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Why is farmland worth so much if farming is so unprofitable? (Read 2270 times)

spidermonkey09

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Rebanks is always worth a read. He does take a very broad view in that article though, going far beyond the IHT issue, and somewhat skirts the fact (in two lines) that another big reason farming is less profitable now than it used to be is because farmers overwhelmingly voted for Brexit!

Most of his complaints seem to be aimed at the last few Tory governments, and the IHT issue is a continuation of 'farmers being shafted', as he sees it. I'm sure there is some truth to that, but literally every cohort of British society has been shafted over the last 20 years, its why we're in the mess we are. Rebanks calls for a massive increase in the agriculture budget- where does he propose we get the money for this? Might it be from increased taxation? (just not on farmers).





Will Hunt

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Quote from: galpinos
I don't know wheat that says.

Ba dum!


Quote
And it is probably true that with some good succession planning and an expensive tax advisor, much financial pain can be avoided by most small farms. But that’s not really the point. The Budget doesn’t make sense as anything more than a short-sighted tax grab. Taxation should distinguish between working farmers and tax-dodging chancers. By all means go after the big estates. But going after working farms struggling to survive is cruel. Labour should distinguish between land being sold so their owners can make a profit, and land with an inflated value which often creates little or no wealth advantage to those holding it to farm.

He does just about concede the point in the first sentence of that paragraph. I'm not sure how he proposes the government could do what he asks in the last sentence, other than having thresholds and workarounds, which is what we already have.

galpinos

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Rebanks is always worth a read. He does take a very broad view in that article though, going far beyond the IHT issue, and somewhat skirts the fact (in two lines) that another big reason farming is less profitable now than it used to be is because farmers overwhelmingly voted for Brexit!

This is oft quoted but.... did they? The last info I saw on this* was that 53% of farmers voted for Brexit (so pretty much in line with the general population) and what they were voting for was more protectionism (that was promised but the opposite was delivered) and matched but better allocated subsidies (the CAP is now pretty broken, the subsidies were promised but again poorly delivered) which I can understand why they voted for that, even if I think they were naive in doing so.

*frustratingly can't find the source now.

stone

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Quote
......Labour should distinguish between land being sold so their owners can make a profit, and land with an inflated value which often creates little or no wealth advantage to those holding it to farm.
I'm not sure how he proposes the government could do what he asks in the last sentence, other than having thresholds and workarounds, which is what we already have.
The way to rationalise land valuations is to ensure they are in line with the earnings provided by farming that land. IHT is a great way to do that. If the farm can't rustle up 20% of the value of the land (with the >£1M allowance) over the course of ten years, then the land valuation must have been severely distorted. Land coming onto market as forced sales to pay IHT in the "nuclear option" if it turns out valuations have been totally out-of-whack.

The link spidermonkey posted was marketing loans to prospective farmland buyers on the basis that farmland prices are inexorably inflating faster than general inflation or other speculative assets. If a stop isn't put to that, then it will get further and further out of control. There is no painless way to pop a speculative bubble and the more it inflates the worse the pain will be when it pops as all speculative bubbles always do. As the link says, ongoing farms derive no benefit from their farmland being over priced.
« Last Edit: Yesterday at 12:25:33 pm by stone »

Wellsy

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Does anybody have any hard figures that can attest to the high price of land being because demand is inflated by wannabe tax dodgers? I'm sceptical. Surely most of the value is in its alternate use as, for instance, housing developments. And what was it that Mark Twain said? "Buy land, they're not making it any more."

One of the reasons that farming is so unprofitable is that we have got the price of food screwed down so tight. In 1957 UK households spent 33% of their income on food, down to 16% in 2017 (https://blog.ons.gov.uk/2018/01/18/celebrating-60-years-of-family-spending/). I'm not saying I want to change that since there are many households already struggling to afford enough food, but it's certainly one reason that profits are so low.

Wellsy, that's a really narrow townie view. Imagine saying something like "if I was sat on a good university degree I think I'd be an investment banker rather than a teacher/nurse/care worker and I don't have much sympathy for those who do those jobs and struggle to get by". Go and read The Shepherd's Life for starters. Some people have it in their blood and thank God they do because we do need some people to do it and I certainly don't want to volunteer.

I think the change in policy is broadly right because it is a tax dodge that should be closed down, and I think farmers will generally be able to do some tax planning to get around it. This was confirmed a few weeks ago when I spoke to an accountant who worked for lots of the local farmers (I was out on the doors again: https://www.facebook.com/share/15Djs1ot6W/). He told me he agreed with the thrust of the policy, and agreed that most farmers would find a way around it, but thought the threshold needed to be 500k or so higher to make sure that just about all legitimate family farmers were protected.

So I'm not concern-free. If farm land gets sold off then it's likely to be bought up by the bigger farms and agribusinesses, pushing out the smaller players. It also disincentives investment. And there will be some people, even if it's hopefully a small number, who are legitimate family farmers, who want to carry on working the unique land that they know and understand through generations of hard-won knowledge, who are forced out because their tax planning fails (parents die within 7 years of passing on the land etc) and can't afford the IHT bill. Changes to policy like this will inevitably have some negative fallout and we can't pretend otherwise.

Will I think it's very different. The barriers to becoming an investment banker rather than say, a nurse are very obvious. We're talking about people who literally own millions of pounds worth of capital already. They can sell, people sell land and farming equipment all the time. It sounds like financially they would be much better off doing so

Is the situation for farmers bad? It would appear so but also there's bad in that one inherited a few millions worth and trying to turn it into a viable business is bad, and bad as in, actually have got no money. I'm not hugely sympathetic to the struggles of people sitting on more money than I or indeed the vast majority of people probably ever earn in my lifetime

Oh and if I did when I died my beneficiaries would still pay more tax than them!

I agree we want farming in this country to work. I'm not convinced that the problem is closing this inheritance tax loophole used by wealthy people to avoid tax and drive up land values.

spidermonkey09

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Rebanks is always worth a read. He does take a very broad view in that article though, going far beyond the IHT issue, and somewhat skirts the fact (in two lines) that another big reason farming is less profitable now than it used to be is because farmers overwhelmingly voted for Brexit!

This is oft quoted but.... did they? The last info I saw on this* was that 53% of farmers voted for Brexit (so pretty much in line with the general population) and what they were voting for was more protectionism (that was promised but the opposite was delivered) and matched but better allocated subsidies (the CAP is now pretty broken, the subsidies were promised but again poorly delivered) which I can understand why they voted for that, even if I think they were naive in doing so.

*frustratingly can't find the source now.

I stand corrected, the source would appear to be this Times chart? Does appear they broadly voted in line with the rest of the population.

https://www.reddit.com/r/RuralUK/comments/1guvo2b/how_farmers_voted_for_brexit_versus_the_wider_uk/

galpinos

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I stand corrected, the source would appear to be this Times chart? Does appear they broadly voted in line with the rest of the population.

https://www.reddit.com/r/RuralUK/comments/1guvo2b/how_farmers_voted_for_brexit_versus_the_wider_uk/

That's it. I was under the impression they had voted overwhelmingly for Brexit but it appears that may not be the case. They should still pay IHT though.....

stone

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A farmers point of view here:
https://unherd.com/2024/11/a-farmers-revolt-is-coming/
One thing really really struck me:
Quote
It takes many farmers half their working lives to sort out their parent’s succession, pay out their siblings, and get their business breaking even.
Why shouldn't the inheritance tax come straight out of that "pay out their siblings" fund?

Will Hunt

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......Labour should distinguish between land being sold so their owners can make a profit, and land with an inflated value which often creates little or no wealth advantage to those holding it to farm.
I'm not sure how he proposes the government could do what he asks in the last sentence, other than having thresholds and workarounds, which is what we already have.
The way to rationalise land valuations is to ensure they are in line with the earnings provided by farming that land. IHT is a great way to do that. If the farm can't rustle up 20% of the value of the land (with the >£1M allowance) over the course of ten years, then the land valuation must have been severely distorted. Land coming onto market as forced sales to pay IHT in the "nuclear option" if it turns out valuations have been totally out-of-whack.

I don't think I follow how IHT can do that. To reiterate what I said earlier, I am not against IHT on agricultural land, it needs doing to get rid of tax-dodging, I'm just pointing out that the policy does have the potential to force smaller, generational farmers out of the industry and I think that would be bad for farming (these types of farming tend to be better for the environment. See Rebanks' English Pastoral for more).
The value of farm land isn't high because of its potential for revenue generation as farmland, it's high because it can be developed into something else (the article Jim linked to made it pretty clear that this was the case I thought). How could you make the land value reflect its earning potential as agricultural land? I can't see a realistic way of doing that that works.


We're talking about people who literally own millions of pounds worth of capital already. They can sell, people sell land and farming equipment all the time. It sounds like financially they would be much better off doing so

They can only become millionaires if they sell the land, which means they can no longer farm it. Instead they opt for a life of arduous labour, putting in hours that mean their pay probably amounts to less than minimum wage, while having the beneficiaries of their hard work say that they'd rather Eat The Rich (farmers) instead! If someone inherits the land and decides to sell up and get out I'd have no problem at all with them paying just as much IHT as everyone else, I'm talking about the importance of protecting small-estate generational farming.

Wellsy

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Yes, but they can sell the land. I'm not sure why I should be hugely sympathetic that if they don't they will make very little money?

If someone inherits a farm of three million then yes they might have to sell it to pay the 400k tax bill. Very sad, but the 2.6 million left over will console them quite effectively I would imagine

I'm not excited by the idea of small landowners being forced to sell, but also at the same time, anyone who is forced to sell just became a millionaire and if it goes to a large farm that can use the land more efficiently then that's fine by me.

Like this basically an appeal to my desire to keep the small holding farmer around right? I'm not sure why I am supposed to want that? I don't want every Tescos to become an independent family business either, or for every train line to be run by a different company.

spidermonkey09

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That's an interesting perspective. I think small farms are good instinctively, but equally if small farms can't earn a living without a massive tax bung, is that right? Is it possible that actually, there are too many small farms in the UK, and farming isn't efficient enough in terms of scale ? I dont know the answer, this is a complete muse. I wonder what the UK percentage of small farms is versus other comparable countries.

yetix

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In alot of cases I know of it doesn't go to a large farm, it is turned into barn conversion properties, my dad is a dairy farmer, this has happened to multiple farms in the area, I earnt more from my first job 10 years ago when I graduated than the farm makes, it often runs at a loss (particularly with the weather the last few years).

Not really sure where I sit as a result of a clear bias, but most farms I know of have mid 6 figure debts to low 7 figures so in alot of cases selling up won't leave them with all this money people are talking about.

Many assets cost alot and resell for alot less, tractors can cost upto £200k, they resell normally for alot less.

Currently my dad is selling milk at 40p a litre but the season also affects the price. The weather has massively affected farms during the el nina period so alot of farms are having to buy more grain rather than using their fields for as long etc etc. As others have said uk food is much cheaper than elsewhere, farmers have little leverage it seems here which is I imagine partly why? Hence very unprofitable. Very rambly so apologies if anything doesn't make sense.

Edit. I think small farms will be fine as will large ones as they can afford this cost, but the middle sized farms will be very affected.

chriss

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One kinda valid point I heard was if it's worth so much money, surely you'd sell up and live as a millionaire? But I get it's a family thing, in your blood etc which I understand. My wife works in the NHS & she's certainly not in it for the money or week night clap's.

Would your wife still work in the NHS if she had a couple of million in the bank? I wouldn't.
(I'm reasonably caring and I left the NHS for slightly less money and guaranteed lunch breaks.)
I guess I don't understand the drive that some farmers feel.


That was what the chap on the radio was saying & I totally agree. If I had a million quids worth of anything it would be sold & I'd be mid week bouldering & chilling out.

stone

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I think there are two somewhat unrelated issues:
1) Should farmers earn more for the work they do.
2) Should farmland be valued less considering the limited earning potential it has.

For any asset (not just farmland), there are two sorts of influences setting the price:
1) The earning potential of the asset.
2) The speculative hope that in the future it can be sold for more than was paid for it.

What is crucial is to keep asset prices tethered to their earning potential. IHT does that because, if the price has been inflated way beyond that, then the farm won't be able to generate enough earnings to pay off the IHT; there will be forced sales; and new buyers will be cautious about paying more than the earning potential of the land justifies. So the valuations will come back down to earth.

Without IHT, the farm can just pass on and the farming family won't notice that the price has gone up to ridiculous levels. Meanwhile speculators can buy farmland that is being rented out and so inflate the price ever upwards. People using farmland as a tax dodge don't care what it earns so long as the price of farmland keeps on inflating. Its a sort of Bitcoin type scenario, or https://en.wikipedia.org/wiki/Tulip_mania

Paul B

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Edit. I think small farms will be fine as will large ones as they can afford this cost, but the middle sized farms will be very affected.

But if you look at Niedle's analysis that simply isn't the case with a modicum of planning.

Will Hunt

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Yes, but they can sell the land. I'm not sure why I should be hugely sympathetic that if they don't they will make very little money?

If someone inherits a farm of three million then yes they might have to sell it to pay the 400k tax bill. Very sad, but the 2.6 million left over will console them quite effectively I would imagine

I'm not excited by the idea of small landowners being forced to sell, but also at the same time, anyone who is forced to sell just became a millionaire and if it goes to a large farm that can use the land more efficiently then that's fine by me.

Like this basically an appeal to my desire to keep the small holding farmer around right? I'm not sure why I am supposed to want that? I don't want every Tescos to become an independent family business either, or for every train line to be run by a different company.

Show us on the doll where the farmer hurt you  :lol:

I can see where you're coming from but, though I don't know much about farming, from what I have read there are a couple of assumptions in your argument that are wrong.
Large farms are not necessarily more efficient. And in any case, what is considered "efficient" by some farmers is environmentally harmful. Again, I'd recommend James Rebanks' books, particularly English Pastoral if you want his view on how large farms are running their soil into the ground and are barely sustained by hammering the land with chemicals.

The reason you're supposed to be sympathetic to farmers who make little money is that you absolutely need them to do it and you benefit greatly from living in a country where food is so cheap. Do you not eat food?

Stone, I don't know how you can disentangle the land's value as agricultural land from its value under some other more lucrative purpose. Land may not have much monetary value as agricultural land, but we do need agriculture. Has everybody forgotten how important food is?

tomtom

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IHT on farms seems to have become a magnet around which many other issues farmers are faced with (due to other reasons inc Brexit) are attracted..

Its also interesting reading/hearing about the counter points - with many non farmers questioning why farms were exempt from IHT in the first place.. From my viewpoint of articles/media this is a considerable voice..

I'm also surprised that no one (as in no farmers - or media articles on this) has yet mentioned that Farmers need not sell the whole farm to cover an IHT bill. As I understand it, its quite common for farmers to sell off bits of land, or property on the land to cover a shortfall or to fund a new investment...


teestub

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As I understand it, its quite common for farmers to sell off bits of land, or property on the land to cover a shortfall or to fund a new investment...

If you have a farm that’s barely scraping by anyway, having to reduce its size every time someone dies isn’t going to help that!

stone

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Stone, I don't know how you can disentangle the land's value as agricultural land from its value under some other more lucrative purpose. Land may not have much monetary value as agricultural land, but we do need agriculture. Has everybody forgotten how important food is?
Farmland isn't just over-priced in places where it has non-agricultural prospective buyers (horse paddocks, golf-courses whatever). The price has also been inflating in regions far away from towns etc where there is no such prospect. Why should the value of farmland relative to CPI, or the cost of a tractor, or the wage of a farmworker be so much higher now than it was in 1990? I think it is a clear case of where pricing has been driven by the notion that price doesn't matter since that money can be taken out again on resale.

I don't see how speculatively inflated farmland prices help agriculture or people who intend to carry on (let alone start) farming.

I totally agree with your other point that smaller farms have been shown to often be both more productive in terms of food production and better for biodiversity.

lagerstarfish

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If you have a farm that’s barely scraping by anyway, having to reduce its size every time someone dies isn’t going to help that!

Isn't that a once in a generation event?

Also, listening to how the inheriting farms thing has happened, it sounds like the farm often ends up with only one child - in this case the sense of "been in the family for generations" is only from the perspective of the current winner of consecutive chosen/favourite children of previous generations . There will be dozens of grandchildren, great grandchildren etc who lived there lives away from the original farm. I assume that farmers have a firm grasp of the consequences of reproduction over multiple generations, so they will also understand that passing the farm on will only benefit a small proportion of their descendants.
This again draws my attention to the importance of the land to the owner of it - I again come to find that it is important to the owner farmer in a way that I don't understand (yet).

Sorry about the poor syntax and rambling sentences - homage to John Prescott


GazM

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Interesting that James Rebanks now seems to be the voice of the English farmer. His first book The Shephards Life was a pretty stubborn love letter on the cultural benefits of traditional hill farming and putting two fingers up to any environmental nay-sayers but by the time he wrote his second book English Pastoral he seemed to have had a Damascene conversion and was writing about the ills of the old ways and benefits of a more conservation-minded approach. The two books couldn't be more different. He's now all about planting trees, river restoration etc, which is great but only possible with lots of money (from his books?) and not representative of most farmers.

 

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