There was a 10% increase in land price values in 2023 according to the latest Agricultural Land Barometer from estate agent, Sherry Fitzgerald.
After a strong first half of the year with land values rising by a significant 7.2%, the second half of 2023 saw the pace of growth falling to a more moderate 2.6%.
This brings the increase for 2023 as a whole to 10%, marginally lower than the 11.5% growth recorded in the previous year.
As such, the weighted average price of an acre of farmland in Ireland, excluding Dublin, stood at approximately €11,929 at the end of 2023.
In terms of location, the midlands experienced the highest growth over the year, followed by the west and border regions.
Economic context
2023 saw the European Central Bank (ECB) continue its policy of raising key lending rates to control inflation in the euro area which remained well above the target 2% rate for much of the year.
According to Sherry Fitzgerald, the most recent increase was in September, bringing the main refinancing rate to 4.5%.
As a result, euro area inflation declined significantly from the double digits recorded towards the end of 2022 to reach 2.6% in February 2024.
Given that inflation is now close to the target rate and the elevated interest rates are impeding economic activity, it is expected that the ECB will begin to cut interest rates in the year ahead with the first cut anticipated mid-year.
The annual rate of inflation in the Irish economy, as measured by the Consumer Price Index (CPI) also moderated during 2023 and into the opening months of 2024 to reach 3.4% in February.
Sherry Fitzgerald has explained that the pace of economic growth in the Irish economy was also impacted by the high interest rate environment as well as reduced global demand with net exports contracting by 17.6% during the year.
As a result, real gross dometic product (GDP) decreased by 3.2% in 2023 following growth of 9.4% in 2022.
Modified Domestic Demand (MDD), which is considered a more reliable measure of economic activity in Ireland because it strips out activities of outward facing multinationals that have little impact on the domestic economy, increased by a modest 0.5% in 2023, according to Sherry Fitzgerald.
This reflected 3.1% growth in consumer expenditure, buoyed by the continued strength of employment.
Latest figures from the Labour Force Survey reveal that the total number of people in employment continued to rise throughout 2023 to reach 2.7 million in quarter four, representing an increase of 3.4% on the same period the previous year.
Subsequently, the unemployment rate remained very close to the full employment level, with the seasonally adjusted rate standing at 4.2% in February 2024.
Agricultural prices
Agricultural output prices fell by 8.2% in 2023. The most significant reductions were seen in milk prices which decreased by 27.5% compared to 2022, while sheep prices fell by 1.7% during the year.
In contrast, both pig and potato prices increased by 19.1% in 2023 while egg prices increased by 15.1% and cattle prices were up by 3.4%.
Input prices also fell during the year with the Central Statistics Office (CSO) Agricultural Input Price Index recording a decrease of 5.5% compared to 2022.
This decrease reflected a significant 31% reduction in annual fertiliser prices compared to 2022, while energy prices were down by 3.5%.
Increases over the year were seen in plant protection products (+8.8%), seeds (+7%) and veterinary expenses (+6.1%).
Looking forward, the Economic and Social Research Institute (ESRI) forecast that real GDP will return to a positive rate of growth in 2024 to reach 2.3%, while MDD is predicted to expand by 2%.
Labour market conditions are expected to remain tight with unemployment estimated to average 4.3% for the year.
Land price values
Associate director at Sherry Fitzgerald, Philip Guckian told Agriland: “Following a tentative start to the year, demand for agricultural land picked up considerably during the second quarter of 2023 with equally strong growth in land values.
“The pace of growth tapered off towards the latter half of the year however as factors such as reduced dairy prices and poor weather conditions impacted farmers’ incomes, while higher interest rates also dampened performance.
“That said, demand remained robust across all sectors of the market, buoyed by the need for dairy farmers to increase landholdings to meet the new nitrates limitations.
“The opening months of 2024 have shown signs of cautious optimism in the [agricultural] land market, and while demand is expected to remain strong, there are a number of factors that could impact land values in the months ahead,” he added.
Stay tuned to Agriland for more on land prices in 2024 as we sit down with Sherry Fitzgerald on the latest episode of the AgriFocus podcast to discuss all things agricultural property.