An assessment of the impact of land structure on the economic performance of dairy farming in Ireland

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Bradfield, Tracy
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University College Cork
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The European Union (EU) milk quota was abolished in 2015 leading to an increased demand for land for dairy farming in Ireland. Between 2014 and 2019, raw milk production increased by 42 percent in Ireland (Bradfield et al., 2021a). However, the land market in the Republic of Ireland is restricted by low mobility. The Republic of Ireland’s agricultural land market experiences very low levels of sales with less than 1 percent of agricultural land sold each year (CSO, 2020a). This is attributed to a strong desire of people in Ireland to keep land in the family name. Ireland also has a low level of land rental. To increase land rental on secure leases, the Irish government increased incentives in 2015 for landowners to rent out their land on long term leases. Using econometric techniques applied to farm-level Teagasc National Farm Survey data, which is part of the Farm Accountancy Data Network, this research provides contributions to the study of agricultural land markets that focus on three main research questions. These include an assessment of the factors that influence the decision to rent in agricultural land and the determinants of profit among renting dairy farms in Ireland, the effect of land fragmentation on dairy farm technical inefficiency, and the impact of land lease duration on dairy farm investment. Research findings show that dairy farms are using the rental market to improve profitability. Farm characteristics such as a small size, a high stocking rate, the presence of a successor and high levels of hired labour increase the likelihood of entering a rental agreement. Renting in land and a less fragmented farm structure reduce dairy farm technical inefficiency. Dairy farms can reduce their technical inefficiency by either renting or purchasing land parcels that are adjoining their current land resources. The results also indicate that farms with a high portion of rented land, which is rented on long-term leases, invest more in their herd and capital. This suggests that long-term land rental is a feasible means to create certainty over investments when land purchases are not possible. In conclusion, these findings highlight the benefits of an active land market to individual farmers and the overall dairy sector, which lends support to policy measures to improve the rental market and thus land mobility. Although the number of agricultural land rental agreements has risen since the removal of the EU milk quota and the increase in tax incentives for long-term land leases, Ireland continues to have the lowest level of land rental in the EU, at 19 percent, compared to an average of 54 percent (European Commission, 2018). This research recommends a review of the structure of current tax incentives for long-term leases because the existing thresholds do not maximise incentives for farmers to rent out their land. Other contributions of this research include a greater understanding of markets with an inelastic supply curve, the role long-term leases can play in improving tenure security, the importance of an extensive use of land fragmentation indicators when studying farms’ structures, and the requirement for market intervention to improve land mobility. Topics for further research are also outlined.
Land structure , Land tenure , Land fragmentation , Dairy , Technical efficiency
Bradfield, T. R. 2021. An assessment of the impact of land structure on the economic performance of dairy farming in Ireland. PhD Thesis, University College Cork.
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