In recent days, land prices and rental prices have dominated the pages of numerous agricultural publications. Enormous land and rental prices have been quoted in some parts of the country at a time when many farmers are looking to add to their existing plots due to new banding rules. Competition is fierce in eastern counties as dairy farmers look to comply with new regulations. Agri Insider spoke with Tom Crosse, Chairman of the Agricultural Committee of the Institute of Professional Auctioneers and Valuers (IPAV), Jason Loughrey, agricultural economist with Teagasc & Austin Finn, Programme Manager of the Land Mobility Service to talk about current land prices, what it means for Irish farmers and the outlook for the market.
A recent report from the Farmers’ Journal showed that the average price per acre increased by almost 3% to €12,288. This average price figure is higher than Celtic Tiger era prices at €12,000 per acre. Ireland also falls into the category of the most expensive EU countries to rent land with an average of €353/ha for arable and/or permanent grassland. The most expensive farmland was in Dublin, Carlow, Kildare, Wicklow and Kilkenny. The least expensive land was in counties Leitrim, Cavan, Sligo, Longford and Mayo where pockets of marginal land are much more common.
Currently, the province with the most expensive land is Leinster where the average is €13,776 per acre, followed by Munster where the average is €12,860 per acre. After that is Ulster (excluding Northern Ireland) with an average of €10,519 and finally Connacht with an average of €8,170 per acre.
Interestingly, according to the SCSI/Teagasc Agricultural Land Market Review and Outlook Report for 2022, there is a big price differential between good quality and poor-quality land. Dairy farmers drove the market with prices for good land in 2021 on holdings under 50 acres ranging from €15,070 in Cork to €9,800 in Clare. Prices for poor quality ranged from an average of €7,700 in Cork to €3,500 in Clare. Dairy and tillage predominant counties demand the premium prices and geographical disparity is growing.
What are the drivers of land prices?
Jason Loughrey commented that dairy profitability over the last few years plays a major factor. He said: “Dairy farm profitability in the last couple of years is a big driver of both land rental and land sales prices. New environmental regulations are important in terms of demands particularly in the land rental markets. 1/5 of dairy farmers are in the highest band (Nitrates), they’re the ones that are driving things in terms of additional demands on land this year.”
Jason also mentioned that over the last few months that land in the west of Ireland has also increased in price, an area of the country that is not considered as dairy intensive. All land seems to be increasing price wise. Jason said: “Incomes in drystock cattle are up a little bit but you wouldn’t expect that to be a big driver in land prices. Land is much cheaper in that region.”
Profitability affecting the market?
Both tillage and dairy net margins are forecast to drop on what was generally a good year for farmers in those sectors for 2022. Jason commented: “I think it’s a longer term thing, we’re coming off the back of two good years. Land sales markets are very thin to begin with, there is still competition there. For the new Nitrates regulations, farmers might be looking for fairly small parcels, 5-10 hectares. The market has really heated up in the last six months.”
Reflecting on 2022, Tom Crosse said there was a price growth throughout the country, “We saw an increase of up to 20% in certain areas driven mainly by dairy farmers as a result of the price for milk, you had business people re-entering the market, seeing land as a reasonable investment play. The demand appears to be continuing unabated even though milk has dropped a little in price, I still think from what I’m hearing and seeing, overall the market is quite buoyant.
“I contend that land values were probably a little bit below what they should have been because we have been languishing at €10,000 per acre for twenty odd years. There was probably room for growth.” Tom mentioned that land during good and bad times is seen as a safe haven for investors. He said: “Even in the collapse of 08’ and 09’ in the crisis, land still had its value.”
Outlook for 2023
“I think we’ll hold on to last year’s level, that’s my cut on it. I think milk dropping back a bit, interest rates going up a bit will have a leveling influence on the market and my prediction is that land prices will level out at last year’s levels. A lot of land went up for sale last year because the market was so strong and vendors were capitalising on the strong market. You mightn’t see as many transactions this year as you would have done in 2022 as a result.”
The next generation?
Many new entrants into farming have to face up to the increasing capital costs that are imposed on farmers and one of the biggest bills is acquiring land through sales and rent. Austin Finn, works on giving options for land owners and opportunities to young farmers. Speaking about these challenges for dairy and tillage farmers, he said: “For new entrants trying to get small pieces of ground, this year has been extremely difficult for them. They just can’t compete with established businesses. It is very difficult for a young starter without significant backing from home to be able to compete with some of the existing operators in the market.”
So what’s the advice for our next generation that are trying to break into the market? Austin has some practical tips. He said: “They can’t compete on price so you have to compete on the offering….your selling points and stories to the landowners. ‘This is what I’m offering and I’m going to take care of the land.’ They should be very transparent in their farm plan and that ticks the boxes for the landowners.
“My own personal experience is that farmer landowners who farmed the land themselves for 30 or 40 years and been in the family for a couple of generations; they’re not driven by price alone, price is probably well down in their priority because they’re getting a good return anyway, not chasing that extra money.”
Land prices are at an all time high but with net margins in the dairy and tillage sector dropping from 2022 levels, it may have a cooling effect on land prices in the near future.