Is agricultural land a good investment. Decisions on farm land tenure: buying, leasing and the alternatives

GRDC - Duncan Ashby (RG Ashby & Co.)

Type: Article
Knowledge level: Intermediate

Farm Table says:

Direct and pertinent message from the author -
"Any farm business that has not been able to consistently generate more profit than they would have received from leasing their land must consider their land tenure options. Many farm businesses would be better off leasing their farms out."

This article opens with the comment that many farms do not make any money from their working capital, but instead rely on land appreciation. As a result, the remainder of the paper discusses alternative forms of land tenure that separate the risk and return from the land asset and the working capital.

Alternative land tenure options are discussed and the implication of each at different stages of a farmer’s career.

“Any farm business that has not been able to consistently generate more profit than they would have received from leasing their land must consider their land tenure options, to both secure a return and to manage their production risk. Specifically, they would be better off leasing the land out.

Land tenure trends in Australian broadacre agriculture are:

  • Leasing is five to seven per cent of farm land, but has been increasing in some areas

  • share-farming is utilised but on a very limited scale

  • other options are confined to a small number of farmers who are comfortable with their use from previous experience – these alternatives receive limited coverage from advisers.”

The author investigates Contract Farming Agreements, transition models, leasing and sharefarming.

“While the use of the land tenure models can solve issues for the landowners it also creates opportunities for other farmers:

  • Young farmers can use leasing, share-farming or contract farming to establish a farm business and gain expertise

  • Existing farmers making profits from their farm business can expand their operations and improve their economies of scale

  • Use leasing more widely in conjunction with share-farming if ready to retire and consider contract farming if it fits with succession planning and the farmer is looking for reduced risk and a longer period to retirement.”

A number of case studies are provided

  1. Recommended model case study 1 – leasing and share-farming
  2. Recommended model case study 2 – contract farming

     

     

2016 - Australia - GRDC - Duncan Ashby (RG Ashby & Co.)
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