Financial Distress with Family Farm Transfer in Six European Countries

K.H.M. van Bommel, H.B. van der Veen, G.S. Venema

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    Abstract

    Many potential young farmers face the difficult choice between farming or a city career. An important criterion in this decision is the financial distress that goes with farming. Using data for the 1990s, the present study compared the financial distress after take-over of family farms by the next generation, in six European countries: Denmark, France, Germany, Spain, the Netherlands and the United Kingdom. The principles of inheritance and succession and the fiscally appraised value of the farm have a large impact on the transfer price, and therefore on the installation costs. A transfer price below the fiscally appraised value results in gift taxes. The financial distress ratio is a ratio of the yearly interest and rent burden of the installation costs to agricultural income. Besides the installation costs, rent prices and the average interest rate determine the differences in the ratio among countries. The combination of high transfer prices with a high interest rate, together with the lowest agricultural income of the six countries, resulted in the hardest situation for Danish successors. A policy to reduce the fiscally appraised value of the farm would most aid successors. Such a policy would reduce transfer prices and reduce or avoid gift taxes and thereby cut installation costs for successors
    Original languageEnglish
    Pages (from-to)18-23
    JournalEuroChoices
    Volume3
    Issue number2
    DOIs
    Publication statusPublished - 2004

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