Can you really afford to rent land? Ten questions you should be asking first
With leasing prices rising and plenty of other costs involved, there are many factors to consider before you commit to a contract
The cost of leasing land has rocketed over the past five years. Dairy expansion and nitrate derogation rules are the main reasons. It is policy changes that have the biggest influence on the cost of leased land here.
Each year a lot of the leasing occurs before the closing of the BISS application in May. I’ve had a number of conservations with clients recently who are renewing leases.
The main talking point is the increased cost. Some of these farmers have been farming the same ground for 10 to 15 years. This is at a time when costs on farms, especially dry stock farms, are high, and in some cases direct payments have fallen.
I accept that it is farmers driving this demand and price increase.
However, I don’t believe some of these farmers are fully aware of the financial change that will occur for their farm this year, especially where young farmers cannot avail of the Young Farmers’ Scheme any more,along with further convergence of BISS payments and the unavailability of other schemes as application dates are closed.
Their farming system has been built around this leased land and the loss of the land will change their farm business dramatically.
This is a dilemma farmers are facing. They need the land to maintain their farming enterprise, but is this land leaving any money at the end of the day?
Farmers should consider some of these points when deciding on leasing land:
Rental price
By far the biggest factor. Farmers pay for land on a per-acre basis but receive Department payments on a
per-hectare basis. Farmers need to get advice and put some real figures together to give a better picture of the situation.
Distance from farmyard
Fuel and wear and tear of machinery are real costs that are often ignored. With higher fuel prices and rising machinery costs, they cannot be discounted.
Land quality
Too often land is taken to avail of support payments, and the quality of the ground is secondary. The simple task of walking the land and taking a soil sample will help you decide on the potential of the land.
The main reason for taking on extra land is to grow the farm and try to increase the profit margin.
Hidden costs
Don’t overlook the costs of fencing
and stock-handling facilities, which often occur when leasing land. They are up-front cost.
Discuss with the land owner prior to taking the land the possibility of some rent reduction if money has to be spent on fencing, which will be there after the lease has expired.
Disease/parasite control
Some land has a higher risk of red water and fluke for example. There is a cost when animals are lost or prevention measures have to be put in
place. Is the land in a high-risk TB area?
Direct payments
This is where policy in recent years has changed the cost of leased land. Based on individual circumstances, different farmers can offer higher rental prices and in many cases it is not based on the production potential but the direct payments that can be drawn down. Do your sums on this.
Income tax
Most farmers are part-time sole traders also working off-farm. Any extra money made on the leased land will be taxed similar to all other income.
Extra livestock and housing
This can be a problem for some farms if there hasn’t been enough planning. Farmers may have to buy stock for eligibility for some schemes.
Some farms can end up with too much grass and others may have to sell stock for the winter as there is not enough housing available. This can be a big drain on cash-flow.
Time
A precious resource on most farms and is often overlooked. It needs to be taken into account when expanding the farm.
Scale
Leasing extra ground may allow the next generation to get involved in the farm business sooner.
Conclusion
‘Don’t overlook the costs of fencing and stock-handling facilities’
Spend a bit of time doing up some figures and talk to your advisor before making any decisions.