Land markets and regulations in Europe Presentation prepared for the Meeting regarding the exchange of views on the access and use of farmland 7 February 2017 Prof. Dr. Ir. Liesbet Vranken Department of Earth and Environmental Sciences KU Leuven, Belgium Based on joint work with Kristine Van Herck and Jo Swinnen (Swinnen, J., Van Herck, K. and L. Vranken, 2016, “The diversity of land markets and regulations in Europe, and (some of) Its causes”, The Journal of Development Studies, 52 (2), 186-205 )

Land Ownership and Use Land Sales and Rental markets For a long time, land policy recommendations focused on land ownership and land sales However, both sales and rental markets have benefits and problems Sales (a) transfer full rights to the new user; (b) increase access to credit, as owned land can be used for collateral; and (c) increase investment by providing permanent security of rights Rental: (a) more flexible adjustments; (b) require only a limited capital outlay, more liquidity available for productive investments rather than locking it all up in land; (c) easy reallocation of land towards more efficient users than the current owners; and (d) to provide a stepping stone towards land ownership by the landless

Land Ownership and Use Land Sales and Rental markets For a long time, land policy recommendations focused on land ownership and land sales However, both sales and rental markets have benefits and problems Land renting is fully consistent with modern agricultural practices and is widespread in developed market economies Many modern farms opt for a mix of ownership and rental

Land Markets Large differences in the nature of land markets both over time and across countries

Land Markets Large differences in the nature of land markets both over time and across countries Differences are not correlated with geographic location or large geo-institutional history (e.g. West – East; Old – New)

Land Regulations Large differences in regulations for land exchanges Several categories of land market regulations can be identified Measures to protect the tenant Measures to protect the owner-cultivator Mearsures to protect the non-farm owner Prevent fragmentation of agricultural land

Explanations/Hypotheses for institutional differences- WE Different strategies to Provide Tenure Security in Western Europe Improve rental conditions through regulations e.g. France, Netherlands, Belgium Help tenant to become owners e.g. Ireland and Denmark

Consequences of Land Policies for Farmers’ Access to Land in WE For long time: very effective in ensuring access to land Now: Perverse effects of strong tenancy regulations in Western Europe In the Netherlands: land rental has fallen from more than 60% in 1950s to around 25% today In Belgium: decline in UAA, increasing horsification and gardenification of agricultural land  Owners are more reluctant to rent out land, farmers have difficulties to access land through rental

Consequences of Land Policies for Farmers’ Access to Land in WE For long time: Very effective in ensuring access to land Now: Perverse effects of strong tenancy regulations in Western Europe. Socio-economic conditions and power relations changed More empowered farmers: literate, educated, farmer unions Share of agriculture in employment High demand for other non-agricultural services from land. Land owners weight benefits from non-agricultural services with benefits from renting

Explanations/Hypotheses for institutional differences- CEE The Legacy of the Communist and Post-Communist Reforms in Eastern Europe Differences in privatization and land reform choices Differences in technology and initial conditions Differences in the role of agriculture in employment and the economy Different Patterns in Land Market Developments

Explanations/Hypotheses The Legacy of the Communist and Post-Communist Reforms in Eastern Europe Different Patterns of Land Market Developments

Consequences for Farmers’ Access to Land - CEE In CEE, small land owners and highly fragmented land ownership Land concentration through rental allows to increase efficiency and equity Rental provides access to land to those who are productive but own little or no land Rental markets reduce inequality of access to land by transferring land from households with high land endowments to those with low land endowments. Older and less educated households can rent out land for additional income Rental requires only a limited capital outlay, thereby leaving more liquidity available for productive investments rather than locking it all up in land;

Consequences for Farmers’ Access to Land - CEE In CEE, small land owners and highly fragmented land ownership  Land use concentration through rental allows to increase efficiency and equity However, where corporate farms strongly dominate the land rental market, the positive equity and efficiency effects of land rental can be very different. e.g. they pay lower rental prices, have longer rental contracts – thus locking in land, use power to influence policies that shift effective land property rights in their favour, have lower productivity

Consequences for Land Use, Farmers’ Access to Land and Environment In new EU Member Sates, a high share of land used by corporate farms and extreme land use consolidation is observed if High fragmentation of land ownership Land markets are characterized by high transaction costs due to Imperfect competition Property right imperfections (unknown ownership, co-ownership) High withdrawal cost

Conclusions & Discussion Large variations in the nature of land markets Large variations in the regulation of land exchanges Remarkable institutional diversity in countries with similar economic development, geographical proximity and with integrated economies One should not only focus on land ownership and sales. Modern agricultural system can thrive in a land tenure system when a large part of the land is used by farmers who do not own the land. Security of operation can be secured through tenancy regulations

Conclusions & Discussion Power balance and tenure security is very different in environments where small tenants are renting from large landlords than where large farms are renting thousands of hectares from families, each renting out small plots of land  Impact of regulations will be different  It is difficult to apply the experience from Western Europe or other regions of the world to Central and Eastern Europe where small land owners are renting out to corporate farms

Conclusions & Discussion However, some general principles apply Secure property rights is a condition for the efficient operation of both land sales and land rental markets Reducing transaction costs, enhancing transparency and access to information will stimulate the development land rental markets

Conclusions & Discussion Regarding restrictions/concerns on foreign ownership (cfr derogations in NMS after EU accession): good combination of liberalisation and regulation may address both political sensitivities and allow much of the economic benefits (e.g. injection of capital, technological change, …) to occur. E.g. example by imposing maximal ownership by foreigners and allowing secure rental agreements

Thank you for your attention. Questions?

References Swinnen, J., Van Herck, K. and L. Vranken, 2016, “The diversity of land markets and regulations in Europe, and (some of) Its causes”, The Journal of Development Studies, 52 (2), 186-205