Leasing land is one way farmers have been able to increase farming land, for new farmers to join the industry as others retire or look to downsize, or for non-farmers to invest in farm land (without farming full-time).
A report developed by Agrifutures in 2011 titled ‘Successful Land Leasing in Australia’ explained that the number of farms had decreased from 138,654 in 1998 to 129,154 in 2004. The 2010-2011 census indicates that there were 135,000 farms.
One key barrier faced by young, new or expanding farmers is the cost of capital associated with purchasing. Leasing means that the outlay to purchase land is not required.
Leasing land provides land owners who are looking to down size or wind down their operation a means to effectively use the asset in the process. By leasing the land they can continue to receive a steady income, but benefit from capital gains into the future.
Before going head first into leasing land there are some considerations that need to be made including environmental, sustainability and long-term stability. Bendigo based agribusiness consultants ORM outline a list of do’s and don’ts regarding leasing land.
Do: have written agreements, conduct pre-agreement inspections, agree on land condition and improvements, have a management plan for the operation of the land, make allowances in the lease agreement for capital expenditure, conduct annual reviews and understand tax and insurance implications of leasing for both parties.
Some of the don’ts include: determine lease values based on land values without considering the implications for profitability of farm business operations, make the agreement overly complex and time consuming to administer, make the agreement too simple and overlook agreement on the condition of the land and improvements at the conclusion of the agreement.
While leasing might not be for everyone, it does provide another option to farmers and perspective farmers, which can help with the continued improvement in the industry over time.