Tag Archives: green
Is Farmland A Sound Investment?
http://www.ft.com/cms/s/0/2f160f5e-ce9f-11e2-8e16-00144feab7de.html#ixzz2hyPlkVqB By Lucy Warwick-Ching Cow©Robert Thompson I inherited a substantial amount of money recently and have always dreamed of owning some land in the country. Everything I read seems to tell me that farmland is a sound investment, but are there any additional tax benefits to be gained by investing in it? Andrew Arnott, partner in the landed estates and rural business group at wealth management group Saffrey Champness says farmland indeed continues to be a steady investment. The latest Royal Institution of Chartered Surveyors (Rics) survey revealed that UK farmland now costs an average of £7,440 an acre, compared with £2,400 an acre in 2004. Rising values aside, the tax benefits available are another incentive. However, it is not as easy to claim these benefits as it once was – HM Revenue & Customs (HMRC) wants to ensure that such benefits are only available to those actively farming the land, rather than to those aspiring to a farming lifestyle or seeking the benefits of a large house in a rural location. Such tax benefits include exemptions from inheritance tax (IHT) and capital gains tax (CGT) under certain circumstances, the ability to offset any losses from the farm against profits made elsewhere, and benefits by way of value added tax (VAT). IHT relief is available where the land has been farmed in person for at least two years, or where the land has been let to a tenant who has farmed it for seven years. Depending on the type of tenancy, IHT relief can be available at either 50 per cent or 100 per cent of the value of the land concerned. Where you qualify for 100 per cent relief, then assets such as land and buildings can be passed on to heirs free of any IHT liability, either during lifetime or upon death. There are specific stipulations covering cottages, their use and occupation, for them to qualify for exemption. There have been a number of prominent cases with regard to farmhouses and IHT, but a general rule is that the house must be “of a character appropriate”, and “proportionate” in size in relation to the area of the land. If it does not pass these tests then it is highly likely to fail should it be tested by the courts. HMRC has shown its enthusiasm to contest on a number of occasions – with varying degrees of success. Equestrian interests are not usually regarded as farming, and land or buildings to keep horses do not qualify for the same exemptions. With woodland, generally the trees will be exempt from IHT but the land not, although there may be the opportunity to claim business property relief (BPR) for it. While farmland is generally liable for CGT on disposal, there are reliefs available if disposed of as a business asset. For example, “hold-over relief” may be relevant where the farm is being passed on to the next generation, or “entrepreneur’s relief” if it is being sold to a third party. Rollover relief should also be available where farmland assets are disposed of and the proceeds invested in further farmland or buildings. Send your questions to: money@ft.com Forum Farmers are generally able to recover all the VAT they incur on business purchases and expenses, and farmland often offers useful security against bank lending. Add all that together and it certainly has a lot in its favour – although equally, it is definitely not an option for everyone. Continue reading
Africa: There’s Hope for African Farmers
By Alex O Awiti, 15 October 2013 Africa accounts for 60 per cent of the world’s arable, uncultivated land, according to a report published by McKinsey Global Institute in 2010. The FAO has shown that cereal yields in Africa are currently less than 50 per cent of those in Asia or South America. Such low productivity is largely attributable to the current state of smallholder farming. It is estimated that about 75 per cent of all farmland in Africa is less than 4.94 acres in size. Nearly 70 per cent of the African population lives in rural areas where they depend exclusively on agriculture as farmers or labourers for their livelihoods. A large percentage of these are women. A World Bank report published in 2011 estimated that the global food price spikes in 2008 pushed 44 million people below the poverty line, most of them in developing countries. According to Oxfam International, poor people in developing countries spend 50-80 per cent of their income on food. More than 90 per cent of Africans who live on less than $1.25 (Sh105) a day also happen to own and live on small farms. As the green revolution in Asia showed, the potential of smallholder development can be realised. But conditions have changed. Now smallholders face higher transaction costs and have to cope with the fact that agricultural research is biased towards large-scale production. This raises newchallenges in small farm development. On the other hand, higher prices of staple foods present opportunities for farmers. India and China have similar proportions of small farms as Africa, but have achieved significantly higher productivity. Despite the success of smallholder farmers in Asia, who fuelled the green revolution, there is skepticism that East Africa’s smallholders can replicate this model and deliver agricultural transformation and improve livelihoods among rural smallholder farmer. It is argued that for agricultural growth to gain traction, Africa’s agricultural and labour productivity will have to increase massively, requiring vast proportions of smallholder farmers to move out of the farm. High productivity of modern agriculture is associated with high technology, intense capital input and market linkages, and hence higher capacity to compete aggressively in factor markets, including land, labour and capital. However, these factors are not appropriate for the smallholder farm model. While there is a strong poverty-based case for trying to assist smallholder farmers, the agenda for African agricultural growth should be to introduce commercial agriculture on a competitive basis. Why is it that with all our research, technology and innovation, managerial capability and investment capacity, we are unable to make even a modest contribution to the pervasive problem of poverty, hunger and malnutrition in the smallholder farm families in sub Saharan Africa? We must learn from past successes and failures. Doing more of the same by refurbishing the solutions of the past – development aid, NGOs, training and visit, farmer field schools, international agricultural research organisations – is vital and has a critical role to play, but has not addressed the problem of low productivity, hunger and poverty. Paul Collier has argued that having the single most important sector of Africa’s economies almost exclusively managed by reluctant micro-entrepreneurs – smallholder farmers – is a recipefor continued divergence from global agricultural productivity. But in the logic of the timeless wisdom of CK Prahalad, we must stop thinking of smallholder farmers as victims or a burden and start recognising them as resilient and creative entrepreneurs and valueconscious consumers. What would be the defining characteristics of agriculture over the next half century if Africa were to converge on the performance of Asia and Latin America? I argue for a focus on small and medium-sized enterprises agribusiness. But harnessing Africa’s agricultural potential requires talented managers and entrepreneurs that can attract capital, apply technical expertise to develop profitable SME agribusinesses. Moreover, serving SME agribusiness will demand innovations in technology, services and business models. Africa’s large youth population provides a ready pool from which to develop talented entrepreneurs and managers who will drive the growth of agriculture. Those of us in the research, education, policy, development and business community can make this a reality by using our resources to build the capabilities of the African SME agribusiness sector to generate economic growth and achieve food and nutritional security. The writer is the director of East African Institute and associate professor at Aga Khan University. Continue reading
How Bad Will The Financial Pinch Be In 2014?
Stu Ellis, FarmGate blog | October 16, 2013 Corn Harvest Corn and soybean yields this fall are about as good as the 2012 yields were bad. Despite the challenging weather that delayed planting and then later put corn and soybeans in moisture stress, many fields are recording exceptional yields. Although two successive years should not be chosen to either determine a trend or calculate an average, the 2012 and 2013 crops are certainly representative of the long term averages. But what will happen when the other shoe drops? If 2014 returns to an average yield, farmers could be hurting financially, particularly if they agree to higher cash rents in the coming weeks. We are in the annual farm leasing season and many landowners are going to want to see more revenue to reflect the higher value of their farmland. Farm operators who agree to that may have difficulty making the necessary cash rent payments based on expected prices and trend yields for 2014. One only has to look at futures prices at the CME’s Board of Trade to pencil out revenue. With the 2013 production of 14 billion bushels of corn, it is easy to see that the spring guarantee for crop insurance on the 2014 crop will be about $4.50 per bushel. And although we are 6 months away from planting the 2014 crop, the market is only willing to pay about $4.80 per bushel for the crop produced next year. That will go up or down, depending on the level of production, but that has to be considered a median price given the expected 2 billion bushel surplus left from the 2013 crop. It is easy to see the $7 and $8 corn prices from the 2012 drought are history. But even if a drought crop occurred in 2014, the 2013 surplus will not allow prices to climb very high. In fact, University of Illinois agricultural economist Gary Schnitkey says a 125 bushel yield next year will not even generate a $400 per acre return to the operator and land, even with a $6 harvest price and a $200 crop insurance payment. According to his calculations, even a high yield crop of 220 bushels per acre will still not return more than $300 per acre to the operator and land. His numbers are based on a $537 per acre cost for inputs, such as seed, fertilizer, chemicals, and fuel; everything but cash rent. And his concerns for the profitability of farmers for the 2013 and 2014 crops are focused on the rate of cash rent that farmers accept. With a return to land and operator, ranging from $275 to $391 depending on yield, there is not much left for the operator’s family living cost after cash rent is paid. And in many cases, there will be insufficient crop revenue in 2014 to cover cash rents in the $350 to $450 range. As farmers begin to pencil out budgets for 2014, one of the priorities will be what they can afford to pay for cash rent. While the Schnitkey numbers suggest that cash rents should decline if farmers want to remain in the black that may not be what the majority plans to do. Doane Agricultural Services of St. Louis recently surveyed farm operators and found 48 percent have agreed to 2014 cash rents higher than what they paid in 2013. Only 14 percent reported that rents declined. The balance of 38 percent saw rent stability, despite owner desires to raise the rent in the coming year. When competition for farmland fuels the fire in one’s belly, the result could be a serious case of financial indigestion. Summary: Farm profitability in the coming year could be challenged with low returns to operator and land, in the wake of low commodity prices, regardless of yield. Whether yields are exceptional or drought reduced farm revenue may not be able to meet current cash rent obligations, and much less any increased rent for the 2014 crop year. Source: FarmGate blog Continue reading
