Rent hikes reflect 38% of subsidy increase for farmer landlords, but just 20% for non-farmer landlords

KREI: 'Empirical evidence confirms fake self-cultivation may be widespread on land owned by non-farmers'

Farmland lease rate falls 0.38% for every 1% rise in small-farm-owned land, blocking young farmers' access

The photo is unrelated to the article. [Getty Images Bank]
The photo is unrelated to the article. [Getty Images Bank]

A new analysis suggests that a considerable number of landowners may be registering themselves as farmers to collect government subsidies, even though someone else actually works the land. The practice, known as fake self-cultivation, raises concerns that a subsidy designed to help farmers may instead be discouraging landowners from leasing out their fields, making it harder for young farmers or newcomers to secure farmland.

According to a report titled "Analysis of Supply and Demand in the Farmland Lease Market and Ways to Improve the System," released Thursday by the Korea Rural Economic Institute (KREI), the share of a subsidy increase reflected in rent was far lower for farmland owned by non-farmers than for farmland owned by farmers.

The researchers defined fake self-cultivation as cases in which a landowner does not actually farm the land but is registered as the cultivator in the farm business database. Since official records alone cannot confirm such cases, the team analyzed data from the 2018-2022 agricultural and livestock production cost survey to see how rents changed after subsidy increases.

The gap between farmer and non-farmer landlords was stark. Assuming a subsidy hike from 1 million won ($746) to 2 million won per hectare — equivalent to a 100-won increase per square meter — rent on farmer-owned land rose by about 38 won, meaning roughly 38 percent of the subsidy increase was passed on as higher rent. On non-farmer-owned land, rent rose by only about 20 won.

The researchers viewed this gap as a sign of possible fake self-cultivation. Under a legitimate lease arrangement, subsidies go to the tenant who actually farms the land, and some of that benefit can flow into higher rent. But when a landowner registers as the cultivator and collects the subsidy directly, a rise in the subsidy has little effect on rent. The team noted, however, that the gap could partly reflect non-farmer landowners simply learning about subsidy changes later than farmers do.

The data show a similar pattern in a robustness check. Farmer landlords saw rent increase by 36.06 won per square meter after the subsidy hike, with about 36 percent of the increase reflected in rent, while non-farmer landlords saw a rise of only 18.72 won per square meter, or about 19 percent. In the robustness analysis, the figures were 38.42 won per square meter, or about 38 percent, for farmer landlords, versus 20.17 won per square meter, or about 20 percent, for non-farmer landlords.

The report also found that a subsidy for small farms has contributed to a decline in farmland leasing. The nationwide farmland lease rate fell from 37.6 percent in 2005 to 37.1 percent in 2015 and 33.6 percent in 2020. Over the same period, the share of farmland owned by small farms rose from 5.7 percent in 2010 to 7.0 percent in 2015 and 9.0 percent in 2020.

The analysis found that in 2020 in particular, every 1 percent increase in land owned by small farms corresponded to a 0.38 percent drop in the farmland lease rate. The researchers said the small-farm subsidy introduced in 2020 may have strengthened landowners' incentive to remain registered as direct cultivators to keep receiving the subsidy, rather than leasing out their land.

This trend puts young and new farmers, who typically must lease land rather than buy it, at a disadvantage. The problem is especially acute near cities where land prices are high, as a shrinking pool of leasable farmland makes it harder to start farming or expand operations. The researchers said benefits such as the subsidy and capital gains tax exemptions for eight years of self-cultivation can encourage landowners to farm the land themselves — or fake doing so — making it more difficult for actual farmers to access land.

Chae Gwang-seok, a research fellow at KREI, proposed allowing elderly farmers to receive part of the subsidy if they lease their land long-term to the Farmland Bank, or expanding farmland pension benefits. The goal, he said, is to create incentives for landowners to legally lease out their land rather than nominally farming it just to collect subsidies. He also said verification of actual cultivators should be strengthened by linking farmland registries, the integrated subsidy management system and farm business registration data.

"The fact that the effect of subsidies on rent is so weak for non-farmer-owned land supports the reality that fake self-cultivation is widespread in the agricultural sector," Chae said in the report, adding that oversight should be tightened, including clawing back subsidies when fake self-cultivation is confirmed.


adastra@heraldcorp.com