Dutch land market calls for well-grounded approach
Innovation and flexibilisation are needed in the Dutch market for agricultural land in order to maintain soil fertility and the competitiveness of agricultural companies. This is the view of Ruud Huirne, Director of Food & Agri Netherlands. It is a topic that also features on the Dutch political agenda.
Two-thirds of the land surface of the Netherlands is used for agriculture and horticulture. Farmers and growers own more than half of the land they use. They lease the other half of the land they use from other parties for a longer or shorter period. These leases are subject to government laws and regulations. ‘Leasing is an excellent supplement to land in ownership. It means the company can have access to the land, but does not have to finance it itself’, Huirne says. 85% of all Dutch farmers and growers bank with Rabobank.
Little land changes hands, high prices for land
Only 1.5% of the land in ownership in the Netherlands changes hands annually. The land that is put up for sale is located increasingly further away from a company’s current land area. This fragmentation costs companies time and money in the form of higher transportation costs.
Sales market is determined by supply and demand
Any land that does change owners is sold for relatively high prices. These price levels frequently pose an obstacle for farmers and growers, primarily because returns are relatively low in agriculture. For example, this plays a role in dairy farming and arable farming, which require large amounts of land for further development.
‘A larger number of transactions and lower prices would be beneficial, but the sales market is ultimately determined by supply and demand’, says Huirne. ‘It is, however, a positive development that there are now regional initiatives in which companies work together to ensure that the allocation is both commercially viable and high quality in terms of the landscape and environment. This serves everyone’s interests.’
Leasing is too expensive and lacks flexibility
The land lease system is a bottleneck. It should serve as a facilitator in the land market, but it doesn’t. It lacks flexibility on the one hand and some forms of lease lead to overly high lease prices on the other. Huirne: ‘The process of setting the lease price for new forms of lease cannot be left entirely to the market. We’ve recently seen that public tenders for short-term lease agreements missed the mark. The price and maximum returns in a short period were leading, often at the expense of sustainable land use.’
‘When agricultural companies enter into a longer-term relationship with the land via a lease, they have a greater vested interested in ensuring healthy soil.’
Uncertainty for companies and the bank
Short lease agreements are not good for a company’s risk profile. This is because if a company must have land in order to produce, it creates a great deal of uncertainty if the availability of that land is guaranteed for only one or two years. ‘While liberalised leases and leases for a limited number of years aren’t ideal, the regular lease period of several decades is too long. That’s why we are calling for a period of six to twelve years. It is a manageable period that provides continuity for the lessee, lessor and the bank’, says Huirne.
Declining soil quality
Longer lease periods are also needed in the interest of soil quality. This is because high lease prices mean lessees aim for high yields and pay little or no attention to soil fertility. Many arable farmers and growers lease the land only once and consequently have little reason to focus on maintaining or improving soil quality. Huirne: ‘This is another reason why Rabobank is calling for long-term agreements. When agricultural companies enter into a longer-term relationship with the land via a lease, they have a greater vested interested in ensuring healthy soil.’
And good soil quality provides a range of other benefits, such as less drainage to the main rivers, preventing drought damage and consequently also absorbing the effects of climate change. In light of the major importance of soil quality, the Food and Agriculture Organization of the United Nations (FAO) has declared 2015 the International Year of Soils.