OF AGRICULTURAL PROPERTIES – INTERNATIONAL NOTE
In many regions of the
world, lands devoted to the production of agricultural commodities are
the major economic asset and, frequently, the sole economic base of a
Lands devoted to
agricultural use are thus a principal subject of valuation services for
a multitude of reasons including private and public transfer of
ownership, taxation, determination of collateral for financing, and
economic, land-use, and investment studies. Reliable valuations of
agricultural lands are essential to ensure the availability of capital
necessary to support the continuity of the economic base, to promote
the productive use of the land, to maintain the confidence of capital
markets, and to meet the needs for general financial reporting.
Providing reliable and
accurate valuation service for agricultural properties requires that
the Valuer have a sound knowledge and understanding of the physical and
economic elements that affect the productive capacity of agricultural
lands and the value of the commodities produced thereon.
The physical and economic
characteristics of agricultural lands differ from those of
non-agricultural or urban environments in degree of importance.
Soils in an urban
environment must be suitable for bearing the improvements that stand
upon them. In agricultural properties, the soil is the principal agent
in production, varying in its capacity to support a given amount of a
particularcommodity or class of commodities.
for some agricultural properties, the same use may extend over a long
duration (e.g., forests harvested after 25 years), for others, the
economic benefits can vary from year to year, depending on the
commodities the property is capable of producing.
In urban environments, the
economic use of a property and/or the amenities it provides may remain
unchanged over a period of years and may even be guaranteed by
The income stream
associated with agricultural property will vary from year to year,
depending on the type of agriculture for which it is used, the
commodities produced, and the cyclical nature of the commodity markets.
and pastoral productivity relies on a critical relationship between
soils, climate, water, management and commodity options. The
valuation on of agricultural and pastoral lands demands an
understanding of the interrelationships between these critical
This GN encompasses;
Those characteristics of value associated with agricultural
2.1.2 The basic
requirements of the Valuation Standards and Applications as they apply
to the valuation of agricultural properties.
agricultural uses of properties may be classified in several broad
groups, definitions of which follow.
Crop(ping) Farms. Agricultural properties used for growing
commodities that are typically planted and harvested within a
used for annual crop production may grow more than one type of annual
crop over the same period and may or may not make use of irrigation
to produce the crops. Some commodities are annual crops that
may be left in the ground beyond a twelve-month cycle, per contract
provisions or in circumstances where market conditions are
unfavorable. These crops will last for more than one year after
harvest but are considered
less than permanent. Also see irrigated land, perennial plantings.
3.2 Irrigated Land.
Lands used to produce crops or forage for livestock and which require
the application of water other than that from natural rainfall, are
called irrigated crop(ping) farms or irrigated grazing
land. Properties that lack a water source other than natural
rainfall are referred to as dry land agricultural properties.
Perennial Plantings. Crops grown from plantings that have a
life extending beyond one year or onecrop cycle. Examples are
vineyards and orchards.
types of properties can have significant capital investment in the
plantings, which represent a depreciable asset. Also see
Livestock Facilities. See dairy farms, livestock
Livestock Ranches/Stations. Agricultural properties used to
raise and feed animals such as cattle, sheep, pigs, goats, horses, or
actual use of these properties can take many forms.The animals may be
bred, raised, and sold within the operation of the property. Young
animals may be acquired from outside the property and then raised
within the property. The animals may be raised for consumptive use or
for breeding stock.
for the animals may be produced on the property, imported, or
supplied by both sources.
used for the production and feeding of livestock have significant
capital investment in the structural improvements (pens, livestock
shelters, sheds, division fencing) and the livestock, which may or
may not be depreciable depending on the laws and regulations of the
Dairy Farms. Agricultural properties used for the production
of milk from cows or for other dairy products. These properties
usually have extensive structural improvements (barns, milking
parlours, silos) and equipment (feed bins, milking machines). Feed
may be produced on the property,
imported, or supplied by both sources.
Agricultural property used for the growing of non-orchard trees that
are periodically harvested over extended growing periods (10 to 20 or
more years). Considered to be agricultural properties because they
produce a crop, i.e. wood, even though that crop requires a
long-term growing period. Also see perennial plantings.
Specialised, or Special Purpose Properties.
properties that do not typically produce a crop but are used for the
handling, processing, or storage of crops following harvest.
properties frequently have a small land base that is extensively
developed with structural improvements (grain elevators) and
equipment (lifting machinery). Properties may also be classified as
special purpose by the nature of the commodity produced.
Examples are truck farms, poultry farms, farms that produce certified
crop seeds or fresh cut flowers, and racehorse breeding or training
Activity. Management by an entity of the biological transformation
of biological assets for sale, into agricultural produce, or into
additional biological assets (see International Accounting Standard 41
[IAS 41], Agriculture., para. 5).
3.10 Biological Asset.
A living animal or plant (IAS 41, para. 5).
3.11 Integrated Unit.
An agricultural entity that has common ownership of all or part of the
processes involving the production and marketing of its products and/or
Relationship to Accounting Standards
International Accounting Standards 16 (Property, Plant and
Equipment), 40 (Investment Property), and 41(Agriculture) apply to
the valuation of agricultural property. An entity follows IAS 16 or
IAS 40, depending on which standard is appropriate in the
circumstances. IAS 16 requires that land be measured either at its
cost less any accumulated depreciation and accumulated impairment
losses or at a revalued amount. IAS 40 requires land that is
investment property to be measured at its fair value, or cost less
any accumulated depreciation and accumulated impairment losses. IAS
41, which establishes no new principles for land related to
agricultural activity, requires that biological assets physically
attached to land (e.g., trees in a plantation forest) be measured at
their fair value less estimated point-of-sale costs, separately from
IAS 41 acknowledges that there may be no separate market for
biological assets attached to the land but that an active market may
exist for the combined assets, i.e., the biological assets, raw land,
and land improvements, as a package. An entity may, therefore, use
information regarding the combined assets to determine fair value for
the biological assets. The fair value of raw land and land
improvements may be deducted from the fair value of the combined
assets to arrive at the fair value of the biological assets (see IAS
41, para. 25.)
41 also gives guidance on how to determine fair value for a
biological asset or agricultural produce where an active market
exists as well as in the absence of an active market.
Agricultural property assets can be classified as:
Plant and machinery
(attached to the land)
Plant and machinery
(not attached to the land)
(attached to the land)
(not attached to the land)
Fair Value/Market Value of biological assets is the
contributory, or added, value they give to the land. IAS 41 requires
that biological assets be measured upon initial recognition and at
each balance sheet date.
IAS 16 recommends frequent revaluations, stating that every three to
five years may be sufficient.
40 requires revaluation on an annual basis.
Diverse forms of commodity production and methods of operation are
characteristic of agricultural properties. These properties may also
represent various combinations of land, buildings, equipment, and
crop plantings. Generally accepted valuation principles (GAVP) are as
applicable to agricultural properties as they are to the valuation of
other forms of real property.
The Valuer must have competence in valuing the various assets
that comprise the property (see IVS Code of Conduct, section 5,
Market Value must be recognised as the fundamental basis of
valuation (IVS 1).
The Valuer shall arrive at the Market Value for the
agricultural property, ensuring that the valuation is market-derived.
For financial reporting, the Valuer shall apportion the Market
Value in accordance with the requirements of the IAS. For
guidance, the reader
referred to IVA 1.
Where other bases of valuation are used, they must be distinguished
from the Market Value basis.
5.3.1 When estimating
values other than Market Value as required for financial
reporting, depreciation schedules, or tax purposes, the Valuer must
ensure that the distinction is clearly defined and noted.
When the valuation is made of an agricultural property that may
include non-realty elements such as livestock, stored crops,
and equipment, the Valuer needs to understand when a crop or other
commodity is real property and when it may become personal property.
Timber for example, is part of the real property while growing but
becomes personal property when it is removed from the land.
The Valuer must understand the unique nature of agricultural
productive factors, commodity markets, production practices, and
cycles in the market region.
In the valuation of agricultural properties, the physical and
environmental aspects of the property assume special importance.
These include features such as climate, soil types and their
productive capability, the availability or absence of water for
irrigation, and the feeding/carrying capacity for livestock. External
factors to be considered include the availability and adequacy of
support facilities required for storage, processing, and
relative importance of these factors will vary depending upon the
type of agriculture for which the property is suited or used. The
Valuer needs to
consider both internal and external factors in making a determination
of which class of agriculture use the property is best suited for.
In keeping with the definition of Market Value, a highest
and best use analysis of the property should always be conducted
in order 1) to warrant that an agricultural use is to be continued,
especially when it appears that another land use, e.g., subdivision
development occasioned by encroaching urban/suburban expansion, might
be more appropriate, and 2) to determine whether the specific
agricultural use is to be continued.
Where the Valuer is specifically instructed to ignore uses other
than the current agricultural use, the resulting valuation will not
necessarily indicate the Market Value of the property, and
this should be fully disclosed.
The estimate of stabilised income to the agricultural property must
be based on the crop patterns and cycles in the market area.
The cash flow to agricultural properties is a function of both
the production cycle followed on the property and cyclical forces
such as commodity markets. The Valuer should understand the impact of
these cycles on cash flows. The valuation of the property must be
based on the stabilised pattern of income that is consistent with the
commonly practiced in the region in which the property is located.
The Valuer of agricultural property that has more than one physical
component or class of agricultural use must clearly state whether the
value of each component or use is its value contribution as part of
the whole property or its value as a separate, free-standing
The various components of a whole property may have value as
separate parts which is greater or lesser than their value as part of
Valuer must determine whether each component is to be valued
individually or as part of the whole property.
Agricultural properties may be managed to simultaneously produce
more than one class of commodity based on different physical
the property or on management decisions.
the valuation of agricultural properties on which crops of more than
one agricultural classification are cultivated and harvested at
different times, the value of each agricultural classification must
be based on its contribution to total property value and not its
The agricultural use of the property may require extensive
building improvements, e.g., barns, silos, dairy machinery. Such
improvements, while requisite to the proper operation of the
property, are frequently secondary to the principal land asset.
value must be based on their contribution to the total value of the
property regardless of their cost or other measure.
Typically, such improvements have a value-in-use, i.e., their
contributory value to the enterprise/entity.
those occasions where an allocation of value between the assets may
be required, such an allocation is not to be taken as an indication
of the individual value of the improvements as separate assets.
5.8 The requirements
for valuation reports are addressed in the IVS Code of Conduct and IVS
This International Valuation Guidance note became effective 30 April