North America

OVERSEAS OWNERSHIP

United States

• The US does not restrict foreign ownership of farmland at a federal level other than requiring full disclosure of the asset’s details and the foreign entity involved to the United States Department of Agriculture.

• A number of US states impose their own restrictive laws including outright restrictions on the acquisition of certain property types, limitations on the total amount of land that can be acquired, and/or limitations on the length of time a property can be held.

• Approximately 2.2% of US farmland by area is in overseas ownership.

Canada

• Canadian provinces are responsible for legislating matters of farmland ownership, leading to complex and varied rules and regulations. Most provinces limit the size of any acquisitions to less than 40 acres and maintain control over land and its primary use through land commissions.

• British Columbia and Ontario are exceptions, where overseas ownership is not restricted.
  
  

TAXATION

United States

• Farmland owners are entitled to significantly reduced state and local property taxes whereby land can be valued at a ‘farm-use value’ rather than its fair market value with the discount typically 40–70% lower than the market value.

• This discount can also be applied to inheritance transfers of farmland.

Canada

• A lifetime capital gains deduction is available to small farm businesses, which exempts each farmer up to one million CA$ in realised capital gains. Farmers are also exempt from a portion of the capital gain if the land is sold to a direct decedent and allows the averaging of capital gain payments over a 10 year period.

• Cash accounting methods and inventory adjustments can be used to adjust income tax obligations.

SUBSIDY

United States

• Farm subsidies have almost tripled in recent years as the Trump administration compensates farmers hit by trade war tariffs with direct support payments and market guarantee measures. Despite this, Organisation for Economic Co-operation and Development (OECD) data estimates producer support makes up 12% of gross incomes in 2019, down from 20% in the early 2000s.

Canada

• Most agricultural commodities are aligned with world prices with the exception of dairy, poultry and eggs, which operate under supply management quotas regulated by government to cap the amount produced in a region. OECD producer support estimates have reduced from 17% in 2000 to 8% in 2019, with funding directed towards business risk management programmes.

MARKET FACTORS

United States

• Many US farmers have borne the brunt of the trade war over the past four years, and despite signs this may be resolving, the scars of rising agricultural debt and record loan default rates are evident. Some sectors have been hit harder than others, particularly with the added collapse of oil markets and the exporting and processing bottlenecks caused by the Covid-19 outbreak.

Canada

• Canadian farmers have not escaped trade war impacts with over 50% of agricultural produce exported (by value) and much of their agricultural trade linked to US markets. A weaker Canadian dollar has worked in their favour, as have domestic supply management quotas and high food import tariffs. Demand for farmland remains strong from those looking to achieve scale and those in supply-managed sectors.

South America

OVERSEAS OWNERSHIP

Brazil

• Overseas investors must first obtain authorisation from two separate federal government agencies. The Ministry of Agriculture assesses the impact of the investment to the sector, while the National Institute of Land Settlement and Agrarian Reform is responsible for national land reform. Further restrictions on overseas investors limit the rural property owned to less than 25% of a municipality for the individual or 40% for persons/entities of the same nationality.

Argentina

• A changeable history on foreign ownership with previous laws limiting the density of overseas land ownership in specified regions and capping the area to a maximum of 1,000 hectares in arable zones. This was relaxed in 2016, but approval is still needed from the National Land Registry to buy rural land. Figures from the Registry suggest 5.6% of farmland in Argentina is in overseas ownership.

Uruguay

• The country largely welcomes overseas capital and is often the beneficiary of capital that leaves Argentina during periods of political and economic turbulence.

TAXATION

Brazil

• The tax system is very complex with a large number of taxes imposed across three levels of government. Capital gains and transfer taxes are paid in line with other real estate sectors, meaning farmland assets do not receive favourable treatment.

Argentina

• Overseas owners are subjected to an annual wealth tax on rural assets held and a higher withholding tax rate is applied to presumed net income (asset sales included).

Uruguay

• The adoption of tax territoriality (taxable income can only be applied to income generated in Uruguay) makes the country an attractive destination for overseas capital.

SUBSIDY

Brazil

• Farmers benefit from an administration that values the sector’s contribution to the national economy. Farm subsidies are low, reflecting Brazil’s globally competitive exports. However, concessional credit and crop insurance schemes are available in some instances.

Argentina

• The producers of agricultural products effectively receive negative support due to export taxes that depress domestic prices. The sector has shown dynamic growth in spite of this, with an innovative private sector combining with public services to promote research, education and productivity improvements.

MARKET FACTORS

• The region struggles with volatile currencies and political instability, however, the risks are different across countries. Brazil remains a heavyweight of agricultural production and trade. The agricultural lobby is robust, and with major infrastructure projects promoting market access, the case for growth and expansion is strong. Argentina battles an administration that limits the global competitiveness of its farmers and devalues domestic currency. As a result, income yields are under pressure in US dollars, and land market activity is paralysed by very low liquidity. Farmland in Uruguay has corrected to levels more reflective of productive capacity. The market trades in US dollars, reducing the currency risk, but with no capacity for domestic debt funding, growth prospects may be restricted.

Europe

OVERSEAS OWNERSHIP

• The UK has no restrictions on inward investment and is among the few developed markets not to have some form of government involvement when buying.

• Germany treats all farmland buyers the same. However, local farmers are given preference over non farmers, where the terms are the same.

• The French market operates under the French land regulator SAFER, which maintains the first right of refusal to any land transactions.

• Ireland requires all non-EU nationals to get written consent from its Land Commission before acquiring agricultural land.

• Denmark requires permission from the Danish Ministry of Justice, if not investing through a company registered in Denmark.

• Poland requires prospective purchasers to reside in the municipality for more than five years before buying, and purchasers are not allowed to accumulate more than 300 hectares in total.

• Romania sets pre-emption rights in order of co-owners, lessees, neighbours and the Romanian state before overseas buyers. It also requires buyers to prove residence for a minimum of three years prior to purchase.

• Hungary permits all EU and Hungarian nationals without farming experience to own up to one hectare of farmland. However, non-EU nationals are prohibited from ownership altogether.
  
  

TAXATION

Property tax

• Tax breaks related to the ownership of farmland tend to favour keeping land within families or at least within farming. The UK, France, Ireland, Poland and Hungary reduce inheritance or capital gains taxes on this principle.

• Many countries also allow the valuation of agricultural land to be lower than the market price, to create a preferential tax basis for annual property taxes and inheritance transfers.

Other taxes

• Polish and Romanian farmers’ income tax is based on a set unit price for rye multiplied by the area of an individual’s holding.

• Fuel tax rebates are one of the most valuable annual tax exemptions for many European farmers, somewhat contrary to the emergence of pesticide and fertiliser use taxes implemented in France and Denmark.

SUBSIDY

• The majority of European farms operate under the Common Agricultural Policy (CAP), a scheme that enables farmers to compete on a level playing field while protecting against volatility in agricultural prices, and to provide food security across the EU.

• The OECD estimates suggest on average 19% of producers’ gross income comes from subsidy. However, this does vary depending on when specific countries joined the trading block and their relative input contributions.

MARKET FACTORS

• Europe’s farmland markets are extremely diverse. Varying degrees of historical influence and wealth make for highly localised farmland markets with ownership motives ranging from subsistence farming to wealth maximisation strategies. Land consolidation continues to be a theme across markets where active landowners are looking to achieve commercial scale. The French farmland market recently recorded its highest level of area turnover on record, as a wave of retirements and pressures on profitability catalysed transactions. On the contrary, the UK market is experiencing reduced activity as concerns over the trading environment post-Brexit impact sentiment. Future CAP reform intends to simplify and shift the scheme from compliance to a results-based framework. Some form of subsidy payments will continue; however, aligning these with the EU’s expanding environmental agenda will be the focus of new policy. It is believed the scheme will mirror a public money (tax revenue) for public goods (clean air, water, carbon capture) policy similar to that proposed in the UK. The EU’s Green New Deal and Farm to Fork strategies are expected to become the mechanisms behind this progression.

VALUING NATURAL CAPITAL

Evidence suggests the next opportunity across many developed countries lies in the realisation of the value stored in the natural environment. Farmers and land managers are responsible for one-third of the world’s land-mass, and protecting this asset is essential to maintaining its long-term value in food production and climate change mitigation. Developing markets aim to monetise and reward land managers for the environmental service they provide. Carbon sequestration and nitrate neutralising potential are examples of these markets whereby farmers sell audited environmental credits to buyers needing to offset a polluting practice.

Australasia

OVERSEAS OWNERSHIP

Australia

• Overseas ownership is regulated by a government agency depending on the value and prospective buyer (sovereign wealth, private investors, trade partner). Farmland assets must have been offered to the market for a minimum of 30 days in order for a sale to be agreed with an overseas based buyer.

• Approximately 13.8% of Australia is in overseas ownership.

New Zealand

• Farmland is classed as a sensitive asset, meaning all overseas applications to purchase land are reviewed by the Overseas Investment Office on the grounds of substantial and identifiable benefits to the nation.

• Approximately 3.3% of New Zealand is overseas owned.
  
  

TAXATION/SUBSIDY

Australia

• Under a state-based system in Australia, primary producers are exempt from property taxes. Capital gains taxes are payable on net profits from the sale of farmland depending on how long the asset has been held and the beneficiaries’ income tax obligations. Producer support is limited with incentives and schemes geared to help farmers manage finances through seasonal variability.

New Zealand

• Farmland remains largely free of taxation and producer subsidy, following major reform and the phasing out of farm subsidy in the late 1980s.

MARKET FACTORS

• Low currency volatility and political stability promote a comparatively stable investment environment. Both nations are heavily reliant on exports of agricultural products, meaning domestic currency movements against the US dollar are more likely to impact operating profits. For most sectors, domestic prices tend to reflect international pricing. Many regions of Australia are feeling the effects of a prolonged drought which will likely restrict growth potential over the coming years. For New Zealand, uncertainty over environmental regulation and restricted bank lending has negatively impacted sentiment but as wider understanding of the compliance requirements becomes more common the sector is ripe for alternative funding options.

ENVIRONMENTAL REGULATION AND FARMLAND VALUE

New Zealand farmers face uncertainty over the coming years as the government progresses both its freshwater and climate change reform and increases environmental regulation. Under the reform, farmers are required to account for the environmental cost of their operation and will incur the economic cost of reducing and mitigating water contaminants (nitrates and phosphates) and carbon emissions. While it is clear that this will impact business profitability, the magnitude of it will largely depend on the land use, land type and the location of the land. High-intensity farming operations and those with low levels of natural capital (limited capacity to mitigate polluting activities) remain at high risk, as do those in locations where the effects of such pollution are acutely felt. Dairy, sheep and beef sectors also face a price on methane emissions from 2025, further pressuring gross margins. Specific detail is being developed, however, these changes are expected to accelerate land-use changes into low-carbon emitting sectors such as forestry and horticulture.

_{Read the articles within Global Farmland Index below.}