Tom SaatSeptember 25, 202205:00

    The first task for the yet to be appointed new Minister of Agriculture is to outline a perspective for the future. This is to alleviate the suffering of the nitrogen plans. Now the decline in the number of farms as a result of the nitrogen plans will not be as dramatic as feared. In the past twenty years, the number of farms has halved from 102 thousand to 52 thousand.

    And that will be no different in the next twenty years, with or without nitrogen measures. The advantage of the nitrogen measures is that they come with a huge bag of money, which was not available for the farmers who had to stop in recent decades.

    If the minister wants to offer prospects, the earning capacity in agriculture must improve. There are two options for this: reduce costs or increase prices. The possibilities for a minister to do something about prices that are often established on the world market are very limited, but the minister can do something about the crazy prices for land. What about land prices in the Netherlands? We see this in the graphs below, based on our own calculations.

    Agricultural yields and land prices.Image Tom Saat

    Graph 4 (the bottom one) shows the arable farm balances. These are the realized financial returns, from which the allocated costs such as contract work, sowing seed and fertilization have been deducted. In dairy farming, those figures per hectare are a bit more difficult to find, but the trend is not much different. Balances show an upward trend, but have not been adjusted for inflation. In chart 1 (the top one) we find the same figures, but adjusted for inflation.

    Then we see a clear downward trend, which makes it clear that if a farmer wants to maintain his income, there will have to be an increase in scale. But scaling up in the overcrowded Netherlands is not so easy. Chart 2 shows that the price of land in the Netherlands has risen at a dizzying pace since 1950.

    The price of agricultural land has risen no less than sixty times in 72 years. But here too, this figure only really speaks if we apply inflation correction, as shown in Chart 3.

    space claims

    After correction, the price has still flipped nine times in the same period! Companies have to grow to survive. Other companies are bought out because of other space claims and must immediately invest the high buyout prices in a new company, in order to avoid the tax authorities. These are all factors that drive up the price of land. Two periods stand out in particular: that of the 1970s, when land consolidation and income guarantees from the EEC (the predecessor of the EU, red.) boosted the price of land, and that of the past ten years.

    The latter cannot be viewed separately from the interest rate policy of the European Central Bank. In the 1980s and early 1990s, interest rates were very high, which kept the price of land in check. For the past ten years, the ECB has artificially kept interest rates extremely low, allowing land prices (as well as house prices) to rise unimpeded. It is the interest expense that determines whether a sale can take place, and the lower the interest rate, the higher the single premiums can be to still be affordable. And that leads to the bizarre situation that, on the one hand, the farmer’s income is under great pressure, while, if he owns land, in the meantime he becomes rich while sleeping.

    That is great for a retiring (retiring) farmer, but for agriculture itself it means a huge drain on earning capacity. After all, the money to pay interest and repayment must be raised by the practicing farmer. As a result of rising land prices, rents are also rising.

    tenant

    Just like in the housing market, this also causes major differences among farmers. 22 percent of all farmers own 30 hectares or more, while 38 percent own less than 5 hectares, and are therefore largely tenants. They cough up the increasing rent every year, but they do not benefit from the increase in value of the land. Over the past seventy years, at a lease price of approximately 2 percent of the free land value, lessees have achieved an annual return of no less than 13 percent thanks to the increase in value.

    This results in an enormous skewed growth of capacity in agriculture. A minister who wants to offer perspective will have to do something about it. I would like to remind the minister of a good idea from the coalition agreement: to boost extensification in agriculture, a new type of soil must be created, the so-called Landscape soil. It is a soil category that has to come between natural land and ‘agricultural land-for-the-full-slap’. To date, nothing has been done with this passage from the coalition agreement, but there is an effective key to offer perspective to both extensification and income in agriculture.

    Tom Saat is a biodynamic farmer in Almere and guest columnist on Volkskrant.nl in September.

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