- Both in private trade and at oral auctions organized by KOWR, horrendous rent rates appear.
- Many farmers say rents are often so high they make no economic sense. But buyers for land keep turning up.
The subject of leases raises a lot of controversy
There are gems that many farmers consider to be fair. Namely, the subsidies belong to the landowner, who also pays tax. In turn, the farmer "sows and reaps". It also happens, although rarely, that a farmer cultivating a field receives a subsidy for the land, but pays a lease rate to the owner. This is a matter of "negotiation". If the lease rate is equal to the subsidy, then in terms of inputs everything would be similar. However, the rates for leases are often horrendous. On the other hand, there is practically no shortage of people willing to buy them.
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Over 200 ha of land for lease near Iława! Farm for auction at KOWR
There are willing people in private trade, and the rates can be dizzying.
But it often happens that a farmer cultivating a field has to pay a high lease, even over PLN 2,000/ha (and we hear about PLN 3,000/ha). He does not collect a subsidy, and the lessor only pays the tax (often passed on to the farmer cultivating the land). In fact, it sometimes turns out that there is no profit from such a position even in a good year. Sometimes these PLN 2,000/ha are profits – and in a good year, because this season it was difficult to obtain such net income even with high yields.
Some farmers are happy with private leases. There are also those where they pay PLN 500-1000/ha, although they do not collect additional payments, they pay "land" tax. According to many, these are the highest rates that can still be economically justified. But not PLN 2-3 thousand/ha. On the other hand – if there is no shortage of people willing to buy land, then people who want to lease land take advantage of it. Everything has increased its value (except for most agricultural products). But this will only last for a while. Perhaps there will eventually be no farmers who will be able to pay such amounts for leases. There is not much left to it, if we look at the prices at which grains, rapeseed, and corn are sold for another season in a row. The situation with milk is no better. Because although some people claim that milk generates great income, they are usually wrong or have a false picture of the situation. There may even be some monthly income from milk production, but this is only turnover. Because milk production also balances on the verge of profitability.
Record bids in auctions?
The lease rates in tenders organized by KOWR can also make your head spin. Since they are expressed in the equivalent of wheat, we often hear about the large quantities being discussed. 4-5 tons of wheat per hectare of lease at an oral tender no longer shocks anyone. Higher rates are also appearing. Another thing is that most farmers ask openly: what's the point? If, at current costs, it is difficult to earn anything from growing wheat (and not only, because the same applies to other cereals), then what do you have to pay for such a high lease?
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Santander Leasing: Farmers' sentiment at low level. This is visible in investments
In conversations, farmers often specify the maximum amount to which it is worth bidding on tenders for 2-2.5 tons of wheat. And even these are already considerable rates. Here, let us remember that the amount of rent calculated based on the value of wheat has nothing to do with purchase prices, because this is currently calculated based on 11 quarters, and as a result the rates significantly exceed current market valuations. In fact, with a rent of, for example, 2 tons/ha, we actually have to give away as much as 2.5 tons of wheat to balance the lease rent. With a wheat rate calculated at, say, PLN 1,000, a lease calculated for 5 tons/ha means a cost of PLN 5,000. Meanwhile, with a wheat price of PLN 800/t, we have to give away as much as 6.25 tons of wheat as rent.
If many farmers estimate 2-2.5 tons of wheat as the maximum rate, then where do even twice as high rents come from, which someone has already bid? Well, there is the human factor. Emotions during the tender also play their part. Cool calculation does not allow for any economic justification here.
Is purchasing land an investment for your grandchildren?
The fact that there will be no net income from cereals, rapeseed, corn or other plants grown on a large scale is obvious at such high lease rates (and if there is, it will only be in a good year – with good yield results and only at much better prices than now). It is true that sugar beets, for example, recorded a much better financial result, but here too it is difficult to increase the area, as we already know from this season. Perhaps some vegetable crops generate higher income, which in some way justifies the high auctioned lease fee. But certainly not cereals or rapeseed.
It also happens that in the case of a lease from KOWR, some treat it as a form of investment, i.e. they want to give themselves the right of pre-emption after a specified period. It is true that this means a very high auctioned lease fee, but after a certain time – if the possibility of pre-emption appears – it is treated as a form of investment, additional costs of purchasing land. However, such a possibility is not always available, and even with the current profitability, it is not necessarily possible to use it in practice, because the costs of purchase are nevertheless disproportionate to profitability. Counting completely coolly – when buying a hectare of land for PLN 60 thousand and a net income of even PLN 3 thousand, the investment will pay off after 20 years. However, in the case of cereal crops, rapeseed and many others, obtaining such income is not easy at all. We can see this not only this year, but also in many previous ones. Once we add, once we earn well, and another time maybe PLN 500/ha. It may also be that such a land purchase will pay off, with an average income per hectare of PLN 1,000 over many years, after 60 years. Maybe our grandchildren will be able to have something from this land.
