SEGMENTING THE MARKET FOR AGRICULTURAL LAND IN THE NETHERLANDS

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1 WINDOW ON THE NETHERLANDS SEGMENTING THE MARKET FOR AGRICULTURAL LAND IN THE NETHERLANDS ARNO SEGEREN* & JAN LUIJT** * Netherlands Institute for Spatial Research (RPB), Bezuidenhoutseweg 12, PO Box 30314, 2500 GH The Hague, The Netherlands. segeren@rpb.nl **Agricultural Economics Research Institute (LEI), Burgemeester Patijnlaan 19, PO Box 29703, 2502 LS The Hague, The Netherlands. j.luijt@lei.wag-ur.nl Received: June 2002; revised July 2002 ABSTRACT In spatial planning the land market is of fundamental importance. The price level and transferability of land has consequences for possibilities with respect to buildings, recreation areas, nature development, roads, etc. Information not only for different regions, but also for different groups of players in the market is essential for planning different green and red functions in the future. However, statistical information of the land market used to be limited. The research as described in this paper 1 made a first attempt to segment all the transactions (where land in agricultural use was involved) into different coherent buyer-groups. The transactions from the years have been used to build a land-transaction database. As is shown, there are some regional differences in the total sales of land and the land price. Where possible an explanation for these differences is given. Key words: Land market, land prices, land use, land policy, agriculture, Netherlands INTRODUCTION In the Netherlands there is a long history of publishing statistical results on all kinds of subjects. Within the agricultural sector the statistical results from the annual Agricultural Census are the most important. Other important information, which has been fully published, is transaction prices for land used for agriculture (information based on the Cadastre and Public Registers Agency). The market for agricultural land is, however, bigger than just the market within the agricultural sector itself. Other sorts of buyers of agricultural land have up to now not been taken into account. Research has been undertaken into these other parts of the market, but never with the purpose of producing statistical information at the national level. The data on all transactions, including the sellers and buyers from outside the agricultural sector, do exist but were never used to produce new statistical information. For buyers and sellers from outside the agricultural sector it was always unclear who they were and what their professional interest in the particular parcel of land was. The influence of these buyers and sellers on the market of agricultural land remained unknown. DATA SOURCES AND METHODS Three main data sources with unique variables The research started with the construction of a land-transaction-database. The basis for this database was the transaction information from the Cadastre and Public Registers Agency. 2 The information on every single transaction is Tijdschrift voor Economische en Sociale Geografie 2002, Vol. 93, No. 5, pp Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden MA 02148, USA

2 SEGMENTING THE MARKET FOR AGRICULTURAL LAND IN THE NETHERLANDS 571 limited (Table 1). Therefore the Service for Land and Water management (DLG) enriches the different cases with local information. This is the point where different transactions used to be accepted or not (by DLG) to contribute to the summary of prices for agricultural land. Unlike before, in this research all transactions are accepted, but the extra information from DLG is also still available. A second important source is the Agricultural Census. The Agricultural Census is a survey conducted by the Ministry of Agriculture, Nature Conservation and Fisheries of all businesses in agriculture or horticulture. Questions in the survey cover crops, livestock, land and labour in the business, and characteristics of the farmland, the buildings and the farmer. To be included in the statistics of Statistics Netherlands, a minimum size of 3 Dutch size units (nge) of the business is required. 3 The same definition is used for classification as an agricultural or horticultural business in this research. The third important source of data is the National Information System of Employment (LISA). LISA brings together information on employment of all businesses at the address level, where there is an economic activity or Table 1. Data sources and main variables. Sellers Transaction Buyers Information on agricultural and horticultural businesses: Agricultural Census. Total area of different crops.. Total number of different sorts of animals.. Labour volume.. Characteristics of farmland.. Characteristics of buildings.. Characteristics of the entrepreneur. Information on other businesses: National Information System of Employment (LISA). Typology of activity of the enterprise (sbi 1993 code).. Labour volume full-time.. Labour volume part-time. Transaction information: Cadastre and Public Registers Agency. Transaction date. seller. buyer.. Total price of the transaction.. Area of the different parcels.. X and y co-ordinate of the different parcels.. Indication for presence of buildings in the transaction.. Claim on the parcel (full ownership, long lease, etc).. Transaction type (underhand sale, expropriation, etc). Enriched information by DLG:. Claim on the parcel (lease under the Agricultural Holdings Act).. Present land use of the parcel.. Indication for presence of milk quota in the transaction.. Typology of buyers and sellers.. Indication of whether buyers and sellers are relatives or not.. Indication of presence of buildings on the parcel.. Indication of more than one parcel in a transaction (more information).. Indication of transactions with more than one buyer.. Information on agricultural and horticultural businesses: Agricultural Census. Total area of different crops.. Total number of different sorts of animals.. Labour volume.. Characteristics of farmland.. Characteristics of buildings.. Characteristics of the entrepreneur. Information on other businesses: National Information System of Employment (LISA). Typology of activity of the enterprise (sbi 1993 code).. Labour volume full-time.. Labour volume part-time.

3 572 ARNO SEGEREN & JAN LUIJT profession at a permanent address entailing a minimum of 12 labour hours per week. All businesses are classified in the standard business typology (sbi 1993 code) of Statistics Netherlands (CBS). The agricultural and horticultural sector is not part of LISA, but as before, the addresses were taken from the Agricultural Census survey. Putting the different data sources together takes place on the sellers as well as on the buyers side of the transaction (Table 1). When combining data from different sources, it is necessary to have a unique variable for doing so. The combination of a 6-digit postal code and a house number is unique for all addresses in the Netherlands. Therefore it is very important that the complete address is included in all three different data sources. RESULTS FOR DIFFERENT SEGMENTS Agriculture and horticulture segment The agricultural sector is the largest land user in the Netherlands, accounting for 69% of the land area. The exchange of land ownership in rural areas is dominated by this largest land user (Table 2). About 55% of the total area transferred stays within the agricultural sector. The average price for farmland was 36,900 per hectare in 2000, which is almost 50% higher than in The horticultural sector paid an average of 69,000 per hectare, but the total area is much smaller, accounting for 4% of the transferred land. Prices above average are to be found in the West of the country, in areas with sandy soils in the Centre Figure 1. Land-price in agricultural and horticultural segment in guilders per hectare (2000). and in the South of the country, and in areas with clay soils in the relatively new polders around the big central lake, the IJsselmeer (Figure 1). The high prices in the West, Centre and South can be explained by the pressure on the land from other land-use functions such as housing, industry and transport. The quality of the land for agriculture and the relatively large size of the different parcels explain the Table 2. Total sales of land and land price in the green segments ( ) Green segment: Ha /ha Ha /ha Ha /ha ( 000s) ( 000s) ( 000s) Agriculture 55, , , Horticulture 3, , , DLG (nature development) 3, , , Forestry and nature 3, , , Mineral mining Recreation 1, , , Total green segments 67, , , All segments 98, , ,

4 SEGMENTING THE MARKET FOR AGRICULTURAL LAND IN THE NETHERLANDS 573 is big enough, the chance of being able to actually finance the purchase is higher, even if the price of the land (yearly interest payments) is higher than the yearly revenues of the land. As a result the largest and most intensive farm businesses pay the highest prices for land. The average size (in terms of area) of the agricultural land-buying businesses is 1.5 to 2.0 times the average size of all the businesses (depending on each farm type). Other green segments Transactions in the other green segments (Table 2) account for less than 10% of the total land transfers. The average price paid for forests and nature reserves is low ( 25,500 per hectare) compared to agricultural land, but the average price paid for land for new nature development is relatively high ( 41,000 per hectare) because DLG, which on behalf of the national government buys in order to complete the main Ecological Structure (EHS), has to buy land in the agricultural segment of the market. Figure 2. Total sales of land in agricultural segment in percentage of total agricultural land (average ). high prices in the new polders. The lowest prices are paid in the relatively remote North, but land changes ownership relatively frequently there (Figure 2). Exchanges in landownership are high in all areas with clay soils. The prices for the crops which are traditionally grown there have been low for some years and the bad economic future leads to farmers selling their land to farmers from other parts of the country. These other farmers come endowed with large budgets because of expropriation for other land-use functions. Dutch fiscal regulations mean that these farmers have to re-invest within the year. In this way the high prices spread along the map from the West and South to the Centre and North. The economic surplus generated on intensively used land (Figure 3) is greater than on extensively used land; therefore farmers pursuing more intensive practices can pay higher prices for agricultural or horticultural land (compare Figures 1 and 3). If the business Figure 3. Intensity of agricultural production in nge per hectare (2000).

5 574 The average price for land for recreation purposes is high ( 49,700 per hectare) compared to the average price for agricultural land. Recreation purposes account for just 1% of the market in land transfers and is concentrated in the densely populated West and South of the Netherlands. Therefore this average price is influenced by the higher prices in the West and South. Red segments The buyers in the red segments (Table 3) are businesses in different sectors (industry, utility services, building, trade, hotel and catering, transport and private trade services). It is not likely that the buyers are going to use the land for agriculture, nature development or recreation. They are called red segments because in most cases the land is bought for building, as is indicated by the high prices. For three of the groups of buyers ( unknown segments in Table 3) the future use of the land is not known. The first group simply invests in real estate. The government is the second group and plays a role in the development of both green and red functions. For buyers in the third group it was not possible to assign the transaction to a segment. The prices for the first two unknown segments suggest, however, that for most transactions the future land use is not a green one. ARNO SEGEREN & JAN LUIJT The average price for all red segments in 2000 has risen by 150% compared to The highest average price is paid by the building sector ( 246,300 per hectare). This is more than six times the average price for agricultural land. The difference with the average price paid in 1998 and 1999 is very large. This has a big influence on the average price in the red sector. Further analysis is necessary to find explanations for this large difference. APPLICATION OF THE RESULTS The transaction database produced by this research can be used for different purposes. Because every single transaction has an x y co-ordinate, it is possible to link the individual transactions to different geographical classifications in a geographical information system (GIS). In this way it is possible to research transfers in landownership and price development (also in time) as a result of the planning of new living areas, towns, roads, rail lines, etc. New developments in a given area, even if it is not exactly clear where and when these will take place, have an impact on the land market. People start selling their land at a price they think is good. Some will hold on to their land longer because they think the highest price is not nearly in sight or because they don t Table 3. Total sales of land and land price in the red segments and segments with unknown future use ( ) Red segment Ha /ha Ha /ha Ha /ha ( 000s) ( 000s) ( 000s) Industry Utility service Building 1, , , Trade 2, , , Hotel and catering Transport Private service 2, , , Total red segments 7, , , Unknown segments: Investment and trade in real estate 2, , , Government 10, , , Unknown 10, , , All segments 98, , ,

6 SEGMENTING THE MARKET FOR AGRICULTURAL LAND IN THE NETHERLANDS 575 approve of the development. In the case of nature development planning, this might mean that farmers start selling immediately after they realise that something is going to happen and that the future price is going to be lower. There are examples of groups of farmers who decide that they are going to stick together and don t sell at all, or start to buy all the land that comes on the market. A different example is the development of red functions. Here expropriation by the government is allowed in some cases. Different strategies are applied by different groups of buyers and sellers. Some of them might initiate legal actions to slow down the process of development and try to get more money if they sell voluntarily in return for ceasing legal actions. As indicated before, future research should seek to explain the reasons for the high prices in the building sector in Better knowledge of the market (past and present), the players on the market and their behaviour makes it possible to have a better view of the possibilities and consequences of changes in the land market for the process of development of green and red functions in the future. Notes 1. The information is taken from the LEI-report De grondmarkt in segmenten A single transaction from the notary may consist of different parcels but just one price. The basis for the land-transaction-database should, however, be the parcel-level and in those cases the price is proportionately divided to the area of the different parcels. 3. The nge is a standard calculated from the economic results of a farm business if that business would produce at an average efficiency for all the different crops and animals.