Will Leased land leave money in your pocket in 2024?

Andy Ryder, Drystock Advisor, Teagasc Westport

Where I work, similar to other parts of the country, the cost of leasing land has risen over the past 5 years. Dairy expansion and nitrate derogation rules has been the main reasons. It is policy changes that has 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 farmer’s scheme anymore, further convergence of BISS payments and other schemes are no longer available 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 current farming enterprise, but, is this land leaving any money at the end of the day? Farmers should consider some of the points below when deciding on leasing land.

Rental Price

By far the biggest factor. Farmers pay for land on a per acre basis but receive Dept. 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 cost and wear and tear of machinery is a real cost that is often ignored. With higher fuel prices and rising machinery costs currently, these often hidden costs cannot be discounted.

Land Quality

Too often land is taken to avail of support payments and the quality of the land 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 cost

Fencing and stock handling facilities are costs that occur when leasing land. It is an upfront 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 as the fencing will be there after the lease has expired.

Disease and parasites 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 have changed the cost of leased land. Based on individual circumstances different farmers can offer higher rental prices and in a lot of 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 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 no planning has occurred. Farmers may have to purchase 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 sufficient housing is not 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

By leasing extra ground it may allow the next generation to get involved in the farming business sooner?

So spend a bit of time doing up some figures and talk to your advisor before making any decisions. Best of luck with your farm business in the coming months.