For arable farmers
6 arguments to (not) buy land
In the past 50 years, the price of land has doubled every 10 years, according to figures from Statistics Netherlands. Yet many arable farmers continue to prey on more land. What are the pros and cons when making land purchases?
"Buy the land, because it is no longer made", is the common opinion. If you want to survive, you have to grow. However, the question is whether this argument is correct. Countus has figures that prove the opposite, companies are nevertheless won over by, for example, the low interest rates.
3 reasons to invest in agricultural land:
1. Scarcity
De rise in land prices According to arable farmers, this is mainly caused by the limited supply of good soil. "That's why you should grab a buying opportunity for a plot of good land," they believe. Statistics from Statistics Netherlands support the tight supply, partly due to the extraction of land for non-agricultural purposes. More than 1950 hectares of cultivated land were withdrawn between 2016 and 550.000, an average of 8.000 hectares per year. By way of comparison: that is roughly 5 times the total surface area of agricultural land in the province of Flevoland.
550
thousand
2. Low interest
The fact that the interest rate has fallen by about 5% in the past 20 years, is a reason for farmers to buy land. However, some form of caution is warranted. The ground costs per hectare have not always decreased, because this is offset by a higher repayment. Farmers therefore in many cases strip away wages for themselves, in order to be able to buy the land after all.
3. Leasing yields more
Buying land can also be attractive because the money in the savings account does not yield much at the moment (due to the low interest rates). leasing it of the land then yields more return than money does in the savings account.
3 reasons not to invest in agricultural land:
1. Scaling not more effective
It is often thought that the increase in scale reduces the cultivation costs per hectare, but this is not the case for arable farmers. This was demonstrated by Ithamar van Dijk, advisor at Countus, during an arable farming meeting in Dronten. "The average processing costs per hectare have increased in the last 5 years from over €1.200 per hectare to about €1.600," Van Dijk said. According to him, this is mainly due to higher mechanization costs.
2. Higher balance?
Another common view is that more land yields a higher return on investment. However, it appears that there is no more money available for land. The balances of arable crops were in fact last season not so high† The graph below shows that the Countus Arable Farm Index moves below 5 points on average over a 100-year period.
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The Arable Farming Index is not yet moving directly to a positive level.
3. Past Successes
During the same Countus arable farming meeting, it was also mentioned that past successes (with land sales) still play a role today. It is hoped that land prices will rise further, so that the land can be sold at a considerable profit. Farmers in the hall were warned to be careful.
The topic itself generates many responses. For example, one said: "Buying land has never been possible", and the other said: "The price of land cannot always rise." One farmer expects the land price to rise to €5 within 150.000 years, but other colleagues believe that the land price may even fall in the near future.
Anne-Jan Doorn
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