Agricultural land market

Taking into account the structural characteristics of Polish agriculture and, in particular, the agrarian fragmentation of family farms, any changes in land use are particularly important in determining the development processes of this sector. Also, taking into account the fact that land is indispensable in any human activity, and its space is limited and permanently located, each country not only tries to monitor, but also to control the forms of its use, so as to protect agricultural land, thus guaranteeing food security for its citizens.

In this context, the annual analysis of the situation in the agricultural land market, carried out between 2011 and 2014, was, first of all, to determine how the processes taking place in trade in land, their intensity and forms affect the acceleration of efficiency-oriented transformations in the agrarian structure of Polish agriculture and what factors contribute to the slowdown of such processes.

The studies conducted covered the legal, economic and social conditions affecting the changes in land use. Also, the activity of the Agricultural Property Agency was characterised. When developing the land market issues, the subject matter related to the purchase of land by foreigners was considered, so were the rules applicable in trade in agricultural properties in the selected European countries.

The analyses carried out used mainly source materials from the reports of the Agricultural Property Agency, notary offices and the CSO. The information of general statistics was also complemented by the data from own surveys¹². Conditions in trade in agricultural land

With regard to the legal situation applicable in Poland in the field of trade in agricultural properties, the Act on the establishment of the agrarian system, as amended is of fundamental importance. It specifies the upper limit of the family agricultural holding, the rules of selling land and, above all, it sets the rights of the Agricultural Property Agency as the main institution supervising trade in agricultural land. As part of its core activity, the Agency deals with management of the State Treasury land. In this regard, in relation to the statutorily adopted procedures, the Agency creates a separate segment of the land market. The applicable Act also includes the provisions aimed at the possibility of using, by the Agency, the right of pre-emption in the private market, in a situation where the planned transaction does not result in any improvement in the agrarian structure of holdings.

The current observations and analyses of trade in agricultural land, show that the main part of the Agency’s activities was focused on appropriate management of agricultural land of the State Treasury. Consequently, in the regions where there were large clusters of such land (mainly western and northern areas), the acreage structure of individual holdings is definitely better than in other parts of the country. Currently, this role of the Agency has been substantially restricted, in connection with the increasingly smaller area of unmanaged land of the State Treasury Resource. Also, in view of the approaching date of the full opening of the Polish land market for foreigners from the EEA countries and the Swiss Confederation (May 2016), the increasingly more important problem is to establish uniform rules for trade in agricultural land, as well as full monitoring of the tendencies taking place in this market.

The reason for revising the legislation and preparing new prerogatives regarding trade in agricultural land is not only the ending validity period of some of them. In particular, it becomes necessary to standardise and enhance the coherence of the rules applicable within individual segments of the land market. It is also necessary to develop the legislation with regard to other legal arrangements having a significant impact on the functioning of the land market. This applies to, e.g., social security of holding users, rules of land conversion to non-agricultural purposes and, first of all, establishing a clear definition of family farms.

12 A. Sikorska, Procesy przeksztaáceĔ strukturalnych w wiejskiej spoáecznoĞci i cháopskim rolnictwie, op. cit.

A separate issue is to organise the rules of preparing registers of changes with regard to the ownership and temporary use of agricultural land. These activities are necessary to restrict informal transactions which still take place in trade in land properties among neighbours (it applies mainly to neighbour’s leases). The legal acts were to affect the intensification of land concentration processes. In fact, this objective was possible to be achieved mainly in areas where the Agency could support the local supply with land from the State Treasury Resource.

The demand-supply imbalance, which has been persistent in the land market for many years, is mainly associated with the socio-economic conditions. The increase in the demand for agricultural land was affected mainly by the growing competition in selling agricultural products. Holdings, which wanted to maintain the strong market position, had to meet the requirements set by customers of their goods, which involved mainly the increased production scale and its improved quality. With respect to the agrarian fragmentation of Polish agriculture, this was mostly related to investments in productive assets, mainly in land. The adjustment of the production potential to the market requirements was taken most often by the group of farmers from holdings, which had already been characterised by the relatively large production scale and were the biggest beneficiaries of the CAP support schemes. This in particular refers to direct area payments, whose amount is dependent on the area of cultivated land. The grants received allowed them to launch the activities for increasing land resources.

The significantly smaller supply of agricultural land designed for sale did not correspond to the demand for land, created by development holdings. In this case, of importance were material factors. In most Polish individual holdings, the possessed productive assets, especially land, is the family property handed down from generation to generation and any decision on its selling or reduction should be, by assumption, connected with a special situation justifying such a move. Even if the holding acts mainly as a home, and the agricultural production is limited to own purposes, the possessed land property is a very good capital investment and guarantees surviving in the period of potential economic difficulties (loss of employment, fortuitous situations). In addition, owners of such holdings and their families benefit from the many advantages available to farmers – from direct payments to low-cost health insurance and pension scheme.

The demand-supply imbalance, which has been persistent in the land market for many years, is even strengthened by the local nature of this market.

From the studies conducted at the IAFE-NRI it results that in areas where traditional attitudes towards holdings used are still strong, the role of the market in the agrarian changes gives in to family trade and, as a consequence, area

transformations are smaller than in areas where the demand for agricultural land is mitigated by the activity of the Agricultural Property Agency through the allocation of properties from the State Treasury Resource¹³.

Another factor, which in the last decade has increasingly affected the evolution of the agricultural land market, was the expansion of urbanised areas.

This applied mainly to the areas of receptive labour markets and transport routes facilitating access to agglomerations. In those areas, the intensity in trade in land properties was usually related to their conversion to non-agricultural purposes. It should be stressed that since the Polish accession to the European Union, as a result of accelerating infrastructure investments and launching the instruments to support the diversification of economic functions of rural areas, this process was significantly strengthened. While in 2005-2010, 3% of agricultural land were eliminated from land use, on average, it may be estimated that in 2011- -2014 the same indicator was about 4%. We should expect that despite the legal protection of the agricultural, natural and landscape environment, accordingly to the further speed of the macroeconomic development, the acreage of agricultural land will still decrease. This applies, in particular, to direct surroundings of large agglomerations, which through the receptive labour market affect the changes in the existing settlement structure. It is then required to devote more attention to zoning plans taking into account the principles of sustainable development, in particular as regards the protection of soils most useful for agriculture.

Trade in agricultural land and agricultural land prices

From the studies conducted at the IAFE-NRI, it resulted that in the subsequent years covered by the analysis (i.e. 2011-2014), trade in agricultural land included an increasing part of all changes in the land ownership. With the increase in market transactions, the importance of cases of non-market (family) land acquisition was gradually decreasing. In 2012, their number was by more than 12% lower than in 2011, and included 42% of all changes in ownership of agricultural properties registered with notary’s offices. In the subsequent years, that process strengthened and it may be concluded that in 2014 only about 40%

of trade in agricultural land market was of family nature, while the majority were market transactions.

On a yearly average, the number of land purchase and sale transactions in the analysed period was about 90 thousand, which, per 1,000 holdings, accounted for 58. The value of that indicator consisted of 48 contracts concluded among natural persons and 10 contracts with the participation of legal persons,

13 A. Sikorska, Obrót ziemią a przemiany agrarne w indywidualnym rolnictwie, Problems of Agricultural Economics 2013, no. 1.

mainly the Agricultural Property Agency. The uneven segmentation of the agricultural land market is a consequence of the increasingly limited APA offer, as most land from the Resource has already been permanently managed. At the end of 2013, 52.4% of land at the disposal of the APA were sold, and the acreage of land sold in this form since 2011 was more than 100 thousand ha, on a yearly average.

Monitoring of the agricultural land market draws attention to the fact that at longer time intervals we may observe a phenomenon of oscillation in the prevalence of trade in land in a form of purchase-sale. After the periods of increased intensity of that phenomenon, there was a decrease in its range and then it increased gradually in the following years. When looking for causes of the observed trends, we must take into account that investments in land are usually associated with plans to extend the production scale and expectations of specific economic benefits. Further investments in this area are usually shifted until expected profits are obtained and funds for further investments are collected. Under the Polish conditions, the importance of this factor is strengthened by the fact that, due to the agrarian fragmentation and diversification in the economic significance of the agricultural activity in sources of income of families, only some holdings play a significant income- -generating role and seek to strengthen their market position by extending the production scale. For many years, this community has been fairly stable, and it covers approximately 230 thousand units and it mainly forms the group creating the demand in the agricultural land market¹⁴.

Admittedly, holdings seeking to improve their market competitiveness by increasing the productive assets are situated throughout the country, but they are distinguished by the particular density in the central-western area (regions:

Wielkopolskie and Kujawsko-Pomorskie), which in case of the land market intensifies the importance of supply-side determinants in the scale of trade in agricultural land. As a consequence, agricultural land is most expensive there, when compared to other regions of the country¹⁵.

14 B. Karwat-WoĨniak, Gospodarstwa wysokotowarowe w rolnictwie cháopskim. Synteza wyników badaĔ 2005-2009, Multi-Annual Programme 2005-2009, no. 151, IAFE-NRI, Warszawa 2009.

15 A. Sikorska (ed.), Rynek ziemi rolniczej. Stan i perspektywy, no 16, Market Analyses 2013, IAFE-NRI, APA, MARD, Warszawa, December.

Figure 6.1. Purchase-sale transactions of agricultural land in 2002-2013

Source: elaborated based on the data from the Statistical Department at the Ministry of Justice and the CSO.

It should be assumed that it is mainly the supply-side determinants which affected the dynamic rise in land prices observed in the analysed period. From 2011, agricultural land has risen in price by 31.7%. Such a significant rise in land prices should be associated not only with the scale of the demand-supply imbalance in the local and regional markets, but also with the macroeconomic determinants. In the recent years, when the global crisis and rising unemployment have resulted in a growing sense of instability, land properties have become very profitable capital investments. We should expect that land prices will continue to be relatively high with a tendency to grow further. This process will be determined not only by the demand-side pressure, but also by the growing land conversion to non-agricultural purposes.

Land lease

When seeking an increase in the acreage of crops, land lease is an alternative to purchase of land. From the studies it results that the greatest interest in leases is visible in areas with the significant demand-supply imbalance and high prices of land (this applies mainly to the following regions:

Wielkopolskie and Zachodniopomorskie). The study conducted by the IAFE- -NRI shows that in total about 20% of individual holdings used own and leased land. The importance of this form of land use in the land concentration processes was evidenced mainly by the high share of land leasing holdings in the number of units with an area of more than 20 ha of AL. In this group, this situation applied, in fact, to half of the holdings¹⁶.

16 A. Sikorska, Przemiany w strukturze agrarnej indywidualnych gospodarstw rolnych,

30 35 40 45 50 55 60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 number of land purchase-sale contracts per 1,000 holdings

total among natural persons

The amount of land lease charges was dependent on the quality of leased land. For example, in relation to the whole country, the lease fee paid for good class land was by 21% higher in 2013 (in 2011, it was 25%) than the average value, and, in case of poor class land it was by 23% lower (26% in 2011). When interpreting differences in land lease charges, we should take into account the fact that many contracts are informal. Still, there are situations where the equivalent of the lease fee is paid in kind or in exchange for payment of tax or resignation from cancellation of land aid for the benefit of the land owner. In 2013, according to the ARMA data, single area payment amounted to PLN 830/ha, and thus it was by nearly 16% higher than the average lease price. From the analyses, carried out based on the surveys, it resulted that in areas where the lease fee was relatively low, direct area payments were usually taken over by land owners and not by actual land users. In turn, settlements in kind took place most often in areas with the most fragmented agriculture, while the forms of payment were not only agricultural products but also work off using mechanised equipment or assistance provided within the framework of the household. At the same time, it should be stressed that in the regions characterised by high performance agricultural structures, the forms of payment for land lease other than a charge were extremely rare. This applied mainly to the northern and western areas of the country.

6.5. Summary

In the work carried out, it was documented that the improved situation with regard to the determinants specifying the human capital characteristics (mainly, the level of education and broadly understood educational activity) of the rural population has not only a civilisation but also an economic dimension.

The quality of the rural human potential affects directly the intensity of production, openness to innovation and efficiency of management.

Engagement in raising competences is seen in the theory of economics as one of the most important types of investment in human capital, which is directly translated to the level of income and the relatively lower risk of job loss.

It is especially important with respect to middle- and old-aged persons, who have been professionally active for a long time. In this context, the changes in the schooling degree of the rural community indicate the activation of positive processes of transformation.

The issue of reducing employment in the agricultural activity and shifting labour resources from agriculture to non-agricultural sections is an essential condition for improving the agrarian structure, increasing the efficiency of

Research project no. 0021/B/H03/2011/40, IAFE-NRI, Warszawa 2013.

management and positive changes in the income situation of not only farmers, but also of other rural residents. As a consequence, the increased diversification of the professional activity leads not only to the implementation of the multifunctional agricultural and rural development, but is also a factor of modernisation of the entire economy.

When analysing the rural development in the context of the investment attractiveness, we may conclude that it depends not only on the scale of infrastructure investment, but of great importance are also management mechanisms and ways to target these investments. For these reasons, the local authorities should complement the strategic programmes with the elements to facilitate management and coordination of work on the implementation of rural development concepts being carried out. Therefore, it is necessary to create organisational structures built around projects (economic, social and environmental) that are carried out by collaborating institutions at various levels, which, for the duration of a given project, form a cooperation network. In this aspect, the coordinator is particularly necessary for the implementation of selected projects. Raising the attractiveness of rural areas using public funds, should be, to an increasing extent, implemented under the operational (project) model. Perhaps, this will “make” many institutions, performing partially the same or similar tasks, cooperate and coordinate in the interest of the final beneficiaries of these measures.

When it comes to agricultural land market, it must be recognised that in the subsequent years, regardless of the whole complexity of the circumstances affecting the changes in the agrarian structure of individual farming, the agricultural land concentration processes took place mainly by means of market trade in agricultural land. To a definitely lesser extent, such transformations resulted from handing down the holdings within the family, because in this case land was treated not as a means of production but as a property handed down from generation to generation.

The characteristics of the agricultural land market in Poland indicates that the mechanisms shaping the situation in this respect become more and more similar to the rules of operation of this market in the so-called “old” EU countries. Also, we should stress the role of market trade in agricultural land in creating the transformations of the agrarian structure and activating the agricultural land concentration processes.

References

ChmieliĔski P., AktywnoĞü ekonomiczna kierowników indywidualnych gospodarstw rolnych, [in:] Cechy spoáeczno-demograficzne i aktywnoĞü ekonomiczna kierowników gospodarstw rolnych, praca zbiorowa, Multi-Annual Programme 2011-2014, no. 84, IAFE-NRI, Warszawa 2013.

ChmieliĔski P., AktywnoĞü ekonomiczna kierowników indywidualnych gospodarstw rolnych, [in:] Cechy spoáeczno-demograficzne i aktywnoĞü ekonomiczna kierowników gospodarstw rolnych, praca zbiorowa, Multi-Annual Programme 2011-2014, no. 84, IAFE-NRI, Warszawa 2013.