Real Estate Alliance

Where to for farmland?

Our weekly property columnist Michael Boyd looks this week at the outlook for farmland at a time when other property values seem to be under attack.

If we are to believe the headlines in the national papers and the auction results the definite trend for sales of all types of property this year appears to be slightly downwards (no it is not drastically downwards as they would love to have you believe, it is just slightly downwards). Though the property media tends to concentrate largely on residential there are other sectors such as development land, retail, office, investment and of course the old Irish favourite; farmland. This week we look at what is going to happen with farmland.

Irish farmland is among the dearest in Europe and indeed in the world. The price for land bears absolutely no relation to the economic return to be had from actually farming the land. Its value has been driven by the Celtic Tiger, the loss of land to development and infrastructure schemes and by the belief that every field in Ireland should be a site for at least one house. We all know why the land is so highly prized desire for it is in our veins  and we all want some  farmland.

It is my view that agricultural land values will hold up and in many cases continue to increase. It may be that the phenomenal hope value achieved for lands lying around towns and cities might decline but the general trend for farmland will continue upwards.

An odd thing about the bright outlook for land values is that some of the factors which will most directly underpin the value of the land in the long term actually comes from the furthest away parts of the globe; China, India and the rising economies of the East.
Also for many years now in the West the public has been slowly trained to believe that food originates on supermarket shelves and not on the land. This fallacy has been foisted on the public by governments seeking to reduce their agricultural budgets and by huge corporations seeking profit through industrialisation. As a result of this the West’s agricultural output and self sufficiency has declined and the world’s larder is now down to a record low of only one month’s food or so we are told. This can’t go on and the solution will be that agricultural outputs and prices in the West will rise as China and India bid for the surplus production of traditional exporting countries such as Canada, Argentina, Uruguay etc. However, two principal trends of recent years have served to bring home the inescapable truth that with the exception of seafood everything we eat comes from the land. While western agricultural consumption for food purposes will remain stable for decades to come, that of china and India’s mushrooming middle classes will grow exponentially and result in dramatic pressure on production from agricultural land. This upsurge is caused by the changing diet of the increasingly prosperous. That is the richer we become the more animal protein we eat and the more acres of land are required to produce that protein compared to the earlier mainly vegetarian diet. The change in dietary patterns of even the new Chinese middle class will of itself account for a dramatic increase in demand for grain that will sweeten the economics of farming for us Irish. Never mind India or the rest of Asia. To feed a human a western diet rich in animal protein takes ten times the agricultural output as it would to feed the same person vegetables. Just think of it this way, how many fillet steaks per week are eaten in China today compared to ten years ago and how much grazing and grassland does it take to produce all those those fillet steaks and associated meat products.

Add to this the fact that China is building on its tillage land at a rate of 3% per annum for development purposes. The shrinkage in the Chinese grain output due to this is now apparently the equivalent of the Canadian grain surplus. When you think we all feed out of a global shopping trolley the impact of that is easy to figure out; rising commodity prices and therefore rising land prices. There are those who hold that the EU’s regulatory environment has so strangulated agricultural production that the EU is actually headed for a severe food shortage within two decades if policies are not reversed. Imagine famine in Brussels! Of course, Europe is developed enough to change its policies and react quickly to rapidly step up food production and that will be good for our farmers and for land values. The western world will return somewhat to a situation where the primary food producers are once more an important part of society. (Think of how in Britain the farmer has been sidelined as a mere park keeper for townies in recent years).

Large countries like Canada, Argentina and North America that traditionally produce vast surpluses of grain will again generate phenomenal revenues from their agricultural exports as they struggle to keep up with demand and land as a commodity in these countries and worldwide will rise greatly in price.

A second factor which is helping farm values but may be squeezed off the agenda altogether is bio-fuels. There are those who argue that there is no room on this planet for bio-fuels. They have yet to point out what we will do when the mineral oil runs out but they are certainly saying loud and clear that all crops will be needed for food and not fuel. So the message from the agricultural analysists is that there is not going to be any room for bio-fuels.

This scenario has made investment in overseas agricultural land very attractive. Land values in our next door neighbour Britain have been depressed for a long time and are resurging on the back of newfound confidence in food production and by an invasion by Irish farmers. Irish farming syndicates have also travelled to Eastern Europe, Argentina and Australia to purchase vast tracts of pampas, steppe and outback based on the belief that if commodity prices increase so will land values and also on the belief that agricultural products are going to be the new oil. This is a return to the millennia long position  of the farmer as critical to society. Perhaps it is a healthy thing that the world, particularly the western world, once again realises that what is on the supermarket shelf came out of the ground somewhere.

So as the outlook brightens for Irish farmers selling crops, so land values will be underpinned. If you are covetously looking over the ditch at a few acres next door for the pony the news may not be good for you. As the old saying goes they are not making any more of it.

Speaking of not making any more of it I see where the Dutch are crazily re-flooding polders that they reclaimed in the 1950s purely to recreate a bit of bird habitat. While I am as much of a nature lover as the next fellow, I just can’t understand the concept of giving land back to the sea for the sake of a few wading birds. That policy can only be a result of some bureaucrat spending too much time in the office eating organic sandwiches. How detached from reality can you be? So if you are a farmer and are thinking of cashing it in to get into more lucrative commercial property or non-farm economic activity that looks more attractive maybe you should ignore the old saying that far away fields are greener because be assured in the middle and long term your own field is very green indeed!