EU Land Markets and the CAP

Transcription

1 EU Land Markets and the CAP Jo Swinnen (with Pavel Ciaian, d Artis Kancs and Liesbet Vranken)

2 Studies Swinnen, J. and L. Vranken 2007, Review of Transitional Restrictions on Agricultural Real Estate for Foreigners in the New EU Member States, CEPS Publications Ciaian, P. and J. Swinnen, 2006, Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States: A Partial Equilibrium Analysis. American Journal of Agricultural Economics. Ciaian, P. and J. Swinnen, 2008, Credit Market Imperfections and Policy Rents American Journal of Agricultural Economics, Ciaian, P., Kancs, d A and J. Swinnen, 2010, EU Land Markets and the CAP, CEPS Publications

3 CAP payments and land prices 1. Theory 2. Empirical literature

4 CAP payments and land prices 1. Theory 2. Empirical literature 3. Evidence from EU accession experiment

5 Sales prices Poland 3500 Arable land sales price - Poland PLN/ha real prices

6 Sales prices Lithuania 2400 Agricultural land sales price- Lithuania Real Price - LTL/ha

7 Sales prices Latvia Agricultural land sales price - Latvia Real Prices - Lats/ha

8 NMS land sales prices & the CAP Change in land sales price (euro/ha) between 2003 and 2005 (2003=100) Czech Republic Poland Slovak Republic Estonia Latvia Lithuania

9 NMS land rental prices & the CAP Change in land rental price (euro/ha) between 2003 and 2005 (2003=100) Czech Republic Poland Slovak Republic Hungary Lithuania

10 CAP payments and land prices 1. Theory 2. Empirical literature 3. Evidence from EU accession experiment 4. Evidence from SPS reforms

11 SPS Reforms & Land Markets Study Approach & Geographical Coverage Empirical case studies 11 countries 18 regions.

12 Geographical Coverage : continued Country SPS model Number of regions in study Belgium Historic 1 Finland Dynamic-Hybrid 1 France Historic 2 Germany Dynamic-Hybrid 3 Greece Historic 1 Ireland Historic 1 Italy Historic 2 Netherlands Historic 1 Spain Historic 2 Sweden Static-Hybrid 1 UK Mixed 3

13 SPS implementation Start of SPS SPS model Belgium Flanders 2005 Historical Wallonia 2005 Historical Finland 2006 Dynamic hybrid France 2006 Historical Germany 2005 Dynamic hybrid Greece 2006 Historical Ireland 2005 Historical Italy 2005 Historical Netherlands 2006 Historical Spain 2006 Historical Sweden 2005 Static hybrid UK England 2005 Dynamic hybrid Scotland 2005 Historical Wales 2005 Historical N. Ireland 2005 Static hybrid

14 DATA Eurostat Land prices and rents - annual data (APRI_AP_ALAND) Macroeconomic indicators Farm Accountancy Data Network - FADN Total UAA (SE025) Rented UAA (SE030) Rent paid (SE375) Rent per ha (SE375/SE030) European Commission, DG AGRI SPS implementation Other policy measures (coupled, environmental, rural development etc.)

15 DATA National statistics National/regional statistical offices Land registries Tax authorities Qualitative data - expert interviews Drivers of land sales prices Drivers of rental prices SPS implementation and its impact on land values Deflator : GDP deflator for Germany, OECD : Harmonised indices of consumer prices for Euro area, Eurostat

16 Limitations of the Study Short time span since the implementation of the SPS Some of effects may emerge with delay because of land market regulations No econometric analysis possible due to data limitations Hence not possible to assess the confidence interval perform robustness checks of the results. Counterfactual? Impact of SPS depends on capitalization of SPS and on capitalization of pre-sps subsidies Other contemporaneous effects (changes in food prices, energy prices, ) may be important

17 Benefits & Insights of the Study First EU-wide comparative (MS-level) documentation & analysis of implementation of the SPS land market structure & functioning land market regulations Thorough review of literature (theory and empirics) and development of clear analytical framework for interpreting current data and useful for future work Model development provides set of clear hypotheses for future econometric analyses Set of insights and hypotheses from qualitative empirical analyses Rich set of data and information which can form the basis of more structured time series datasets for the future

18 EU land markets 1. Structure 2. Regulations 3. Prices 4. Effect of SPS

19 1. Land Market Structure & Size

20 Slovakia Czech R. France Malta Belgium Germany Hungary Estonia Lithuania Cyprus Sweden Luxembourg Latvia UK Greece Netherlands Italy Slovenia Spain Finland Portugal Austria Poland Denmark Ireland Rented land (% of UAA) Share of Rented Land in UAA (%)

21 % Evolution of the share of RENTED area (% UAA) France Belgium Germany Ireland Belgium Germany Greece Spain France Ireland Italy Netherlands Finland Sweden United Kingdom

22 Evolution of the land SALES market size: Share of transacted area in total UAA (%) % 5.00 UK Netherlands Belgium Germany France Ireland Ireland Greece Spain France Italy Netherlands Finland Sweden UK (England)

23 2. Land Market Regulations

24 Rental market regulations Min/Max rental price Min/Max, average tenancy duration Other rental market regulations & norms Belgium Max rent Min 9/Max 27(99) Usually 9 Finland No Max 10 Average 5-6 France Min & Max rent Min 1/Max 25 Usually 9 or 18 Inheritable rental contracts, automatically renewed Germany No No Average Subject to state approval Greece Min rent No <4 years Ireland No No Conacre rental agreements Italy No No; average arable crops 2-5, fruit crops 5-10 Possibility of contracting with the assistance of farmer associations Netherlands Max rent Min 6 (until 2007) Spain No Min 5 Sweden No No United Kingdom No In Scotland for new 2003 Act tenancies max 5, min 15 Northern Ireland - conacre rental agreements; Scotland - Traditional short duration tenancies; England - traditional tenancies & farm business tenancies

25 Rental market regulations Rental price regulations Regulations of rental contract duration Quantitative rental market regulations Minimum rental price Maximum rental price Minimum contract duration Maximum contract duration State agency approval Continuation of leasehold France, Greece Belgium, France, Netherlands Belgium, France, Netherlands, Spain, Scotland* Belgium, Finland, France, Scotland* Germany France, Scotland, East Germany**

26 Sales market regulations Belgium Finland France Germany Greece Min/Max sales price No No Regionally varying intervention price No; max sales price for long-term tenants in East Germany Min price Registration tax real estate tax* % KI 4%* 0% on farmland 5.09% KI Land use and other regulations & norms Farmland reducing zoning regulations Some transactions subject to State approval (via SAFER). Farmland reducing zoning regulations 3.5% Subject to state agency approval 7-9%* 0% on farmland No Ireland No 9% No Italy No 11-18%** Netherlands Spain Sweden United Kingdom No No No 6-7% 6-15% No 0-4% Purchase permits in sparsely populated areas & legal buyers Tenant and community right to buy in Scotland. Strict development control in UK

27 Sales market regulations Sales price regulations Minimum sales price Maximum sales price Greece France, East Germany* Taxes & transaction costs Low registration tax High registration tax Finland, France, Germany, UK Belgium, Greece, Ireland, Italy Quantitative sales market regulations State agency approval Farmland reducing zoning France, Germany Belgium, France

28 3. Land Prices

29 Evolution of real sales prices EUR Netherlands Belgium Finland France Sweden Belgium Germany Ireland Greece Spain France Italy Netherlands Finland Sweden UK

30 Evolution of land sales price indices % Ireland UK Sweden France Belgium Germany Ireland Greece Spain France Italy Netherlands Finland Sweden UK 50 Germany

31 EUR/Ha Evolution of rental prices * Ireland Belgium Germany Spain France Ireland Italy Netherlands* Finland 80 Spain Sweden United Kingdom * The Netherlands (>800 EUR/Ha) not displayed!

32 Assessment of drivers of land values Drivers of agricultural land values Drivers of sales prices Drivers of rental prices Survey data extracted from the assessment of interviewed national experts (min 7 per country/region) Qualitative analysis supported by two econometric studies The Netherlands Finland

33 Drivers of prices for agricultural land (from expert interviews qualitative info) Drivers BE FI FR GE GR IR IT NL SP SE UK Agricultural commodity prices Infrastructural expansion na 0 Urban pressures SPS Farm size / /0 Coupled subsidies na 0 Informal institutions Interest rate na Agricultural productivity Bio-energy / Notes: +++ strong positive impact, ++ medium impact, + weak impact, 0 no impact, --- strong negative impact, -- medium impact, - weak impact.

34 Determinants of EU ag land prices (rental & sales) General [Based on qualitative information!] Most important factors: Agricultural commodity prices Subsidies Infrastructure (expansion) Urban pressures High heterogeneity across countries

35 Determinants of EU ag land prices (rental & sales) General [Based on qualitative information!] Difficult to draw general conclusions due to high heterogeneity of regions, agricultural activities, land quality, etc. CAP subsidies one factor among others Marginal areas seem to be more affected than high value land (makes intuitive sense) Results largely consistent with theory (if take into account market imperfections and/or transaction costs in theory!)

36 Impact of SPS on land markets SPS implementation Market with SPS entitlements SPS impact on land markets and structural change Conclusions

37 Flanders Wallonia France Ireland Netherlands Spain Scotland Finland Germany Northern Ireland Sweden England % of UAA. Activated entitlements (% of UAA) Historic model Hybrid model

38 Not activated entitlements Not activated entitlements Average value of entitlements % of distributed entitlements Euro/entitlement Belgium Flanders Wallonia Finland France Germany Greece n.a. n.a. Ireland Italy n.a Netherlands Spain Sweden UK England n.a. 268 Scotland N. Ireland

39 Not activated entitlements Not activated entitlements for most MS is less than 3%. Exception is Belgium: 7% of entitlements were not activated. This is due to declining livestock sector; more special entitlements are unactivated than regular entitlements. The value of un-activated entitlements tends to be lower than the value of activated entitlements. Common reasons for non-activation: non-availability of eligible area; administrative burden, other.

40 Value of entitlements There is significant variation among and within MS. The variation is determined by crop structure; productivity; SPS model, decoupling.

41 Distribution of land (%) Distribution of SPS entitlements in Historic (Netherlands) and Hybrid (Sweden) model Netherlands (Historic) 10 5 Sweden (hybrid) Value of entitlement (% of average value; average value=100)

42 Euro/entailment 450 Value of entitlements in different regions in Italy Plain areas Hilly areas Mountain areas North Center South Insular area

43 Tradability of entitlements constraints : (i) regulatory constrains (ii) market imperfections (e.g. credit market, uncertainty). In general entitlements are tradable constraints are imposed generally in the EU as well as each MS has some flexibility to introduce country specific restrictions. Spain, Italy, and France appear to be the most restrictive countries in terms of entitlement tradability.

44 Tradability of entitlements: country specific restrictions Belgium France Finland Germany Greece Ireland Italy Tradability of entitlements Entitlements are tradable within regions. Entitlements are tradable within regions. Taxes imposed on transfers depending on type of transaction. No specific restrictions. Entitlements are tradable within regions Farmers with agriculture as secondary activity pay tax on entitlement transfers. No specific restrictions Taxes imposed on transfers depending on type of transaction. Netherlands No specific restrictions. Spain Sweden UK Taxes imposed on transfers depending on type of transaction. Entitlements are tradable within regions. Entitlements are tradable within regions.

45 Market with SPS entitlements Trade with entitlements is most often conducted directly between farmers or with using services of market agents and farm organizations. most entitlement trade takes place at local level. some unofficial trade may occur among family members (e.g. Italy, Greece, N. Ireland). The size of the trade ranges from around 1% in Germany to around 12% in Sweden.

46 Trade in Entitlements Traded entitlements/total activated entitlements (%) Belgium Flanders 7 Wallonia Finland 5.1 France 5.4 Germany Greece Small Ireland n.a. n.a. Italy n.a. n.a. Netherlands Spain 2.4 Sweden UK England Small Scotland n.a. n.a. N. Ireland Small

47 Explaining transactions with entitlements Entitlement trade may occur with: Structural change When farmers own more entitlements than they have eligible area Decoupling With historical SPS model trade likely driven by structural change: entitlement allocated based on land allocation in while SPS implemented in With hybrid SPS model trade likely driven by insufficient eligible area. Structural change is less important as entitlements were allocated based on area used in the first year of SPS application. Hence, one should expect more trade with historical model than with hybrid model.

48 Explaining transactions with entitlements Empirical evidence partially confirms this: Historical M: BE, FR, NL: more trade; Hybrid M.: DE, EN, NI: small trade; Hybrid M.: Sweden; FI: large trade?? could be due to decoupling. Greece appears to confirm static effect: no active land market = no entitlement trade. Spain also low trade: could be due to taxes on entitlement transfers, and due to lower rate of decoupling. Northern Ireland: the entitlement trade is small probably due to possibility to stack entitlements. Staking can accommodate structural effects and insufficient eligible area. Similar is expected to hold for Ireland but data not available.

49 Traded entitlements (%) Distributed entitlements/total land and entitlement trade y = x R 2 = Flanders (BE) Bretagne (FR) 6.0 Netherlands France Wallonia (BE) Finland 4.0 Lower Saxony (DE) 2.0 Spain Saxony (DE Bavaria (DE) Germany Number of distributed entitlements/total eligible area (% )

50 Entitlement trade (%) Restrictions and entitlement trade 10 Sweden y = x R 2 = Flanders (BE) 6 Wallonia (BE) Netherlands Finland France 4 2 Spain Germany Restrictions on tradability on entitlements (1=low; 2=high restrictions)

51 Market price of entitlements Market price of entitlement / Average value of entitlement Value of entitlement = 1 Belgium 2-3 Finland n.a. France 1-6 Germany 1.3 Greece n.a Ireland Italy 1-3 Netherlands 2.5 Spain 1.7 Sweden England UK Scotland N. Ireland n.a.

52 Market price of entitlements With perfect markets the market price of entitlement in 2007 should be as follows: Discount rate 5% 10% SPS runs until SPS runs indefinitely 10 20

53 Market price of entitlements Price is low. In most MS the price is between 1 to 3 times higher than the face value. Reasons: 1. Uncertainty about SPS (e.g. modulation, etc.). Common expectation is that the SPS will run until Additional costs of SPS (e.g. cross-compliance, administrative costs). 3. Taxes and fees imposed on transactions. 4. Credit market imperfections. 5. SPS capitalization in land values

54 Impact of SPS on land values SPS capitalization in land values more likely : when total number of allocated entitlements is larger than total eligible area, if new entrants are eligible for SPS entitlements, and with structural change (including with farm exit and decoupling) and with not fully tradable entitlements.

55 Impact of SPS on land values It appears that there is higher capitalization with hybrid than with historic model. Hybrid model Capitalization appears to be driven by low amount of naked land Need to take into account DP capitalization The hybrid model redistributed subsidies between farms, sectors, and regions which changes the relative price of different land types if SPS is capitalised in land values (price of some land types increases and for others decreases).

56 This could be the reason why the impact of the hybrid model appears to be stronger. Impact of SPS hybrid model is the most visible in marginal less fertile lands. clearest effect shows up in higher land values for low fertile lands (e.g. grassland). =>SPS appears to put a floor on land values (e.g. England, Sweden).

57 Landowners & SPS reform Landowners benefit with hybrid SPS model through two channels: 1. through SPS capitalization in land values (where none before). 2. through implementation specifics. Some non-farming landowners (tried to) obtain entitlements either by cancelling rental contract and hence applying themselves for entitlements, by adjusting rental contract which ensures that entitlements are returned to landowner after the rental contract expiration. => line in Health Check reform

58 Conclusions The entitlement market price is low mostly due to imperfect tradability and to certain extent also due to the SPS capitalization in land values. SPS has stronger impact on rental than on sale markets (but could be due to identification problem). It appears that hybrid model leads to stronger land capitalization. Hybrid model introduces some distortions. Landowners tend to benefit more with hybrid SPS model than with historical model. SPS has some effects on structural changes particularly on farm exit and farm credit.