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Land stewardship policies: Lease contract reform

Land ownership in Belgium is different then in most other European countries. Farms smaller than 10 ha, in general, 60% of their land under ownership by the farmer, whereas this is limited to 30% in farms larger than 80 ha. Access to land thus is very much determined by the official lease contract that has barely changed since its creation in 1969. It gives existing farmers a strong guarantee for the access to their land as long as the land owner does not sell the land. In this case the farmer using the land has a pre-emption right to buy which he can use as long as he offers as much as the highest price being proposed to the seller. If the buyer is a farmer, he has the right to cultivate the newly bought land. The lease contract law also determines a maximum rent price protecting the farmer.

Lease contract reform from the farmers’ stance

Though the current law has many merits from the point of view of the farmer, it also has some counterproductive consequences. For instance, different motives encourage farmers to maintain their lease contracts even if they have stopped cultivating the land themselves. Land rental prices are low and land incomes through direct aid from the EU common agricultural policies are high. The importance of the latter becomes clear when one considers that in 2012 on average 83% of agricultural revenue came from direct aid. The result is that farmers are willing to pay large, non declared sums of money to get a lease contract from other farmers. This so-called “chapeau” makes lease contract transfers extremely difficult to monitor. As these practices are mostly only known to insiders, those who are external, such as new entrants, find this a major obstacle in their quest for access to land.

Lease contract reform from the land owners’ stance

From the point of view of many land owners the current lease contract law has become an important obstacle as well. Land rental prices are disconnected from land sale prices. Of course, one may correctly argue that land prices are totally disconnected from the real farming economy. For land owners it is extremely difficult to put an end to lease contracts, causing land value of occupied land under lease contract to be much lower than unoccupied land. The current law also does not allow owners to put certain limits on the use of their land. For instance they cannot prohibit farmers from using pesticides, herbicides and other chemicals. These facts have led land owners to stop using conventional lease contracts. This is a perverse consequence of the current situation. The rigidity of the current lease contract law finally leads farmers to obtain less secure kinds of contracts such as free contracts or seasonal contracts that can be stopped at any time. These contracts allow owners to sell their land at any given moment and receive the highest price for it.

These and other trends caused the Walloon and Flemish government to review the land lease law under the 6th state reform. In 2015 the Walloon government also published a new agricultural code that articulates the intention to create a land observatory to monitor land ownership distribution, a land bank that will be able to manage public land and may acquire land allowing farmers to look for the needed funds to buy it back from the state.

Land tenure policies: lack of framework

So far we have looked at access to land by renting land. Another option to gain access to land is buying it. However, land prices in Belgium are extremely high. Depending on different endogenous and exogenous factors, average land prices vary between 25.000 and 50.000 € per hectare. The average prices vary much according to its proximity to cities, the quality of the land, etc. Thus pasture land and arable land may have very different prices. In addition many other factors such as land fertility, land use conversions, the scarcity of land in a highly populated country, CAP direct aid payments are a major cause of these extreme prices. More than any other European country Belgium displays a very strong correlation between the quantity of direct aid rights and the number of hectares used for farming (0.94). As different studies have pointed out this results in a higher impact of CAP direct aid on land prices.

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