Farmland prices forecast to rise in tandem with dairy recovery

The cost of agricultural land in the Republic is forecast to rise by 6 per cent on average this year as milk prices recover from a slump last year and on the back of “continuing strong demand from farmers and investors”.

That’s according to a new report by State farming agency Teagasc and the Society of Chartered Surveyors Ireland (SCSI).

While land price increases will continue to be driven by a mismatch between demand and supply, SCSI auctioneers and valuers said the rate of increase would moderate due to several factors including higher interest rates, poor weather conditions and lower farming returns, which encompasses higher costs.

In the report, Teagasc warned that the impact of the adverse weather on agricultural output, production costs and farm incomes posed one of the biggest risks to the current production year.

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The SCSI and Teagasc’s latest Agricultural Land Market Review and Outlook report indicated that the average value of non-residential agricultural land in 2023 was €9,300 per acre, an increase of 11 per cent on the previous year.

Within this figure, farmland prices ranged from €6,286 per acre for poor quality land (up 13 per cent year on year) to €12,308 for good land (up 10 per cent year on year).

The most expensive land was in Waterford “where good quality land on small holdings is fetching an average of €20,000 per acre,” the report said. The least expensive land was in Mayo “where poor-quality land is selling for an average of €2,733 per acre on holdings over 100 acres”.

Average farmland rental prices rose by 5 per cent last year, the report said.

It noted that the share of agricultural land, which transacts for sale annually is only about 0.5 per cent of agricultural area “and this is one of the main reasons for the strong demand for agricultural land for rental here”.

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SCSI rural agency committee chairman Peter Murtagh said that while demand for land — primarily by dairy farmers — had continued to drive sales and rental price increases, price expectations for 2024 had moderated.

“We can see this most readily in the rental market which reacts more quickly to economic changes in farming. Last year average rental values increased by just 4.5 per cent across all farming uses despite predictions of double-digit growth similar to that which occurred in 2022,” he said.

“These increases did not materialise due in the main to poorer overall returns in farming and very poor weather conditions which dampened demand from some farming sectors — particularly in Leinster and Connacht/Ulster — and kept a lid on rental inflation,” he said.

“In Munster, which has a higher prevalence of dairy, rental values increased by over 12 per cent. One of the features of the market that is emerging is that some dairy farmers have a demand for land to allow them to adjust their stocking rates to ensure they comply with tighter environmental restrictions relating to water quality,” he said.

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