Record farmland prices – good or bad for farmers?
A SURGE in the price of farmland across Britain is not necessarily good news for farmers, according to an expert from Harper Adams University.
Latest figures from a survey conducted by The Royal Institution of Chartered Surveyors show the average price of an acre of farmland in the West Midlands reached £7,625 in the second half of 2012 – a record high.
And the survey concludes values are expected to continue to rise, especially for larger blocks of commercial farmland.
Charles Cowap, Principal Lecturer in Land Management at Harper Adams University, said while the news may be welcomed by some in the sector, for others it could pose problems.
“If you’re sitting on land which you own outright the news is probably good,” he said
“Your assets are growing in value and should enable you to access short-term and long-term finance on reasonable terms if and when you need it to support future investment – and with the short-term increase in tax allowances for new machinery this is a time to seriously consider bringing forward long-term investment plans in good kit.
“But if you’re paying rent for land which somebody else owns, the news may not be so good.
“Although farm profit is an important factor in setting rent levels, it is inevitable that an owner will have regard to the underlying value of the land asset itself – and will therefore seek a decent return on that investment when the rent comes to be reviewed.
“And of course if you are buying, quality isn’t going to come cheap. The buyers of the better blocks have been local farmers seeking further economies of scale through expansion of existing businesses.
“This is generally healthy for the future prosperity of the industry, but with the temporary rise in tax relief on new machinery purchases to £250,000 for 2013 and 2014, perhaps now is the time to focus on kit for a changing climate rather than land for farmers who still have cash to spend after last year’s harvest.”
While the increase in prices is primarily due to demand from commercial farmers looking to expand, other factors also come into play.
Mark Simcock, Principal Lecturer in the Land, Farm and Agribusiness Management Department at Harper Adams, said: “We are inevitably drawn to speculate as to the cause of these trends. “The Investment Property Databank’s Rural Property Index offers some thoughts to support a return on investment which is measured at 15.9 per cent for rural land to the end of 2011.
“It concluded that the buyers of farmland see it as a safe haven with investors looking for a less volatile option, which is something they have sought following our recent economic troubles.
“We also know we face huge challenges as a country in terms of climate change and food security. It is obvious we need to get more for less from one of our most precious assets as we are not making any more of it.
“The diverse range of uses that land is now being put to, including leisure, forestry, renewable energy sources, environmental projects, housing, redevelopment, regeneration, is also creating new markets for rural land.
“It appears that all these forces are working together to create a demand for rural land like we have not seen before.”
Harper Adams Press Office
Harper Adams University is the UK's leading specialist provider of higher education for the rural and land-based industries. Our mission is to deliver higher education and research for the delivery of a sustainable food chain and rural economy. To see how Harper Adams can help you, visit www.harper-adams.ac.uk