De Jager said farmer protests in Europe last year and now in the UK were symptomatic of the unfriendly policy environment in which farmers in most countries found themselves entangled in.
“Farmers in these countries are realising that low food and commodity prices, proposed environmental regulations such as carbon taxes, restrictions on land and water usage, restrictions on the use of certain chemicals, and taxes will financially ruin them and negatively impact food security,” De Jager said.
In the UK, farmer strikes started in November and recently resulted in hundreds of farmers gathering at Westminster, London, to protest Labour’s proposed changes to inheritance tax for agricultural businesses.
Up until now farm owners have been able to use a combination of the Agricultural Property Relief and Business Property Relief policies to pass on their farmland and associated business assets tax-free, but under new plans announced in the budget, these reliefs will be capped at £1 million (about R23 million).
According to a statement by the National Farmers’ Union in the UK, their government claimed that only 27% of farmers in the region would be impacted by the tax. Calculations by the union, however, found that closer to 75% of commercial family farms would be above the £1 million threshold.
Put simply, the union said that most farms did not earn enough money to pay the potential inheritance tax without selling off some of their land or business, which would render these businesses unviable.
“Considering typical historic returns on an average cereals farm and factoring in the reduction in direct payments, a farm making a profit of £34 000 (R780 000) will be hit with 10 annual inheritance instalments of £53 000 (R1,2 million), which is over 1,5 times its profits,” the union said.
De Jager said inheritance and property gains tax were already having a similar impact on farmers in South Africa.
“Inheritance and property gains taxes are like another nail in the coffin of family farms, by making the transference of a farm to a next generation increasingly expensive and difficult. Simultaneously it is benefitting large corporates.”
He said these types of taxes also undermined investments and innovation in the sector at a time when it was most needed.
“The value of agricultural land can be substantially increased, over a short time, through investments in technology and infrastructure, which means that farmers would rather refrain from making these out of fear that they will drive up the value of the land. High taxes also mean that farmers will have less money available to invest in key inputs, such as labour and fertiliser.”
He said that the situation was resulting in a trend where more and more farmers were rather renting than buying more land. This trend is especially evident with South African and Zimbabwean farmers, who were acquiring long-term leases to farm in other African countries.
De Jager said governments would need to find an alternative way to calculate capital gains when it came to farmland, as the traditional way was detrimental to the industry.
“Governments need to find ways to create an agriculture-friendly environment to improve production efficiencies and food security. These new taxes and green policies, however, are creating additional barriers that could undermine food security.”
