Tenant Farming

George Eustice Excerpts

Tuesday 10th May 2016 Westminster Hall

[The Minister of State, Department for Environment, Food and Rural Affairs (George Eustice)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Wealden (Nusrat Ghani) on securing this important debate. It is an issue that I have followed closely as Farming Minister over the past two and a half years. She is absolutely right: tenant farmers have a vital role to play in our countryside. Roughly one third of farms and one third of the land we have is tenanted. Farm tenancies are a vital route for new entrants coming into the industry. They help existing businesses expand and take on new land, and they are essential because the prohibitively high capital cost of land is a real bar and obstacle to new people entering the industry.

Every industry needs new talent, fresh thinking and new ways of doing things. Farming is no exception. In our 25-year food and farming plan, we will consider how to encourage alternative models of doing business in farming so that we do not think just about landowners, owner-occupiers and tenant farmers, but look at ways of expanding some of the contract farming models that have been very successful. Perhaps farmers could progress to share farming models where they have a stake in a business and earn in the business before taking on their own tenancy and perhaps even buying land at the end.

I come back to the crucial farm business tenancies. It is important to remember why they were introduced. The deregulatory measure was taken in 1995 because there was real concern that, as my hon. Friend the hon. Member for Eddisbury (Antoinette Sandbach) said, not enough land was coming to the market and that was restrictive and acting as a barrier. The burdens and obligations in the Agricultural Holdings Act 1986 prevented land from coming to the market but, generally speaking, the Agricultural Tenancy Act 1995 was judged a success. Between 1996 and 2003, 35,000 acres a year came on to the market. That has stabilised since and things have not changed as much, but it was undoubtedly successful in deregulating and bringing more land to the market, creating more opportunities.

However, I am aware that the Tenants Farmers Association and others have expressed concerns about the average length of some tenancies. Currently, they are around three and a half years. A couple of years ago they were around three years and have gone up slightly. As my hon. Friend the Member for Wealden pointed out, the challenge of having such short-term tenancies is clear. If someone has tenure of the land for only three years, they do not have the incentive to invest in that land.

I worked in the farming industry for 10 years and grew up on a farm. I know that if someone takes on a piece of land that has not been farmed adequately or properly for a period of years, it can take four or five years to turn it around and get the land back to its full potential by investing and putting on farmyard manure, and adding fertilisers, sand or lime to bring the soil to its full productive potential. That takes time and if someone is there for only three and a half years it can fuel short-termism, which is not good for the quality of our soils. We should be concerned about soil in agriculture because it is at the heart of everything we do and we must protect it.

We are interested in finding ways to incentivise longer term tenancies without losing the benefits of flexibility in farm business tenancies. I have had numerous discussions with agricultural lawyers and land agents, and with representatives from the Tenant Farmers Association and the Country Land and Business Association. The last two do not always see eye to eye on this issue, frankly. I recently met representatives from a selection of county farms around the country. I share the concern expressed by the shadow Minister about the potential loss of some county farms. About a month ago, we had an interesting session with representatives to discuss how to refresh that model in a way that recognises some of the pressures on local authorities.

The Government have no fixed view on the need for change to legislation or otherwise. Many of the issues raised by my hon. Friend the Member for Wealden are for the Treasury and she might want to have conversations with Treasury Ministers. The area is complex and I am mindful of the points raised by my hon. Friend the Member for Eddisbury that we must be careful when making changes that we do not create unintended consequences. Having caveated what I am going to say with those crucial points, I want to explain the context and texture of my discussions with some of the leading experts in the field and some of the ideas that we could consider.

The first thing to recognise is that although the average length of a farm business tenancy is three and a half years, there is a big division between bare land, which people rent for a short-term crop—perhaps potatoes —for a couple of years and a farm that has a farmstead, a yard and a house where people live. The average length of a tenancy of a farm with a farmstead is more than eight years, which is much closer to the 10 years that the Tenant Farmers Association is calling for.

The other thing to bear in mind is that short-term lets are important for some business models. Even in my part of the world—Cornwall—businesses often specialise in particular areas. Some may specialise in brassica crops—cauliflowers and cabbages—which can be grown on the land for only two to three years before a new rotation must come in. Often, a potato grower will follow for a period and a daffodil grower will follow that. Finally, when the land has been hammered for a few years of intensive cropping, a cattle farmer comes in and puts it into grazing for the best part of a decade. That model can work and can suit some farm enterprises.

I have had discussions with the Tenant Farmers Association about agricultural property relief. I subsequently had discussions with Treasury officials about the TFA’s proposal and I helped to facilitate a meeting between George Dunn, its chief executive, and Treasury officials to discuss his ideas further. The officials told me they will consider these ideas and feed back their thoughts to me. I am still awaiting that feedback. They have obviously been busy with the Budget recently, but I look forward to having their feedback about whether it is a good thing or not because it is a policy area for them. There is a danger that such a measure could restrict the market and that less land could come to the market for the agribusinesses that value flexibility.

A second matter raised was stamp duty land tax. Tenant farmers and landowners agree that they would like changes. Again, this is an issue for the Treasury, but the challenge is that the longer the term of the tenancy, the higher its value and the more likely it is to trip over the threshold for SDLT.

I have received proposals about considering the law on rules of forfeiture of farm business tenancies. At the moment, if there is a breach of a covenant, the only option open to the landlord is to go for full forfeiture, which is quite a high hurdle to clear in a court. That makes landlords nervous about longer-term tenancies and makes them more likely to go for a shorter term tenancy because there is less risk. One suggestion is that we may be able to borrow some of the other remedies and tenancies in the Agricultural Holdings Act 1986 and have options and measures that fall short of full forfeiture—for example, an enforcement notice to get a covenant in a tenancy abided by.

I have received some suggestions about borrowing elements of commercial property tenancies with a right to renew, which would stop short of longer term tenancies but might create some sort of soft presumption that someone who has been a good tenant for a three-year term should have priority to renew that tenancy—a right to renew rather than being held to ransom for a higher rent. Again, that is an interesting idea that I am keen to consider, although I have heard mixed opinions about how significant a change that would be and whether it would have much impact.

Going into more detail in these areas, I have had representations to repeal section 31 of the Agricultural Tenancies Act 1995. Under the Law of Property Act 1925, there has been a statutory right for a landowner to create a tenancy on their land. They did not have to have the permission of any moneylender who had a charge over that land to do so because it was deemed important that land was kept in productive capacity and that the interests of banks and moneylenders should not be placed ahead of food production for the country. Some deft lobbying by the British Bankers Association in 1995 resulted in a change to the flagship Law of Property Act 1925, which undermined landowners’ ability to put a tenancy on their land to the extent that to create a tenancy they now need prior permission from someone with a charge on that asset if that is in the mortgage deed.

The shadow Minister referred to county farms. There has been concern about those, particularly in Herefordshire, which prompted me to set up some discussions. The Agriculture Act 1970 gives DEFRA a role to work with local authorities to help them to refine their plans and I am considering that. We cannot block them from selling those assets—they have a statutory right to do that—but we have a role to play in working with them on any plans for reorganisation of their county farms. That is why I am keen to have discussions with them about how we can try to refresh the model and make it a real option for new entrants to the industry.

I want to give my hon. Friend the Member for Wealden a chance to come back on some of these issues, but on contract farming, there are some interesting models out there that enable new entrants, who perhaps do not have a huge amount of capital behind them, to get access and set up a new business. I will give just one example of the kind of thing that we are looking at in our food and farming plan. Tulip, which is a very large pig producer that accounts for about 20% of all pig production in this country, runs a system called franchise farming, whereby it owns the units and gives access to its animal genetics. It takes care of all the marketing and gives people access to its science and veterinary expertise. But on each unit it has a franchise farmer, who basically runs the unit for a fee, for a contract per pig completed, with all sorts of performance-related pay. That is a great way to give young people who want to farm, but have no capital behind them, the first stepping stone into the industry. It is also a model that can lead to better knowledge transfer and access to technology.

My final point, therefore, is that as we think about the future of farming in this country, we perhaps need to move beyond the traditional notion of tenancies and land ownership and look at some of those other, more creative models, which may actually have far more promise for new people trying to get into the industry.