TED, who you will remember has retired, loves to be the bearer of bad news to his farming son, Harry.

This bad news involves a near neighbour who has been put in hospital and is unable to finish his crop program.

All the neighbours will rally round and help do some of the spraying and sowing but there will still be about 480ha in two blocks left over and the word is they will be leased.

What Ted sees as bad news Harry sees as a possible opportunity. But he is mindful that the price may be out of his reach as many people have been leasing at rates which Harry sees as far too high to lease land.

In discussing the possibility of leasing with his wife, Sally, he decides to do some serious sums. They both agree that the current trend of calculating the possible lease payment as a percentage of land value is a nonsense.

It may make sense in the short term for the landowner or lessor but makes no sense for the lessee. If there was a direct correlation between the price of land and its earning capacity then some standard lease on a percentage may be justified.

However, land in Victoria's Western District with a price tag of $6000/ha and land in the Wimmera with a price tag of $2880/ha are both being leased at 5 per cent of value.

The Western District land is unlikely to produce double the crop of the Wimmera.

The reality is that leasing at 5 per cent of land value over a range of seasons and crops the lessee won't make money and could record a serious loss.

In some years it may be profitable but at a high level of risk.

Moreover, the lessee may try to push production too hard and there is a danger the land will be overworked.

Then nobody wins.

A more intelligent method is to come to an agreement which ensures that neither lessor nor lessee will lose money over time.

Harry has a further consideration.

The greater part of the farm is still owned by Ted and is leased at a "family" rate.

If Ted becomes aware that Harry is paying a higher price on the open market than he (Ted) is receiving, there will be serious tensions.

Before doing his sums, Harry will inspect the blocks and estimate the percentage of unproductive land.

This is a combination of swamp, stone, timber and laneways.

He will then divide the remaining land into "land classes" and estimate yield and/or stocking rate on a class basis.

With this accurate estimate of the productive capacity of the land, Harry can apply his own cost of production and calculate the amount he is prepared to pay.

He will be sure that he can make a profit or he won't bid.

The last time he did his sums, 5 per cent would have cost him over $240/ha but he leased the block for $173/ha.

But don't tell Ted.