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Table 8:

land use and percentage shares)

Land sales market in the Federal State Bavaria 1999-2006

Table 9:

Table 10: Average rental price of new rented land and share of rented land in South East Upper Bavaria

Table 11: Number of farms in different size classes in the former district of Weser Ems (total number and respectively used UAA)

Table 12: Type of farming in the former district of Weser Ems (number of farms, land use and percentage shares)

Table 13: Land sales market in the Lower Saxony 2000-2006

Table 14: Average rental price of new rented land, share of rented land and growth rate in Weser Ems

Table 15: Number of farms, land use and livestock density according to type of farming

Table 16: Rental prices and share of rented land in Saxony

Lioudmila Möller et al.

–  –  –


The study produced the following key findings:

• Implementation of the SPS With regard to the methods of implementing CAP reform, Germany has opted for the full decoupling of income payments by means of a regionalised dynamic hybrid model. This model combines two ways of distributing direct payments: (1) according to the historical model and (2) according to the regional model. Further, a dynamic hybrid model implies a stepwise transition from the historical decoupling scheme, starting in 2009, to single area payments by the end of 2013.

The political reasoning for this option is that it provides a new direct payment scheme, which:

- Is a comparably simple system;

- Fosters regions with a high share of permanent pasture and extensive land management;

- Is socially maintainable (BMVEL, 2005).

This model is also designed to prevent a high redistribution of payments during the initial stages of reform, thereby encouraging farmers to adjust their production to market demands, as well as to promote more sustainable farming practices. A stepwise transformation to a pure regional model also avoids overstraining the farmers’ adaptiveness.

• Land market developments The land sales market has remained relatively stable over the last 5 years. The total amount of land sold at market value annually has remained almost unchanged since 2005. Although land prices have been relatively constant on the aggregate level, in East Germany they increased slightly, while in the western regions they have edged down.

In East Germany, the originally high share of rented land is steadily decreasing. When the economic situation allows, purchasing land is considered a reasonable option to renting land.

On the other hand, there is also pressure on farms to buy land, which is caused mostly by (a) the ongoing privatisation of land managed by the state trust holding BVVG (Bodenverwertungsund -verwaltungs GmbH), and (b) the selling of land by owners or heirs who are not active farmers.

Despite this development, the rental market (over 60 % nationwide and over 80 % in Eastern Germany) continues to play a key role on the German land market. The ongoing discrepancy between rental prices in Western and Eastern Germany are in part due to the differing farm structures. While farms in East Germany face high opportunity costs for the used factors, this is often not the case for family farms in West Germany. Unused labour capacity, high self-financing shares (which ease access to credit capital) and the high stocking densities determine the high rental prices in West Germany.

• Drivers of land values An important determinant of the current land value is the steadily increasing competition for agricultural land areas, which in turn is correlated with increasing worldwide demand for food and energy.

Competition on land markets is especially high in areas with high stocking densities, like in some West German regions. As the stocking densities are very low in Eastern Germany, compliance with the Nitrates Directive is not an issue there. Frequently, intensive animal production is accompanied with the production of bio-energy, e.g. biogas. Accordingly, the impact of advanced bio-energy production on land rental prices was assessed by experts as being strong in West Germany, but very small in East Germany.

Lioudmila Möller et al.

Regarding other factors, such as infrastructural expansion and urban pressure (caused by population growth) it is not possible to draw a conclusion on the aggregate level, as these factors are very region-specific. Generally, in regions with a high population density and good economic conditions, the impact on sales prices is higher. This is especially the case for regions in Western Germany.

The impact of the current tax policy, interest rate and inflation were assessed as being both high and unchanged in recent years. This means that the SPS implementation did not intensify their impact on land value. The same conclusion was reached with regard to the impact of market regulation, rural development policies and informal institutions. All respondents stated that the change in the impact of the abovementioned land value drivers in the last 5 years – i.e., since adopting the reform – is not discernible at the moment.

In East Germany, the current dynamics on the sales and rental market are still largely influenced by the active role of the BVVG. For example, on 1st January 2007 BVVG changed the procedures by which they award land. This means that expiring rental contracts cannot be renewed; instead, the land is awarded for sale or with exception, for rental by public announcements. Experts believe this practise raises prices. Moreover, it creates an additional incentive for farms to buy land.

Regarding the effect of the introduction of SPS on land values, the effect is estimated as being low.

As there is a shortage of eligible area in relation to premium entitlements, land values should remain constant in relation to the market values for premium entitlements. In line with this argumentation, and due to the introduction of entitlements for natural grassland, an increase of rental prices for grassland could be observed in 2007.

• Distribution of entitlements and trade The average nominal value of entitlements for all regions is €335 in 2007. However, there is a large deviation between farms, ranging from €75 in Saxony-Anhalt to €180 in Rhineland Palatine. Significant differences were observed in regions with pastoral animals due to the impact of farm specific top-ups. Regarding the trade of entitlements, analysis shows that after

1.5 years (July 2007) 7.9 % of all entitlements were sold and 4.9 % were rented. At present, there is a slight excess supply of premium entitlements. Approximately 1 % of entitlements have not been activated. This results in a market value for entitlements which is far below its net present value. Market values of entitlements exceed their face values by 10-80 %. The average market value is estimated at €425 for the period of analysis. Remarkably, no reallocation of set aside entitlements within regions could be observed. This is because of (1) fixed trading regions and (2) the possibility of using set-aside area for non-food production.

• Effects on structural changes The conclusions that can be drawn at the moment are that the implementation of the SPS has no or no significant impact on arable farming, cattle and dairy production, and only a slight negative effect on sheep production. Nevertheless, it is estimated that with the beginning of transformation to the regional model, the SPS will entail stronger negative impacts, especially on cattle and dairy production (assuming that the corresponding farms operate with a low share of natural grassland).

Regarding the distributional effects of SPS, only in regions with extensively used natural grassland do farmers benefit from decoupled payments. Conversely, decoupled payments are rather disadvantageous for regions with intensive dairy or cattle production with a low share of natural grassland.

As payments are still linked to land, it seems that the capitalisation of payments into land rents did not decrease due to the reform, and as a consequence entry/exit barriers are still high.

Regarding organisational forms, since 2005 a significant increase in the number of part-time farms was observed. It is likely that small businesses or hobby farms which did not apply for Impact of the introduction of decoupled payments on functioning of the German land market 13 CAP payments before the introduction of SPS are starting to operate as part-time farms in order to become eligible for SFP.

• Effects of changes in SFP on land values At present, land prices and rents are positively responsive to income payments, both coupled and decoupled. Based on the statistical trends, it can be concluded that land value, in terms of land sales prices and land rents, is not affected by changes in SFP.

Expert surveys confirmed that decoupled income payments are positively correlated with land value, but their isolated contribution to the increase is estimated to be essential at the moment.

However, experts also emphasised that the impact of changes in SFP could be neither isolated nor estimated at the moment.

Lioudmila Möller et al.


The key aspect of the agricultural reform of 2003, the implementation of which began in 2005, is the decoupling of farmers’ direct payments from production. The reform is designed to encourage farmers to adjust their production to market needs and to promote more sustainable farming practices. Decoupled payments are no longer contingent on cultivating a particular agricultural product, or its amount, but they still remain linked to actual agricultural activity on eligible land and to compliance with additional environmental requirements.

Against the background of the reform of the Common Agricultural Policy (CAP) the following analysis, brings into focus the responses of the agricultural sector to decoupled subsidies. In particular it addresses the impact of the Single Payment Scheme (SPS) on land sales and rent prices and therefore on farm structure. It also aims to assess the extent to which the reform advances sound and sustainable agriculture and provides incentives for market-orientated farming practices. The study is based on expert surveys conducted in three selected regions.

The study is structured as follows. It begins with the executive summary of obtained results.

The second section then provides an introduction into German agricultural sector and its current situation. Afterwards, in the third section, methodology and data sources are explained. In the following section, drivers of land value, distribution of direct payment, trade with entitlements, specifics of the East German land market, effects of decoupled payments on structural change, are analysed and discussed. Finally, conclusions on the midterm impact assessment of decoupled payments on the German land market are drawn. The three regional case studies are attached to the report.


2.1 Structure of economy Germany’s agricultural output is one of the biggest in the European Union. In 2007, nearly 17 million ha land were used as agricultural area (47.6 % of the total surface). 1.3 million people were employed in agriculture (including forestry). The share of agricultural labor in total employment declined from 3.4 % in 1992 to 2.2 % in 2004. In the last 17 years, the number of employees in agricultural sector fell by 32 % (-67 % in the former federal Republic and -33 % in the New Laender). These trends correspond with the trend of the share of agricultural output in GDP. In 2007, agricultural sector contributed 1 % of German GDP. The GDP per capita at current prices is estimated at €29,500 in 2007, an increase of 4.6 % compared to 2006. Overall economic growth declined by 0.4 % in the last year (2006-2007).

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