Farmers should not have to pay capital gains tax when they sell farmland if they use the proceeds to buy more farmland, the Irish Farmers' Association has said.

The IFA president, Mr John Dillon, said in a pre-Budget submission that such a measure was required to encourage farmers to consolidate their holdings.

This was a "national imperative" because farm fragmentation increased costs and inefficiencies in farming, he said.

"Almost 30 per cent of Irish farms are in four or more separate parcels of land. Just 28 per cent of holdings are in a single parcel of land," he said.

The association said capital gains tax should not apply when the proceeds of a land disposal are invested in full into an approved retirement fund.

The IFA also said the low level of retirement provision in farming was a serious barrier to structural reform in the industry.

The association said reliefs from stamp duty on the purchase by farmland should be extended to all farmers below the age of 55. Stamp Duty should not apply to land swap arrangements, where a portion of land is exchanged in consideration for another portion. Mr Dillon led a delegation from the IFA at a meeting yesterday with the new Minister for Finance, Mr Cowen.

He said farmers were faced with expenditure of up to €1 billion to meet the obligations set out in the EU Nitrates Directive. While farmers will soon be required under the Nitrates Action Programme to increase animal manure storage on farms, Mr Dillon called for a "once-off" increase in farm grant support for environmental investment.