The factors influencing the profitability of leased land on dairy farms in Ireland. (June 2020) - Bradfield, Tracy
Highlights: The Republic of Ireland's land market is constrained by minimal sales each year, less than 1%. In an attempt to capitalise on milk quota abolition and to increase dairy production, tax incentives have been introduced to encourage land mobility and long-term leasing among farmers. This paper explores two aspects; (i) the factors that influence a farmer's decision to rent, or continue renting, land and (ii) the profitability of dairy farmers renting in land. An OLS regression model finds renting farms to generate higher dairy net margin (profit). A Heckman two step model is used to consider selection bias. Selection bias is present. Abstract: The Republic of Ireland possesses a land market that is constrained by minimal sales each year, less than 1%. In an effort to capitalise on milk quota abolition and to increase dairy production, a suite of tax incentives has recently been introduced in the Republic of Ireland to encourage land mobility and long-term leasing among Irish dairy farmers. Using Irish Farm Accountancy Database Network (FADN) data from 2011–2017 to examine this, a Heckman sample selection model explores two aspects; (i) the factors that influence a farmer's decision to rent, or continue renting, land and (ii) the profitability of dairy farmers renting in land. We find self-selection into the rental market is driven by farm traits that include a high level of hired labour, the presence of a successor, intensive farming practices and dairy discussion group membership. The results show that rental agreements assist farms in achieving economies of scale. The findings provide evidence to support government intervention such as tax incentives for renting out land and knowledge sharing discussion groups.