Agricultural land has its value and price

Why is the price of land such a loaded topic? The discussion comes up every time and everywhere. I notice this in myself, but also at Farmers Funding meetings. The tendency to explain how it was, how it is and how it will go. However, although no one knows how it will go, it is still worth finding something of it. Price predictions are tricky (if not impossible), but maybe we need to look at it a different way.

'Value' and 'price' are words that we use interchangeably in everyday life. In economics, however, this is not the case. In short, the following definitions apply: value is what you can make/earn with it and price is what you pay for it. Years of experience with and involvement with entrepreneurs who work with land has taught me 5 important lessons.

1. Emotion
For farmers, land means emotion. Land is naturally close to their heart. If you touch his soil, you touch his soul. And yes, emotions serve as a signal to say that an event is special or important (in a positive or negative sense). They serve something. Exactly how it works is complicated, but they are there and we have to deal with them.

2. Special Features
Soil has special properties; take vacancy, we hardly know it. Maintenance is also limited, when we compare this with other real estate. In addition, there is no more; about 8.000 hectares are withdrawn from agriculture every year.

3. Borrow money
Although bankers are often grumbled because they provide difficult or no money, the average debt per hectare has doubled in recent decades. Nationally, this has increased approximately from an average of about €8.000 to about €13.000, and at more advanced companies it is sometimes even €30.000. Farmers are not afraid to borrow money, it turns out.

4. Housing shortage
By 2025, 500.000 homes should be built. And then there's the infrastructure. This involves quite a few hectares and the project developers already own part of that land. Incidentally, 78% of the land they already have is where it is not (yet) allowed to build. The housing shortage means that price pressure continues. Logical when you consider that the value of ready-to-build land intended for housing can easily be a factor of 80 to 100 of the agricultural value.

5. Newcomers
If you look closely, you will see it. Entrepreneurs who are successful, earn money and realize a fixed cash flow, buy land. They know how to create value in their company. They use this to buy land, which they often have a farmer work with. Pay attention, copy (that is allowed here) and take advantage of it. The newcomer is regularly a successful entrepreneur from the agricultural chain. There is talk of reverse chain integration.  

Create value
That kind of thing makes you think, you keep working on it. The first 3 aspects belong to 'price' and the last 2 to 'value'. Maybe you can even say that the first one is 'old money' and the last 2 is 'new money'? Once you get the hang of it and you manage to create value, you will gain wings and lift yourself off the ground. Those who are the first to realize how to create value are less impressed by the price of the land.

Peter Pals

Peter Pals is an entrepreneur at Farmers Funding & Advies and grew up on a farm. From his farming heart, he has decided to build up a business for business, financial and tax advice for agricultural entrepreneurs.