New property bubble inflates with bull market for Irish agricultural land
Published 14/04/2015 | 02:30
Amidst the welcome 'positivity' in Ireland's economy, one could be forgiven for forgetting that Irish taxpayers are still carrying the greatest per capita debt burden in Europe and second highest in the world - some €57,098, per Bloomberg, for every man, woman, and child.
This legacy is the rotten fruit of a property bubble that ruined our banks, whose losses were then assumed on behalf of the nation by a craven political class convinced that these financiers were too big to fail.
We are not yet a decade past the darkest days of that financial panic. And yet another property bubble is inflating before our eyes, right here in Ireland.
Will we learn from our mistakes or repeat them?
Statistically, Irish agricultural land prices are now the highest in the world, bar none. While transaction volumes remain relatively low, the fact that the Irish agricultural land prices have tilted so out of kilter with the rest of the planet does induce a sense of what the famed baseball player Yogi Berra called "déjà vu all over again".
We are in a bull market for Irish agricultural land, and yet I suspect the thinking behind it would be more familiar to the Bull McCabe than the Bulls of Wall Street.
No one should fall into the 'this time it's different' trap. No one should spend too much time talking about circumstances 'unique to Ireland' and no one financing world record agricultural land purchases should be surprised if and when they find these assets dropping in value.
In Ireland, as in the rest of Europe, farm incomes have at least as much to do with the current state of the Common Agricultural Policy as with anything resembling a free market. Whether they are paid to farm, or not to farm, or for someone's idea of environmental stewardship, or in some cases paid for what they used to farm - whether they still do so or not -decades of subsidies from Brussels have made farmers as much wards of the State as they are stewards of the land.
Today, Irish dairy farmers are celebrating the end of EU-imposed milk quotas. And perhaps Ireland can indeed become the Saudi Arabia of European milk - a low-cost producer exporting its dairy to the rest of the world.
But historically, agriculture has been prone to booms and busts, as overproduction leads to sharp price drops, production cuts, and then the renewal of the cycle. This is not to argue against the end of government quotas on milk production - or anything else.
It is simply to say, farmers have proved better at managing the political cycle than the business cycle over the past century or so.
The close ties between politics and farming can make it difficult to determine the fundamental economic value of a tract of agricultural land.
But even through this fog of subsidy and State intervention, one thing is clear: There is almost no correlation between what a hectare of Irish agricultural land sells for and a discounted cash flow of what it can produce, either in a subsidised or non-subsidised market place.
When the day of reckoning comes, and it will, taxpayers shouldn't be interested in hearing 'but nobody told us' sob stories seeking bailouts.
I further promise to nominate for egging the first TD who, after a burst of the bubble, pronounces that 'something must be done' to help those currently fuelling this bubble.
Farms have frequently been highly leveraged operations, and with debt prices so low and land prices so high, the temptation to extract equity from the farms and invest it - whether back into the farm or elsewhere - has perhaps never been higher than now.
That is any landowner's right in a free country. But that right comes with the responsibility to absorb the consequences when the bubble inevitably bursts. As night follows day, falling land prices will be met with anguished cries that our now-underwater farmers are too important - to our economy, to our culture, to our Irish way of life - to suffer the consequences of their choices. Let us then lay down a marker in advance, and say before the bubble bursts - those who speculate on Irish farm prices do so at their own peril.
We wish them the best. But when prices do decline, let no one say that they couldn't have seen the crash coming. And next time, let us hope it is different - and the Irish people are not once again asked to pay for the mistakes of speculators and financiers who should have known better.
Declan Ganley is a businessman and political activist