Dag Magnusson reflects

This year marks 35 years since the market for agricultural and forestry properties was completely liberalized. Price testing ceased in 1988 and acquisition permits for natural persons ceased at the end of 1990. Acquisition legislation was introduced after the Second World War and was significantly tightened with the price testing in 1979. The legislation had its basis, and alleged legitimacy, in the fact that agricultural prices were regulated and were established in negotiations between the state and agricultural stakeholders. Timber prices were free, but forest properties nevertheless came under the scope of the Price Testing Act.

When I took over Skånegårdar in 1981, the laws were applied with great frenzy by the Agricultural Boards, which were linked to the County Administrative Boards. There, agronomists and land managers sat as state officials, checking each purchase and assessing whether the buyer had relevant education, whether the property should perhaps be sold to a neighbor for rationalization purposes or whether the price was within the framework of the standards set by the state for so-called “return value”. We market players had to find ourselves in several personal meetings with the Agricultural Boards, where the buyer and the broker would submissively try to influence the decision-makers to grant permits. It was humiliating and it was above all the members of the Center Party and the Social Democrats who pushed through rejections in doubtful cases.

We at Skånegårdar campaigned against the regulations and appealed the rejections to higher authorities. The state price assessment standards were a Constitution and we learned it and were able to question the officials' calculation methods with both agrarian and economic skills and managed to win several cases in higher authorities. An official in the Agricultural Board in Malmö even dared to ask me why I, who was so financially knowledgeable, could choose a simple brokerage profession!

At the turn of 1990/91, the permit review ended and the market became free. The free market has shown its power by the fact that rationalization in agriculture and forestry took off very quickly and has never been as fast and successful as after 1990. The bureaucrats at the County Administrative Boards were given other tasks but certainly had a languishing existence until we became members of the EU and new support systems required administrators and supervision. However, I have often thought about how these officials experienced their situation after the review ended when they could see that the market was working and that after the sales the farms ended up with more suitable users than those who were favored by the Agricultural Board for primarily land consolidation reasons. I would now like to ask them, if any of these price-reviewing officials are still alive, why, with such excellent educations, they could choose such simple and unnecessary careers as civil servants?

INTEREST RATE AND THE RIKSBANK

We in the brokerage industry are at the forefront of market reality and many of us have developed truthful emotional indicators. This also allows us to assess how the market reacts to the Riksbank's interest rate changes. For example, the Riksbank raised the policy rate in the summer of 2008 just before the great crisis in October of that year and the interest rate was lowered in the spring of 2015 when we noted that the market was functioning well, on the verge of being overheated. After the inflation shock in 2022, the interest rate was raised drastically and the cuts have been delayed and come later than necessary. Growth has been negative, households are cautious and unemployment is high. Normally, the current interest rate would not be restrictive but, from a historical perspective, even comfortable.

However, by maintaining a negative policy rate for a number of years, the Riksbank has inflated the values ​​of real assets/real estate to staggering values. A more moderate interest rate policy where lending rates were one or two percent above inflation, i.e. between two and three percent instead of the previous lending rate of 1-1,5 percent that prevailed in 2015-2021, would have held back the sharp increases in properties so that property values ​​would have peaked at 2/3 of the values ​​that prevailed in early 2022.

As Governor of the Riksbank, not seeing this development, or considering that it is not the Riksbank's task to take this into account, is exposing the banking system to an enormous risk. If property values ​​had been about 30 percent lower, the debts of those who have expanded in recent years would perhaps have been just over half of what they are today, and then with an interest rate of three to four percent we would have been able to have a balanced economy.

One of the great economists in Lund was Professor Knut Wicksell, who at the beginning of the 1900th century launched the idea of ​​the “natural interest rate”. We have the nominal interest rate that a borrower pays to the lender, the real interest rate which is the difference between the nominal interest rate and inflation, the policy rate or repo rate that the Riksbank sets and the natural interest rate which is the real interest rate that prevails if resource utilization in the economy is normal and is expected to continue to be normal in the future. During the aforementioned years 2015 to 2021, we had a negative real interest rate or a real interest rate that was zero. It has upset the balance in the property economy!

What then is normal resource utilization in the economy? It is the interaction between labor, capital and natural resources that together create the Gross National Product. The aim is to have a steady economic cycle at all times, and this should probably correspond to a GDP increase of 1,5 to three percent per year, whereby the real interest rate would be the same?

The forecast at the beginning of the year was that interest rates would be gradually lowered during the current year, but then Trump came to power and created imbalances in the economy that rather led to the risk of higher interest rates. Now we are waiting to see what will happen with the tariffs shortly after the end of the year, and this means that growth and investments are slowing down while we wait to see how things turn out. Unemployment is high and I believe that interest rates will be lowered to boost investments and the economy. The krona has strengthened by almost 10 percent since the beginning of the year. My assessment is that by the end of the year we will have a market interest rate of 2,75 to three percent, i.e. a fairly comfortable level.

EU FORESTRY DIRECTIVE

The forest has taken centre stage in the climate debate, among other things, and many are calling for regulations and stricter requirements. The EU's forest directive has been drawn up and pushed through by central European politicians with no knowledge of the forest conditions in Sweden, Norway and Finland. Austria was on the same side as us in the debate, but an EU parliamentarian betrayed them and voted for the anti-production line. However, it will be some time before the new rules can be implemented. They can be briefly summarised as follows:

» All old-growth forests should be saved for free development. However, the definition is unclear.

» Hygge-free methods should be highlighted as the forestry of the future.

» Clear-cutting should be avoided.

» Soil compaction and thus unsuitable machinery should be avoided.

» A compensation system is being developed to compensate landowners for ecosystem services. Landowners will also receive compensation for giving up use of their land or for restoring the forest.

The Swedish forestry industry has been strongly critical of the directives, as have many countries with active production agriculture. The recently presented interim report from the Swedish Forestry Commission testifies to a sobering-up in the view of Swedish forestry. The commission was appointed by the Government and with the current majority in the Riksdag, many proposals can probably be implemented. However, there is a great risk that when the government changes in 2026, we will see new proposals for stricter regulations and restrictions on how forestry should be conducted. It feels like environmental activists and the left will emerge victorious in the long term.

The investigator proposes simplifications in logging notifications, that they should be approved more quickly and that they should not be subject to appeal by, for example, the Swedish Society for Nature Conservation or independent environmental activists. Furthermore, the landowner should receive compensation if logging is stopped and that compensation should be paid with a mark-up of 25 percent of the market value. That sounds good, but let's look at the long-term consequences of this.

Forest production would likely be reduced to the detriment of the sawmill and paper industries. This may lead to higher settlement prices for forest owners in the short term, but in the long term it impoverishes the forest industry and the investment incentives to develop the industry and productivity to the detriment of forest owners.

The market value of the forest should correspond to what it is worth when the land is sold, but currently timber prices are so high that felling in principle yields the same net income as mature forest. Since this is the case, compensation should also be received for the loss of future income on the land.

A forest owner is denied a felling of, say, 10 ha and 4 m³sk and receives compensation of SEK 000 million + 3,2 percent, i.e. SEK 25 million. The affected party can choose between putting it in the Compensation Fund or taxing it. Since there was a desire for felling, the person concerned may choose to tax it or to cover interest over a longer period via forest account deposits.

“Future generations will be the losers”

After 10 years, the income is used up and the 10 hectares are no longer productive for the owner. Future generations miss out on the growth and in 60 years that area will still be worthless, unlike if it had been replanted after the originally planned felling. It would then have been worth at least SEK 3,2 million in today's money. The compensation is paid at the value of the forest + 25 percent, but not for future growth. Future generations will be the losers and the value of the unproductive land will not increase.

If the forest owner chooses to acquire replacement forest, and this becomes a general trend, demand will increase and drive up land and forest prices. Furthermore, there may be a question of long distances and thus reduced rationality based on the same arguments that underlie today's requirement to obtain rationalization certificates.

Overall, I believe that the compensation to the forest owner should be paid in an amount that coincides with the net felling of the forest + 25 percent and thereafter with an annual amount that amounts to the growth in m³sk. x an average net over time, currently around 500 SEK. That would give between 3 SEK and 000 SEK per hectare and year, depending on the quality.

WEATHER

On November 14, 1854, in the midst of the Crimean War, the Black Sea was hit by a terrible storm that more or less wiped out the British and French fleets. A few days later, people heard that there had been a similar storm in the Mediterranean and began to wonder if it could have been the same storm. This sparked the idea of ​​collecting data on the weather in different parts of the world and compiling forecasts based on winds, air pressure, etc. The collection was possible when the telegraph system began to be expanded over large distances. The center for the collection became London and soon after, newspapers around the world began to publish weather maps for the following day. Meteorology was born and the methods were refined and eventually computers were used to make forecasts.

However, there are no reliable forecasts due to the complexity and constant variability of the weather. The number of factors that govern is too many and their mutual strengths too unknown. We have to live with this and it creates uncertainty in agriculture and shipping in particular. Every actor must therefore consider risks and probabilities before making various decisions. We cannot adapt to certain forecasts in the short term, such as storms and hurricanes or heavy rains, drought periods, etc. However, we can adapt in the long term, for example in forestry, by planting less storm-sensitive trees or creating mixed forests with greater resistance to insect pests, drought, etc. In agriculture, we can invest resources in both diverting water and collecting it in irrigation dams. Thus, through wise investments, we can reduce the effects of the unpredictable ravages of the weather and, in relation to the great values ​​of arable and forest land and today's technology, the preventive measures investments may appear to be quite modest.

My advice to landowners is to start thinking about what measures can be taken on their own farm!

GEOPOLITICS

The first time I heard of “political or geopolitical risks” was in the late 1970s when I worked at the International Chamber of Commerce (ICC) in Paris. The concept was not new, but I had not come across it during my studies in Lund. It was an important analytical tool for avoiding investments in unstable countries where there was a risk of nationalization, political corruption or state overthrow. At that time, most of Eastern Europe appeared to be risky, as did parts of Latin America including Cuba and other countries.

Today, these risks have come closer to us and ordinary people need to take a stand on them. The war in Ukraine affects us to a great extent regarding grain and timber prices, energy prices, etc.

Some time ago we had a dairy farm on Gotland for sale and in a conversation with a Dutch dairy farmer I mentioned this and suggested that the family should go and look at it. No, the Dutchman said straight away; it is too close to Russia for us to put all our savings there. Suddenly Skånegårdar found itself in a geopolitical reality that I had not foreseen, but which prompts the need for an open attitude to events even in our vicinity.

The sharp increases in timber prices are a direct result of the Ukraine war and the halted imports of timber from Russia. This despite the fact that the construction market in Sweden has largely collapsed, which should have led to lower timber prices. As Ukraine is rebuilt, there will be a major timber shortage and likely even higher timber prices.

The volatile grain prices are also a result of the uncertainty in grain transport from Ukraine and it is difficult to assess how prices should be hedged, etc.

Lund in June 2025

Day Magnusson

Chairman of the Board, Master of Business Administration, reg. broker