Measures to improve the efficiency and competitiveness of Irish
agriculture through land mobility and structural change
IFA Proposals to Government
August 2011
Table of Contents
1
1.1
1.2
1.2.1
1.2.2
1.2.3
2
2.1
2.1.1
2.1.2
2.1.3
2.2
2.2.1
2.2.2
3
3.1
3.1.1
3.1.2
3.1.3
3.2
3.2.1
4
4.1
4.1.1
4.1.2
4.1.3
4.2
4.2.1
FARMING IN IRELAND IN 2011............................................................................................3
AGRICULTURE AND THE ECONOMY – THE POTENTIAL FOR GROWTH .......................................3
STRUCTURE OF FARMING IN IRELAND .....................................................................................3
Age Profile...........................................................................................................................3
Farm Structures and Land Mobility ....................................................................................4
Farming as a Career...........................................................................................................4
ENCOURAGING ENTRY TO AND EXIT FROM FARMING ................................................5
TAXATION RELIEFS ................................................................................................................5
Stamp Duty Relief for Young Trained Farmers .................................................................5
CGT Retirement Relief .......................................................................................................5
Agricultural Relief................................................................................................................6
FARM STRUCTURE AND INVESTMENT SCHEMES .....................................................................6
Investment Aid for Young Farmers ....................................................................................6
Retirement Programme ......................................................................................................6
ENCOURAGING LAND MOBILITY .......................................................................................7
TAXATION RELIEFS ................................................................................................................7
Land Leasing Tax Exemption Scheme ..............................................................................7
Stamp Duty Rates for Farmland ........................................................................................7
Capital Gains Tax Relief for Farm Consolidation ..............................................................7
FARM STRUCTURE AND INVESTMENT SCHEMES .....................................................................8
Removing Restrictions to Land Mobility ............................................................................8
ENCOURAGING INVESTMENT IN FARMING .....................................................................9
TAXATION RELIEFS ................................................................................................................9
Capital Allowances .............................................................................................................9
Stock Relief .........................................................................................................................9
Income Taxation and Farm Investment .............................................................................9
FARM STRUCTURE AND INVESTMENT SCHEMES ...................................................................10
Farm Investment Programmes ........................................................................................10
APPENDIX I - REDUCING COSTS TO IMPROVE COMPETITIVENESS .................................11
2
1
1.1
Farming in Ireland in 2011
Agriculture and the Economy – the Potential for Growth
The economic downturn has clearly shown that it is the exporting sectors, of which the agrifood sector is an important component, which will drive the economic recovery. Ireland’s agrifood industry is the largest Irish owned productive sector, accounting for over 60% of exports
from Irish-owned manufacturing.
To date this year, the value of food and drink exports has increased by 18% or 388m, to
2.465bn. In Food Harvest 2020, the national strategy for the development of the agri-food
sector, industry leaders identified the potential of agriculture to increase farm gate output by
1.5bn and to grow our export value to 12bn.
IFA fully supports the objective of maximising the contribution of the agri-food sector to the Irish
economy. It is clear that the achievement of the Food Harvest 2020 targets requires a
sustained major improvement in the competitiveness and efficiency of primary agriculture. The
major barriers to achieving this are structural, in particular the relatively small size of Irish
farms, low land mobility and the unfavourable age structure of Irish farmers.
IFA welcomes the commitment in the Programme for Government to promote greater land
mobility, encourage involvement of young farmers and to support the recommendations of the
Food Harvest 2020 report. Farmers require supportive Government policies, through
Government taxation incentives and farm structural reform schemes, if these targets are to be
achieved. Government must also remove or significantly reduce costs to improve the
competitiveness of the agriculture sector1.
IFA is aware of the commitment in both the National Recovery Plan and the EU-IMF
‘Memorandum Of Understanding’ to reform capital gains tax, capital acquisition tax and stamp
duty by end 2011. While acknowledging that Government must achieve a closer balance
between public expenditure and taxation, IFA believes that the reduction or removal of key farm
taxation incentives would have the effect of reducing both the productivity and growth potential
of the agriculture sector.
This submission sets out IFA’s proposals for the measures required to achieve the growth
targets for the agriculture sector through:
1. Encouraging entry into and exit from farming.
2. Increasing land mobility.
3. Promoting investment in farming.
The remainder of this chapter outlines the profile of farming in Ireland today, its structural
weaknesses and potential for growth.
1.2
Structure of Farming in Ireland
1.2.1 Age Profile
The age structure of farmers is unfavourable, with the majority of farmers aged over-55. Since
2000, there has been a serious decline in the number of farm holders under the age of 35.
See Appendix I - Reducing Costs To Improve The Competitiveness Of Agriculture, for details of proposed
actions for cost reduction
1
3
This reflects, among other things, the difficulty in achieving an income level comparable with
general income levels in the Irish economy, particularly on smaller farm holdings.
In 2000, 13% of farm holders were aged under 35. By 2007, this had fallen to 7%, or
approximately 8,900 farmers. Over the same time period, the number of farmers aged over 55
has increased from 39.5% of the farming population, to 51%, with 25% of farmers aged over
652.
1.2.2 Farm Structures and Land Mobility
The physical structure of farms has improved over the last 20 years. The average farm size in
1991 was 26 ha. This increased by just less than 25%, to 32.3 ha, in 2007. However, data from
the Teagasc National Farm Survey shows that, in dairy farming, a scale of 42 ha is needed to
achieve the average industrial wage3, with considerably larger scale required in beef, sheep
and tillage4.
While the vast majority of farms are transferred within families, with less than 0.5% of the total
agricultural land area offered for sale in 20105, mobility in the use of land has increased. In
2007, 33% of all farms rented a total of 762,000 ha, up from 21% of farms, renting just over
550,000 ha in 19916.
However, farm fragmentation is still an issue, with an average of 3.5 land parcels per farm in
2007. The very high price for agricultural land over the last decade, driven upwards by the
demand for development land, was a very high barrier for farmers to purchase land adjacent to
their own farm.
Since 2007, prices for farmland have fallen by 57%, from 20,200/acre to 8,700/acre in 20107.
Although prices have more than halved since peak, this is still out of line with the productive
value of the land.
1.2.3 Farming as a Career
However, demand from young people for training and education in agriculture and the interest
in pursuing farming as a career, is higher than in decades. There has been an 80% increase in
enrolments in Teagasc colleges since 2006, with 230 students unable to obtain a place on an
agricultural course in 2010.
In total, there are 2,249 students attending Teagasc colleges and training courses, and 3,256 in
total when part-time courses are included8.
At higher education level, increasing demand for agricultural courses is demonstrated by the
increase in requirements for points. One good example is the Bachelor in Agricultural Science
in UCD, the points for which increased from 315 in 2007 to 420 in 2010.
CSO Farm Structure Surveys 2007 and 2005
32,090 - Industry Earnings for Production, transport, craft and other manual workers, CSO, Q1 2010
4 Based on Average Farm Income for 2007-2009 (including average direct payments).
5 41,339 acres, Agricultural Land Price Report 2010, Irish Farmers Journal, March 2011
6 CSO Farm Structure Survey 2007
7 Agricultural Land Price Report 2010, Irish Farmers Journal, March 2011
8 Agricultural Education: Supporting Economic Recovery, Teagasc, Dublin Castle February 2011
2
3
4
2
2.1
Encouraging Entry to and Exit from Farming
Taxation Reliefs
2.1.1 Stamp Duty Relief for Young Trained Farmers
Relief from stamp duty applies to transfers of land and farm buildings, by gift or sale, to young
trained farmers. Stamp duty applies to farm transfers within a lifetime and not on inheritance.
Stamp duty relief is therefore an important incentive to encourage the transfer of farms at an
early age, without placing a heavy taxation burden on the young farmer. In the absence of this
relief, many farms would only be transferred through inheritance. There would therefore be no
gain in revenue for the Exchequer and the process for the efficient transfer and operation of
farms would be undermined.
IFA proposes that stamp duty relief for young trained farmers is retained, as it is an
important instrument to ensure timely succession, land transfer and productive use of
agricultural assets. This is very relevant today in the context of increasing demand for
agriculture as a career and an increase in the number of young, highly trained, farmers.
2.1.2 CGT Retirement Relief
Capital Gains Tax Retirement Relief allows qualifying farmers aged over 55 to dispose of their
farm to family members (son/daughter/favoured niece and nephew) without becoming liable for
Capital Gains Tax (CGT). This encourages lifetime transfers of family farms to the next
generation.
Qualifying Farmers are also relieved from CGT on sales of value up to 750,000, thereby
encouraging disposal of assets to non-family members; this encourages elderly farmers without
family successors to sell their farm, thus contributing to structural reform.
The Commission on Taxation report9 recommends the introduction of a ceiling of 3m on the
value to an asset transferred to a family member, and that CGT would apply on the part of the
gain which is attributable to the amount over 3m.
The imposition of a ceiling on CGT relief for inter-family transfers would have the effect of
preventing transfer of commercial family farms within the lifetime of the farm owner. It would
deprive the successor of the opportunity to take on the business at a young age and may lead
them to leave farming. Overall, this would reduce the productivity of farming in Ireland and lead
to many farms being run down before transfer.
IFA is opposed to the proposal to introduce a ceiling on CGT Retirement relief for the
following reasons:
• The transferor normally receives no payment in the case of inter-generational
family transfers.
• The transfer is subject to the Capital Acquisitions Tax (CAT) payable by the
transferee.
• As CGT is payable only in lifetime transfers, farmers would choose to defer
transfers of commercial farms until death.
9
Report of the Commission on Taxation, Dublin, September 2009
5
2.1.3 Agricultural Relief
Agricultural Relief operates by reducing the market value of 'agricultural property'by 90%, for
the purpose of calculating gift or inheritance tax (CAT). The objective of this measure is to
facilitate the intergenerational transfer of family farms.
The Commission on Taxation proposed a reduction in the rate of Agricultural Relief from 90%
to 75%. It also proposed a limit of 3m as the maximum amount of relief where CAT applies.
The concern for IFA is that the scale of farm required to achieve an income level in line with
average industrial earnings is increasing over time due to the divergence in growth between
product prices and input costs.
The CAT thresholds have been reduced by 38% in recent years, with the Group A threshold
(parent-child) cut from 542,544 to 332,084 since April 2009. This, coupled with the proposed
reduction in the rate of Agricultural Relief rate to 75%, would result in the maximum exempt
threshold for farm transfer being cut from 3.3m to 1.3m, i.e. a 60% decrease. It is estimated
that a minimum of 30,000 farms would, as a result, face a CAT liability on transfer10.
Many of the farms that would be affected are operating at low income (Average Farm Income in
2010, 17,77011). The outcome would be the break up of family farms or the selling of assets to
pay the tax liability, thereby undermining the viability of the business. This is a particular risk in
the current economic climate, where access to credit is limited, with little scope for a farmer to
borrow funds for the purpose of payment of a tax bill.
IFA proposes that the 90% Agricultural Relief is retained for recipients who put the land
into efficient agricultural use. To qualify for 90% relief, recipients would be required to
farm the land for a period of at least six years after the transfer of the asset or to put the
land into a long-term lease agreement with a qualifying farmer.
2.2
Farm Structure and Investment Schemes
2.2.1 Investment Aid for Young Farmers
When young farmers take over farms they often incur upfront expenditure (legal and
administrative costs) and urgent investments. This expenditure is necessary often when it can
be least afforded.
IFA proposes a targeted Young Farmer Installation Aid aimed at farmers who have the
necessary qualifications and provide a detailed expansion plan.
2.2.2 Retirement Programme
The EU Early Retirement Scheme, which was introduced in 1994 but suspended by
Government in the October 2008 Budget, was a significant incentive for elderly farmers to
transfer or lease their lands to younger qualified farmers.
IFA proposes the introduction of a targeted retirement scheme for farmers who are over
60 years of age. The scheme should also involve transferees having the necessary
educational qualification.
10
11
Assumptions: Average price per acre, 10,000, Value of other farm buildings, stock and machinery, 250,000
National Farm Survey 2010, Teagasc, Athenry, 2011
6
3
Encouraging Land Mobility
3.1
Taxation Reliefs
3.1.1 Land Leasing Tax Exemption Scheme
A major encouragement for transferring land use from less productive to more productive
farmers is the Land Leasing Income Tax Exemption scheme. Under this scheme, landowners
who lease out their land for a period of 10 years or more qualify for an income tax exemption of
20,000 per year (with lower thresholds for leases between 5-10 years).
This scheme is directed at certain landowners, e.g. part-time farmers and elderly farmers, who
do not farm at the same level as full-time commercial farmers. It seeks to transfer the use of the
land to commercial farmers for a defined period, consistent with good farm management. Both
the lesser and lessee benefit from the arrangement, which contributes to increased farm
production and output.
The number of farmers availing of this scheme in 2009 was an estimated 2,900. In 2007,
42,500 farmers rented in 762,000 ha (includes both long and short-term leases), with an
average size of land rented of 17.9 ha . Based on this average, it is estimated that 52,000 ha
were leased under the land-leasing scheme. These figures demonstrate the potential for the
further development and take-up of the land-leasing tax exemption scheme.
IFA proposes that the land leasing tax exemption is continued, as it improves land
mobility and efficiency of land use, particularly where land sales are infrequent.
3.1.2 Stamp Duty Rates for Farmland
The Stamp Duty rates for residential property were significantly reduced in Budget 2011. The
stated purpose of this reform was to stimulate the property market, to provide necessary valuation
information and to increase market transparency for the smooth operation of the market.
The same argument applies to farmland. In 2010, an estimated 41,339 acres13, or less than
0.5% of the total agricultural land area, was offered for sale. IFA believes that a reduction in
stamp duty rates for farmland would increase the level of transactions in the market and
promote lifetime farm transfers.
IFA proposes that stamp duty rates for farmland are reduced, in line with the rates
introduced for residential property in Budget 2011 (i.e. 1% for land valued below 1m).
3.1.3 Capital Gains Tax Relief for Farm Consolidation
Farm fragmentation is a key constraint on efficient and competitive farm production in Ireland,
with the average number of parcels per farm of 3.5. A major remaining barrier to farm
consolidation is CGT, which is charged on any gain that is made on the disposal of land,
regardless of whether the land is sold or not.
From mid-2007 to 2011, relief from stamp duty was available for land sales and purchases
resulting in consolidation of a farmer’s holding within a given time period. The purpose of the
relief was to incentivise farmers to reduce the number of parcels of land and to reduce the
distance between these, with the net result of improving the efficiency of their farm businesses.
12
13
CSO Farm Structure Survey 2007
Agricultural Land Price Report 2010, Irish Farmers Journal, March 2011
7
However, very few farmers availed of this relief, with approximately 40 farmers claiming this
relief in 2010. The remaining barriers to farm consolidation must be removed.
IFA proposes that relief from CGT is introduced for transactions occurring for the
purpose of farm consolidation (whether this is sale of land and purchase of another
holding closer to the main farm, or a land-swap between farmers for the same purpose).
In addition, it is unfair that farmland sold by farmers as involuntary sellers under the CPO
system is liable to CGT in situations where the farmer subsequently replaces the farmland. The
Commission on Taxation recommends that: “Capital gains tax rollover relief should apply to the
gains on disposal of farm land pursuant to a compulsory purchase order where the proceeds
are re-invested in farm land”.
IFA proposes that CGT relief should be restored for farmland sold under CPOs and
subsequently replaced.
3.2
Farm Structure and Investment Schemes
3.2.1 Removing Restrictions to Land Mobility
The terms and conditions of certain farm schemes have, on occasion, prevented the most
efficient use of land. Farmers in schemes such as REPS/AEOS should not be prevented from
renting parts of their farms to other farmers who wish to expand. For example, a farmer in
REPS should be allowed to lease parts of his farm provided the lessee meets the conditions of
REPS.
IFA proposes that, for all farm schemes, the terms and conditions must be sufficiently
flexible to allow greater mobility of land.
8
4
4.1
Encouraging Investment In Farming
Taxation Reliefs
4.1.1 Capital Allowances
Farm enterprises require regular re-investment to improve the efficiency of the operation. Over
the past decade, farmers have undertaken an average investment of 600m per annum
(excluding 2007 and 2008, where farmers undertook investments of 1.4bn and 2bn, due, in
the main, to the Farm Waste Management Scheme)14. The replacement of capital allowances
with accounts depreciation, as proposed by the Commission on Taxation, would threaten the
viability of farm enterprises by forcing farmers to forgo necessary investment.
IFA proposes that capital allowances must be retained, as a vital incentive for
investment on farms.
4.1.2 Stock Relief
The general 25% stock relief for farmers and the special 100% incentive stock relief for certain
young trained farmers provide an important incentive for farmers who are building up their
stock, as they can deduct a proportion of the annual increase in their stock value against farm
profits.
For a young farmer in particular, in the absence of stock relief, the increase in the value of
stock during the year would be treated as income, and the purchase of additional stock in order
to reach a viable level of production would have to be funded out of after-tax income. This
would act as a disincentive to new entrants in farming.
IFA proposes that, given the targeted output growth outlined in Food Harvest 2020, the
general 25% stock relief for all farmers and 100% stock relief for young trained farmers,
should be retained.
4.1.3 Income Taxation and Farm Investment
The increases in income taxation15 rates over the last number of years have negatively affected
the re-investment capacity of farm businesses and other sole traders. It is vital that farmers and
other sole traders are able to reinvest in their businesses in order to increase output and
improve efficiency. At farm level in particular, significant investment will be required to achieve
the production targets of Food Harvest 2020.
In the programme for Government, there is a commitment to direct the Revenue
Commissioners to examine the feasibility of introducing – on a revenue neutral basis – a Single
Business Tax for micro enterprises (with a turnover of less than 75,000 per annum) to replace
all the existing taxes on sole traders and small businesses to cut compliance costs and make
starting a business much less daunting. IFA welcomes this commitment, but believes that the
turnover threshold is too low to be of practical use for many farm businesses.
IFA proposes that, in line with its commitment in the Programme for Government, the
Government must introduce a simplified taxation system for sole traders, including
farmers. Incentives to encourage investment must also be introduced, to offset the
negative investment effects of the increased marginal rate of income taxation.
14
15
Teagasc National Farm Survey 2000-2009
Income Tax, PRSI and the Universal Social Charge
9
4.2
Farm Structure and Investment Schemes
4.2.1 Farm Investment Programmes
The Food Harvest 2020 report sets out production and value growth targets across all
commodities, including an increase of 50% in dairy and pigmeat production, and an increase of
20% in the value of beef and sheepmeat output. Significant investment will be required at farm
level to improve production efficiency and to achieve these targets.
IFA proposes that a targeted investment programme at farm level is delivered across all
commodities to encourage expansion and the achievement of production targets set out
in the Food Harvest 2020 report.
10
Appendix I - Reducing Costs To Improve Competitiveness
Over the last decade, as a result of both rising prices and an increase in value of the euro, the
Irish economy lost competitiveness with its main trading partners. While competitiveness has
improved significantly over the last two years, in 2010 our competitiveness remained 19%
below the 2000 level16.
For farm businesses, increased costs, coupled with lower increases or even a fall in product
prices, have led to a significant reduction in profitability for the sector. Since 2000, input prices
have increased by almost 40%, with product prices increasing by only 15%, leading to a
significant deterioration in the agricultural terms of trade17.
While many of agriculture’s input costs are externally determined, there remain many
domestically controlled costs. A significant proportion of farm-specific costs are determined by
the implementation of EU regulations.
Outlined below is a summary of the key costs that can be removed or reduced from the
agriculture sector, resulting in cost savings, both for individual farmers and the Exchequer. For
each of the issues identified, a proposed action is outlined and the potential cost savings.
I.I
Meat inspection costs
Issue: Meat inspection costs are 40m per annum with charges of 13m to farmers.
Action: The use of trained technicians under veterinary supervision, similar to practices in other
EU countries, can systematically reduce meat inspection charges. DAFF must immediately
implement its cost savings programme for inspections outlined in the Action Plan for the
Department of Agriculture Fisheries and Food18.
Cost Savings: Farmer meat inspection charges are 5 per head on cattle, 0.50 per head on
sheep, 1.20 per pig and 1.78 per ‘000 birds. DAFF have identified savings of 5m for this
scheme, of which 1.7m should be for farmers.
I.II
Scrapie Levy
Issue: The current level of scrapie testing in the meat factories is unnecessary. In 2009, only
one animal was identified with scrapie out of 10,000 ewes tested. The costs associated with
this level of testing for both DAFF and farmers are unnecessary.
Proposed Action: The level of scrapie testing in meat factories must be reduced by 50% and
the levy being charged by meat factories to farmers must be abolished.
Cost Savings:
• At 20 per test the cost saving for DAFF is 100,000.
• Factories charge farmers on average 1.50 on all ewes slaughtered. With 350,000
ewes slaughtered annually, the abolition of this levy would reduce farmer costs by over
0.5m
Harmonised Competitiveness Index, Benchmarking Ireland’s Competitiveness 2010, National Competitiveness
Council
17 CSO, Agricultural Price Indices, 2000-2010
18Public Service Agreement 2010-2014 (Croke Park Agreement) – Action Plan for the Department of Agriculture,
Fisheries and Food, January 2011
16
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I. III
Registration of animal medicines
Issue: The requirement for country-specific registration of animal medicines increases the
registration cost of medicines for pharmaceutical companies, with the extra cost passed back to
farmers in the form of higher medicine prices.
Proposed Action: EU wide registration of animal medicines for use in the community would
greatly reduce the registration cost of medicines for pharmaceutical companies and in turn
reduce the cost to farmers.
Cost savings: Farm Expenditure on Veterinary medicines is 100m annually. A reduction in
registration costs will lead to a saving in the cost of medicines to farmers. It is estimated that
this saving could be in the order of 5-10% ( 5-10m).
I.IV
On-Farm Cross Compliance Inspections
Issue: The level of inspection for cross compliance is 1%. However, for cattle and sheep I.D.
and registration, the level of inspection is 3%, In addition, the Department of Agriculture (DAFF)
undertake over 1,300 inspections on behalf of the Department of the Environment and County
Council under the Nitrates Regulation. This higher level of inspection creates an indirect cost
for farmers of a minimum of one working day forgone, while for DAFF, there is a direct cost
resulting from each additional inspection. In addition, County Councils continue to ignore these
inspections carried out on their behalf and continue and carry out identical no-farm inspections.
Proposed Action: The Department of Agriculture (DAFF) must secure a change to the EU
regulation to allow for 1% cross compliance inspection on cattle and sheep I.D. and
registration.
Cost Saving: The elimination of an estimated 5,000 unnecessary inspections would generate
Exchequer cost savings of 9m and savings of 0.6m for farmers19.
19 Estimate based on 1,800 cost of inspections, contained in Comptroller & Auditor General report, Accounts of
the Public Services 2009 and opportunity cost of one working day for farmer @ 14.70 an hour (Farm Grant Rate)
12