Tenanted agricultural land in Scotland 2016-2017

3. Rents

3.1 Background

Rental values for agricultural land will differ depending on a range of variables.

• The agricultural quality of land varies widely across Scotland, as recognised by the LFA status applied to much of the land. However, within LFA and non- LFA there will be a wide variation.
• The topology of the land, the remoteness, and the weather are other geographic determinants of a likely rent.
• Other variables to be considered would be the facilities included in the rent, such as farm-buildings and equipment, and the amount of land rented.
• Prices are also likely to be linked to the availability of rented land.
• The average rent will also change if the profile of rented land changes. So, for example, if new rental arrangements are made under more expensive short-term tenancies, the overall average rent will go up, even if actual rental values stayed constant.

It is therefore important to look at the range of rents paid for a given category, rather than just concentrating on an average rate, acknowledging that they cover the variation due to a range of factors.

3.2 Rents paid - methodology

The data on rents paid for tenancies (including crofts) were collected as part of the December Survey of Agriculture. This survey went to about 14,700 holdings, including 4,429 identified as having non-seasonal rented-in land. The response rate for the non-seasonal rental value questions (1,921 returns, or 43 per cent) was lower than the overall response rate (69 per cent). 1,548 holdings returned information on seasonal lets.

Charts 2 to 4 show the range in rents per hectare, by region, farm-type and tenancy type. Please note the following:

• The rent per hectare value relates to the rates for separate arrangements, not the average rent paid on a holding (which may be made up of several different tenancies). In these charts the rent per hectare for a tenancy covering a large area of land is treated equally to one covering a small area.
• Rents reported as 'in kind' have been excluded from the analysis as we cannot know the value of this payment. About seven per cent of arrangements were reported as being paid 'in kind' and a further two per cent included both monetary and 'in kind'. Eleven per cent of seasonal lets included 'in kind' payments.
• Rents reported as zero have been included in the analysis.
• Seasonal lets are excluded, other than in chart 4 where they are shown in separate categories.
• The charts do not show the highest and lowest values, but start ten per cent of the way through and end at 90 per cent. So ten per cent of rents are higher than the top of the bar and ten per cent are lower than the bottom of the bar. Then there are lines at the quarter-points (between which half of rents are to be found), and the dark area in the middle is around the median value.

The regions, farm-types and tenancy-types are ordered with the lowest median value to the left going to the highest on the right. The farm-types used are based on the Scottish Government's farm-type categories. Due to the small number of pig and poultry holdings, it has been necessary to combine these.

In interpreting the charts it is important to remember that other variables, perhaps not included in the analysis, will be influencing the range of values reported, in some categories more than others.

3.3 Rents paid - findings

Chart 2 shows the range of rents paid in different sub-regions (see table 1 for the make-up of geographies), with the North West region reporting the lowest rents. The number of returns in some areas are quite small but they suggest that Shetland and Na h-Eileanan Siar have the lowest rates, even after crofts are excluded from the analysis, explained by their remoteness and quality of land. Highland showed a wider spread of values. Orkney showed much higher rents than elsewhere in the North West region, more in line with those in the North East and South West, reflecting the fact that location alone does not drive prices, Orkney sustaining strong cattle and cereal sectors.

The South West contained the next lowest group of rents, although with rents in Argyll & Bute being more in line with those in the North West.

Rents in the North East and South East were then generally higher, with Fife and Lothian having the highest rents, with 75 per cent of those sampled paying over £74 per hectare.

Chart 2: Range of rents paid per hectare, by sub-region, 2016/17

Bars show 90 per cent, upper quartile, median, lower quartile and 10 per cent values. The figure below the label shows approximate number of leases for which data were returned. Excludes crofts and seasonal lets. source: Table 3

Chart 3, on the same scale as chart 2 for comparability, also excluding crofts and seasonal lets, shows the rents paid by farm-type ^{[ 1]}.

Farm-type is, to a certain extent, determined by the quality of land, and so it would be understandable if some differences appeared between categories in this chart. However, there is little difference between farm types, with the exception of LFA cattle & sheep farms showing predictably lower rents, and the rents for pigs & poultry and horticulture extending much higher. The larger values of rent per hectare in these latter categories generally relate to rents of a few thousand pounds for quite small areas, presumably with sheds and glasshouses.

Chart 3: Range of rents paid per hectare, by farm-type, excluding crofts and seasonal lets, 2016/17

Bars show 90 per cent, upper quartile, median, lower quartile and 10 per cent values. The figure below the label shows approximate number of leases for which data were returned. source: Table 3

Chart 4, on the same scale as charts 2 and 3 for comparability, shows the range of rents by type of tenancy, with seasonal lets split between LFA and non- LFA and whether on a recurring location, and traditional 91 Act tenancies split by LFA and non- LFA. The chart shows the low rents on crofts and the few returns from Small Landholders Act ( SLA) tenancies. This was followed by 91 Act tenancies on LFA land. There is little difference in the rates between the two longer fixed-term arrangements, and then again little difference in the median value of SLDTs, seasonal lets on a recurring location. This was followed by 91 Act tenancies on non- LFA land, where there was much less variation, and then greater variation in the other seasonal lets, particularly the seasonal non- LFA land on a new location.

Chart 4: Range of rents paid per hectare, by tenancy-type, 2016/17

Bars show 90 per cent, upper quartile, median, lower quartile and 10 per cent values. The figure below the label shows approximate number of returns. source: Table 3

3.4 Rents paid - overall average per hectare

As detailed in section 3.2, in the above analyses, rent per hectare for a tenancy covering a large area of land is treated equally to one covering a small area, and results from different farm-types are not weighted to make data for each farm-type representative of their size in the industry.

However, in order to estimate the overall cost of rent for the estimate of Total Income from Farming, the data have been weighted accordingly to produce a total rent figure. This results in an estimated overall average (including crofts but excluding seasonal lets and rents paid in kind) of £40 per hectare, £27 per hectare for LFA and £137 for non- LFA, with a figure of £53 million for the total amount of rent paid.

3.5 Historical trend

Chart 5 shows the trend in estimated average rent per hectare from 1998 to 2016.

In estimating the average rent per hectare, survey data have been weighted-up so that, for example, the importance given in the calculation to the rent of LFA cereal holdings is in proportion to the actual area of tenancies on LFA cereal holdings in the census. This means that the calculation would not be affected by having too few or too many of a certain type of farm in our survey responses. However, due to the comparatively high non-response rate for this question, there are still some strata where values are based on best estimates.

The chart shows that

• between 1998 and 2008 there was very little change in the overall average rent paid per hectare, and hence a reduction in real terms, once inflation is taken into account.
• since 2008 there has been an above-inflation increase in rent (47 per cent or 30 per cent after accounting for inflation), particularly on LFA land which has risen 62 per cent (44 per cent in real terms).

These result in rents currently been at a similar level to 1998, once inflation is taken into account.

Chart 5: Average rent per hectare, 1998 to 2016 source: Table 2

In recent years there have been a reduction in the area of land rented under cheaper, long-term rental arrangements, and an increase in shorter-term limited duration tenancies. These arrangements are often more expensive, and this has driven up the overall average cost of renting. It should also be noted that most rents are not reviewed each year; for example, 1991 Act tenancies can be reviewed no more than every three years. Hence the overall average increase comprises those with no increase this year and those with increases above four per cent.