Illustration: Dana Hajek

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Land – coveted, limited, (un)affordable

By ANNE KOKENBRINK & DANA HAJEK, · the 18 of september, 2023

Purchase and lease prices for agricultural land are rising. At the same time, the available space in Germany is shrinking every day.

It has been declared Soil of the Year – and not without reason: Arable land is a precious and increasingly scarce commodity in Germany.

Arable land has a low protection status in this country. The land market in Germany is partly characterized by ruinous competition for arable and green space. The reasons for this are manifold: on the one hand, price competition is growing within agriculture, for example due to the centralization of farms, and on the other hand, more and more land is being withdrawn from agricultural use in order to serve other purposes. As a result, the available land is shrinking – which is also considered an attractive investment for non-agricultural investors with value stability and secure, albeit relatively low, returns. As a result, farmers have to raise considerable sums of money for lease or the purchase of land. It is not always possible to catch up with these through management.

At 50.5 percent, agriculture occupies the largest part of the area in Germany, but is slowly shrinking. From 1992 to 2021, agricultural land declined by 7.4 percent. Around 29.8 percent of Germany's area is covered by forests, and 2.3 percent by water bodies. The remaining area is used for residential areas, roads or industrial areas.

Around 70 percent of the agricultural land is arable land. The remaining part is grassland (29.8 percent). Grain grows on more than half of the arable land. Winter wheat is the most common, with a cultivation area of 2.9 million hectares, followed by silage maize, barley and rapeseed. Around 60 percent of the grain grown is used to feed livestock.

On average, a farmer today cultivates 63 hectares of land, of which he owns an average of about 40 percent. The remaining 60 percent are leased from other owners. While the number of farms has decreased, the average area per farm has increased. So far, little is known about the distribution of land ownership in Germany. However, most landowners are non-farmers, including former farmers or their heirs. There are differences, especially since some of the land is increasingly in the hands of the federal government, the state, the church, municipalities or companies. However, this can hardly be broken down more precisely, especially since the ownership structures vary extremely. Especially in the eastern German states, however, large limited liability companies and cooperatives are also included. The regional and other authorities, such as the federal, state, local authorities and churches, own an average of 10 percent, between 2 and 30 percent, depending on the municipality.

The map of Germany shows that companies own larger shares of land almost exclusively in the East German Fallgemeinden. This is associated with the much lower proportion of natural persons in these areas. The different agricultural structures in East and West are decisive for this.

In terms of regions, the soil utilisation and management company (BVVG) is of particular importance – although it is declining. The BVVG is part of the federal government and has the task of privatising agricultural and forestry land in the eastern German states. In the future, this will inevitably result in the transfer of BVVG land to other categories of ownership. In some sample municipalities, the BVVG owns 10 percent of the agricultural area, while in other regions it owns none.

In the case of companies in the legal form of legal entities, groups of companies can be observed, especially in eastern Germany, which identify themselves to the outside world as a unit and act similarly to a holding company, even if they are not a holding company in the true sense of the word. In addition, there are also groups of companies with land ownership that belong to an individual capital owner or his family, who also holds land ownership on a large scale as a person and has it managed by his agricultural companies. The economic power of such people can certainly shape the affected regions, they usually own a significant part of the area. In principle, the farms and agricultural areas in the east are historically considerably larger than those in the west.

In fact, few agricultural lands are traded, as most is either inherited or used for non-agricultural purposes. However, this is not reflected in the purchase prices. The same applies to changes of ownership of agricultural land, which take place in the context of share sales. In 2022, 0.86 percent of the total area was traded in eastern Germany and 0.34 percent in the west.

How expensive a hectare of land is, however, depends on soil quality, use or geographical location. High prices in Bavaria and North Rhine-Westphalia, for example, are due to the demand for construction, transport and compensation areas. Prices are lower in Brandenburg (13,000 euros), Saxony and Thuringia (13,400 euros each). According to economists, the price differences can also be explained by the productivity of the farms. For example, sales revenues per hectare are clearly ahead for farmers in North Rhine-Westphalia and Lower Saxony. In the East, prices also vary because of the different history of the establishments after the end of the GDR. This also includes the low starting level of prices. Individual regions in which, for example, the federal government, church or municipalities own a large part of the land may also deviate from the average.

Meanwhile, land prices are going through the roof. Since 2006, they have almost tripled on average in Germany. Whereas in 2006 it was still around 9000 euros for one hectare, in 2020 the price was a proud 26,800 euros.

Even though there are major differences between the federal states, the trend is clearly upwards everywhere. Some of the factors driving prices in the east are different from those in the south or north. One of the main reasons is that arable land cannot be increased and supply is becoming increasingly scarce. In order to protect farmers from uncontrolled loss of agricultural land, there is the Real Estate Transactions Act. Accordingly, any transfer of land requires official approval. If a person who does not carry out agricultural activity wants to buy agricultural land, the authority can prohibit this. However, this only applies if a farmer classified as "in urgent need of restocking" expresses interest in acquiring the land. The Federal Ministry of Agriculture has recognized the development and therefore wants to prevent sales of agricultural land and initiate legislative changes to prevent "price abuse". Whether and how agricultural land traffic should be more strongly regulated has been discussed at the federal-state level and in individual federal states for about ten years.

Similar to purchase prices, lease prices in Germany have more than doubled since 2007. This is mainly due to the decline in agricultural land, technological advances and the centralisation of farms. This leads to more competition – according to the motto "grow or soften". For example, livestock farms need more space for more animals. Likewise, public landlords or private heirs can drive up prices. In 2020, the average lease price was €329 per hectare, with arable land at €375 and permanent grassland at €198. Compared to 2010, this is an average increase of 62 percent.

In Germany, 58 hectares of land are lost every day. That's the equivalent of 81 soccer fields. While agricultural land is shrinking, land is increasingly being used for settlements, businesses or infrastructure. Competition is also intensified by the energy transition – solar and wind farms need to gain ground. A decline in prices is therefore not to be expected.

The German government wants to reduce land consumption to 2030 hectares per day by 30. "We have to stop thoughtlessly consuming soils with high yield security," said the board of trustees "Soil of the Year". The challenge of making sustainable use of the increasingly scarce resource of soil will therefore continue to occupy Germany.

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