Report on New Farming Starter Opportunities on Publicly Owned Land

2. Background

2.1 There has been much discussion and debate about the barriers to New Entrants to Scottish farming. New Entrants are recognised to be vital for the future of any industry as they drive innovation and best practice, improve efficiencies and contribute towards the economic vitality of the sector. However, evidence provides that Scottish farmers are getting older and that trend shows no sign of reversing.

2.2 Data from the June 2015 Agricultural Census, showed around 9% of farm occupiers are 40 and under. Returns confirm that 28% are between 40 and 54 and 27% between 55 and 64. Crucially, the 65 and over category has increased over recent years to 37%.

2.3 Studies into the barriers to New Entrants include the 2007 investigation by Scotland's Tenant Farming Forum ( TFF) and then two years later Lantra conducted a survey of Young Farmers Clubs in England and Wales. On each occasion, access to land figured most prominently.

2.4 A pilot programme, "Exchange Programmes for Young Farmers", financed by the EU in 2015 to provide a comprehensive assessment of the specific needs of young farmers across the EU also showed that young farmers in the UK perceive the availability of land, credit, subsidies and useful training as more problematic than other young farmers in the EU.

2.5 These findings concur with our own understanding that along with sourcing capital and cash, accessing land is the main barrier to joining the farming sector. However, both land for purchase and rent are relatively scarce in Scotland and demand continues to outstrip supply. This demand means that land values and rents remain out of line with potential agricultural returns, with outside money and established farming businesses being able to outbid New Entrants for any available opportunities.

2.6 It is estimated that the average age of a Scottish farmer is 58. In a significant number of instances there is no successor in place. A survey ^[1] has previously found this could be the case on a quarter of all farms. This is frequently due to children choosing alternative careers due to the farm being unable to sustain additional family members or potential income being comparatively poor.

2.7 Taxation rules may be a barrier to New Entrants. Under existing Inheritance Tax Rules, no tax is charged on lifetime gifts to individuals (e.g. a father transferring to his son) but should the donor die within seven years of making the gift then the transfer is taxed (on a decreasing scale) on the value of the farm at transfer. But if the transfer is made after death, then it may qualify for 100% relief. This dissuades farmers from passing on assets to the next generation.

2.8 Very often economies of scale mean existing farming businesses, with security and assets, attain additional land to spread fixed costs and increase returns. The splitting of farms in commuting distance of major urban centres has also become common practice as sellers try and maximise their overall sale value. This has meant that many farms have become fragmented to capture the residential value of farmhouses and cottages and the development value of traditional steadings from lifestyle purchasers and developers.

2.9 We are also aware of the argument that the Common Agricultural Policy's Basic Payment model distorts the market. There is a perception that such subsidy supports rents and capital values and provides, what can appear to be a pension for occupying land, often maintaining businesses that are economically unviable to the detriment of the sector's overall capacity for innovation and efficiency.

2.10 Equally, we know that fiscal measures have a major bearing on the Scottish land market. Being classed as an active farmer gives a range of tax benefits, both in terms of allowable costs for income tax and relief on inheritance and capital gains taxes. This can make letting a poor option for many landowners.

2.11 All of this means that land values are particularly prohibitive to new, especially young, entrants to farming and for those trying to enter farming, therefore, often the only option of getting access to land is to rent it on a seasonal basis from other farmers. While this allows the business to be established with relatively low cost and for livestock to be built up, there are draw backs to this system in terms of security and infrastructure. The licences that are drawn up for seasonal land are by their very nature for periods of less than one year, making it very difficult for a new business to plan ahead.

2.12 While there have been private landowners offering starter units, only the FES Starter Farm Programme has in recent years consistently offered potential New Entrants with a direct route into farming through longer term fixed tenancies. Under the initiative, there is no strict definition as to the size and type of starter farm as this is dependent on the resources available. However, the farms are usually in the region of 60-70 hectares, have suitable fixed equipment and infrastructure and are let on a 10 year Long Duration Tenancy. The basic remit is to provide a business opportunity to a new entrant that will, typically, generate a part-time income for the farming family.

2.13 It is noted that 10 units have been created to date (9 by FES and 1 by SG) and that development of starter farms can cost in excess of £200,000 per unit. This is due to the need to bring houses and steading up to a suitable letting standard and meet the cost of upgrading, often run down, fencing.