seldom straightforward. Indeed, the economic literature stresses that different tenure arrangements have different advantages and disadvantages with respect to different objectives under different circumstances and that land tenure is but one decision to be taken by a farmer (Cheung, 1969; Currie, 1981; Otsuka et al., 1992; Alan and Leuck, 2003; Swinnen et al., 2013).

Case Study Conclusions

7.60 Different forms of land tenure can affect the efficiency of agricultural production and income generation in different ways. For example, by allowing scarce funds to be invested in working capital rather than buying land, leasing can increase short-term flexibility and allow a larger area to be farmed. However, leasing inevitably involves some dilution of management control, with responsibilities shared between landlords and tenants and thus there is potential for (principal-agent) coordination/conflict problems to reduce efficiency. Moreover, relative to more secure freehold arrangements, leasing may impair the planning and investment needed for sustained longer-term performance. Yet secure tenure can restrict the mobility of land between users, impeding new entrants and others wishing to expand.[23]

7.61 Shaped by political/ historical influences, tenure measures deployed across different countries generally promote security over mobility, either through support for owner-occupation or extended rights for tenants (e.g. compensation for improvements, long-term leases with renewal or succession, pre-emption etc.). Although this may have encouraged longer-term planning and investment, structural change has been relatively slow (often impeded further by production support) and many countries now have concerns about land mobility and the rate of generational renewal in agriculture constraining capacities to meet 21st century challenges.

7.62 Although commonplace, financial support for restructuring or for new entrants is typically offset by limited land availability and thus may need to be accompanied by encouraging incumbent holders to release land. For sales or inter-generational transfers, this typically takes the form of tax breaks or enhanced pensions offered in return for sales/transfers made earlier than they might otherwise have been - in effect incentivising incumbents to partially or wholly exit the industry. A reduction in agricultural support payments might achieve similar results by reducing the cash income flowing to incumbent holders (Breustedt and Glauben, 2007; Raggi et al., 2013).

7.63 For increasing the supply of leased land, attempts can be made to entice potential landlords through measures such as tax breaks on rental income or clarification on the rules relating to landlord entitlement to and receipt of agricultural support payments. Landlords may also be enticed by the creation of leases conveying fewer rights to tenants. Responsiveness to different incentives may vary across different types of tenant (e.g. new entrant, established farmer with own land, SFP claimant, NVZ manure disposal) and different types of landlord (e.g. large estate, financial institution, retired farmer, State) plus with wider economic conditions.

7.64 Importantly, even if the availability of land to buy or lease does increase, this does not necessarily guarantee that new entrants will be able to access it. Rather, established farmers (often with preferential credit due to the collateral value of their existing land holding) may well outbid new entrants (e.g. Whitehead et al., 2002). Hence some countries explicitly allocate public or private land to new entrants through formal regulatory controls or other preferential treatment. The administrative cost and bureaucratic burden of such an approach are, however, unclear - as indeed are those for highly regulated land markets more generally.

7.65 Balancing the effects of different tenure arrangements and the potentially competing interests of different holders of tenure is difficult; no single measure in isolation is likely to achieve and sustain desired outcomes. Account has to be taken of dynamic incentive effects and perceived risks over the long-term, and arrangements need to be capable of evolving to reflect changing circumstances in both agriculture and the wider economy. Nevertheless, whilst international comparisons need to be made with care, the range of measures deployed by other countries offers some interesting possibilities for consideration.

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